While the new rules might eliminate some small-dollar loan programs offered by credit unions, a carefully designed product could still be in full compliance, according to Kevin Foster-Keddie, president/CEO of the $2.5 billion Washington State Employees Federal Credit Union in Olympia, Wash.

"We believe it is a huge marketplace," Foster-Keddie, who also serves as chair of the CFPB Credit Union Advisory Council, said. "We think it is a good opportunity for credit unions." Foster-Keddie's credit union developed its own payday alternative called QCash. It has since been spun off into a separate company and is now being sold to other credit unions. Foster-Keddie is the company's chairman.

He estimated some 70% of payday lenders will be put out of business.

"Our product can make money outside the CFPB rule," he added.

Some credit unions are offering short-term loans to their members at lower interest rates, but some industry leaders are worried the CFPB rules will be onerous enough to lock them out of the market.

"If they're proposing something that will cost us too much, then we're going to stop offering the product," Hubbard said. "It's as simple as that."

Last month, the CFPB reported half of online payday loan borrowers received an average of $185 in bank penalties because at least one debit attempt failed.

In response to the CFPB's report, CUNA President/CEO Jim Nussle said credit unions must be able to offer alternatives to members.

"It is essential that CFPB rulemakings do not stand in the way of credit unions' ability to continue to offer the diverse products and services that consumers want and need such as free checking accounts, so that consumers can turn to their local credit union – not predatory lenders – during times of distress," Nussle said.

Credit unions have asked to be exempted from the CFPB's payday loan rules, which has led to some hard feelings at the agency, according to Foster-Keddie.

Following last month's CFPB payday lending report, NAFCU President/CEO Dan Berger said CFPB Director Richard Cordray has acknowledged that credit unions offer effective payday alternatives. Berger called for credit unions to be exempted from the new rules and said he hopes credit unions are not lumped together with bad actors.

The CFPB doesn't like that type of pressure, Foster-Keddie said.

"It doesn't make the CFPB happy," Foster-Keddie said. "They do not like that credit unions are causing political problems for them."

Advocates for strict rules said they oppose a credit union exemption.

"There's a wide range of products that credit unions offer," Rebecca Borne, senior policy counsel at the Center for Responsible Lending, said.

Borne added fees attached to such loans may drive up their cost even more if the interest rate appears to be reasonable.

"They may end up looking like payday loans," she said.

The payday lending industry itself has appealed to Congress to pass legislation that would delay the CFPB's rules, but those bills have not yet moved out of House committees.

"The industry is not particularly happy about how things are going," said Jer Ayles-Ayler, who operates Trihouse Consulting, a Newport Beach, Calif.-based payday loan consulting group. "The industry has been evolving for quite some time."

And while the short-term loan industry has been unsuccessful so far in moving the CFPB, credit unions have had some success in convincing the bureau to modify short-term loan rules. Last year, NCUA Chairman Debbie Matz warned that rules issued by the Department of Defense and CFPB governing small dollar loans to military members would lock out credit unions. The rules were later modified.

Meanwhile, the credit union industry has been attempting to offer alternatives. In 2010, the NCUA established a special exemption to the 18% federal usury ceiling to allow credit unions to offer a viable alternative to payday loans.

Last year, about 500 federal credit unions were offering payday alternative loans (PALs) developed by the NCUA. The NCUA reported at the time the average loan balance stood at $382 and that about $37 million in loans was outstanding. That represented a 36% year over year increase.

Under the NCUA's PAL rules, the maximum permissible interest rate is 28%. The largest loan is $1,000 at a one- to six-month maturity timeframe. The application fee is $20, an amount regulators said was enough for a credit union to recoup processing fees.

In a report on payday lending, Pew said it doubted enough revenue would be generated from these loans. As a result, only a small number of credit unions became likely to offer them.

WSECU developed its alternative to payday loans several years ago after executives realized how much money was leaving the financial institution to payday lenders. At that point, they decided to develop their own product and tried to convince payday lenders to form partnerships with the credit union. The lenders declined.

So, the credit union developed what has since become known as QCash. Under the program, a credit union member can apply for a loan, receive a response and see the funds deposited in their account in about one minute.

This model has been statistically tested over the past 10 years, allows credit unions flexibility in pricing and requires no additional IT support from the credit union. The loans do not require a credit check; instead, approval is based on the member's experience at the credit union and behavioral metrics.

One Detroit offers a program called MyPay Today, in which members can borrow $500 at 18% APR and repay the loan in 60 days.

"There's very little underwriting," Hubbard said. "It's a good product. It would be a shame if we had to stop offering it."

Still, some are skeptical that any lending program will comply with the CFPB rules.

"Ever since the Dodd-Frank Act was passed in 2010, I have advised my client credit unions not to start new payday loan-like alternative programs since all that they will get is criticized for doing it," Marvin Umholtz, president/CEO of Umholtz Strategic Planning & Consulting Services in Olympia, Wash., said. "The handful of credit unions with which I have worked that offered members payday loan-like alternatives were simply trying to meet members' needs and break even while offering the product."