CU Trades Seek Exemption From CFPB Payday Loan Rule, But Differ on Scope

Credit union trade groups want an exemption from CFPB for small-dollar loans made by credit unions, but they are divided about how broad that exemption should be.

Comments on the controversial CFPB proposal were due Wednesday.

CUNA, in comments on the CFPB’s proposal to rescind the ability-to-repay provision of its 2017 rule, calls for all small-dollar loans made by credit unions to be exempt from CFPB regulation.

NAFCU’s request is somewhat more limited; the group wants an exemption for all loans made under the NCUA’s Payday Alternative Loan program. In its comment letter, the trade group noted that loans modeled after the current PAL program are exempt under the 2017 rule.

However, the NCUA is working on another PAL loan model and NAFCU wants that new PAL program to be exempt as well, although the NCUA has not provided final details of the loan plan.

The differences between the two groups are important, since some credit unions offer short-term loans that are not based on the PAL model.

But both agree that credit unions should not be the target for the rule.

“Regulations should be tailored to eradicate bad actors in the market without inhibiting credit unions from providing safe and affordable loans,” Kaley Schafer, NAFCU’s regulatory affairs counsel said, in asking for the PAL exemption.

CUNA officials said the history of credit unions demonstrates the need for a total exemption.

“We maintain that credit unions’ history of consumer protection when offering these services warrant the Bureau providing this accommodation,” said Alexander Monterrubio, CUNA’s senior director of advocacy and counsel.

And he said that while many credit unions use the PAL model, some have designed their own programs. If only PAL loans were exempt from the rule, those other loan programs would still have to comply.

“It’s more than just the PAL program,” he said in a conference call with journalists Thursday. “Credit unions have been very innovative in this space.”

In his comment letter, Monterrubio said that as a fallback, if all credit unions are not exempted from the rule, the CFPB should exempt all current and future PAL loans.

And he said that if credit unions are not exempted from the rule, the agency should rescind the part of the rule that requires that borrowers demonstrate an ability to repay the loan before it is made.

NAFCU also called for rescinding that requirement.

However, some individual credit unions asked the agency to retain it.

And consumer groups vehemently opposed rescinding that requirement.

Former CFPB Director Richard Cordray, an Obama Administration appointee, issued a strict payday lending rule in 2017. When former Acting CFPB Director Mick Mulvaney took over the agency, he signaled his intent to revisit the rule.

Now CFPB Director Kathy Kraninger is proposing to eliminate the requirement that borrowers demonstrate an ability to repay before qualifying for a loan.

Schafer asked the agency to allow financial institutions the flexibility to design their own loan programs.

“With the rescission of the ATR underwriting requirements, more financial service providers may be apt to build short-term, small-dollar lending programs that are responsible and do not threaten the safety and soundness of the institution,” Schafer wrote.

But Richard Grammatica, president and CEO of the Tampa Bay Federal Credit Union said he supports retaining the ability to repay requirement.

“The Payday Lending Rule was designed to shield consumers from the worst abuses of payday lenders,” he wrote.

Credit unions that offer PAL loans want that safe harbor, said Yvonne De La Rosa, regulatory and legislative affairs officer at the Credit Human Federal Credit Union.

“We believe this exemption was granted to the NCUA’s PALs program because the CFPB recognizes the NCUA is in alignment with their commitment to address predatory lending practices and that the rules promulgated by the NCUA protect credit union members from unfair and abusive predatory lending practices,” she told the CFPB.

But consumer groups have told the CFPB that the new proposal is not supported by any new research or findings in the market.

“It serves predatory lenders at the expense of the consumers you profess you want to help,” said Edmund Mierzwinski, senior director of consumer programs at U.S. PIRG.

More than 26,000 comments on the proposal have been posted on the CFPB website, although a CFPB official said some 150,000 comments had been received.

And groups on each side of the issue are accusing the other of an orchestrated attempt to flood the agency with comments.

Allied Progress, a group highly critical of the CFPB, said that more than 7,000 comments have duplicative language. For instance, more than 200 commenters said they took out payday loans to replace their hot water tank.

And duplicative comments contain the same grammar and formatting problems, the group alleged.

But the Consumer Financial Services Association of America, the trade group representing payday lenders said that groups such as Allied Progress have been circulating petitions and have a landing page on their website that commenters may use to send comments.