To help struggling members out of the cycle of debt while also lending sustainably, we developed a Payday Payoff Loan that allowed people to consolidate all of their payday, auto title, and other high-interest credit into one lower-rate loan repaid in installments over more time. Payments are set at an affordable 5% of each paycheck and reported to credit bureaus, so borrowers can improve their credit scores and qualify for other products.

Borrowing $500 for six months from payday lenders in California would cost a consumer around $900 in fees, but this loan costs that same borrower about 12 times less. We have issued more than 12,000 of these loans in the Los Angeles area, saving households millions of dollars and demonstrating that this approach is scalable.

But under the CFPB's proposed regulations, we would probably have to discontinue these loans because of the “ability to repay” proposal's heavy underwriting and compliance requirements. The CFPB originally proposed to protect consumers by limiting payments for certain loans to no more than 5% of a borrower's paycheck. With that type of clear standard and regulatory certainty, we could continue this lower-cost loan program and use automation to grow it to serve more people who have been trapped by high cost loans. Without it, the additional staff time needed for processing applications and compliance would make the path forward difficult if not impossible.

If federal regulators can thread the needle of curbing high-cost loans while enabling safer ones that are viable for consumers and credit unions, then better credit can help people through tough times and keep them away from predatory lenders, which would be right in step with our movement's philosophy.

Luis Peralta is the chief administrative officer for Kinecta Federal Credit Union. He can be reached at 310-643-1345 or [email protected].