Newsroom

CFPB Director Richard Cordray on Thursday made clear that the bureau's payday lending proposal, out for comment until Sept. 14, would not require credit unions making payday alternative loans (PALs) to apply the "full-payment test" that would otherwise apply to covered loans.

Cordray noted the provision during CFPB's field hearing on payday lending in Kansas City, Mo., held following the proposed rule's release. "For these loans, interest rates are capped at 28 percent and the application fee is no more than $20," Cordray said. Cordray said the provision will apply to PALs and loans that "generally meet the parameters" of PALs. Those parameters include an interest rate cap of 28 percent, application fee cap of $20 and a limit of three PALS to a single member in a rolling six-month period.

NAFCU President and CEO Dan Berger, while welcoming the CFPB's consideration of PAL lending, noted some major concerns based on an early look at the 1,300-page proposed rule. (Cordray called Berger about the proposal Wednesday; read more.)

"While we are grateful for the recognition of the National Credit Union Administration's payday alternative loans program, we remain extremely concerned about the proposal's effect on credit unions' ability to exercise statutory liens as defined by the Federal Credit Union Act," said Berger. "It is a good first step, but we believe the bureau can do more. NAFCU is reviewing the full proposed rule to assess its comprehensive impact on all aspects of credit union lending. We look forward to providing additional comments and continuing to work with the bureau on this critical issue."

During Thursday's field hearing, Kinecta Federal Credit Union President and CEO Keith Sultemeier noted that his credit union has provided short-term credit for approximately 20 years with the goal of improving members' financial lives. He questioned the need for the rulemaking, and he encouraged CFPB to exempt credit unions with assets of less than $10 billion. He emphasized that there is a strong need for short-term credit and that such rulemakings will increase costs for credit unions.

For loans that do not meet PAL parameters, the proposed rule would require a "full-payment test," meaning that the lender would have to determine the consumer will be able to repay a loan up front without having to reborrow.

In addition to the proposed rule, the CFPB has also issued a request for information on loans falling outside the proposal's scope and related practices; input is due Oct. 14.

NAFCU has been pressing CFPB to use its Dodd-Frank Act exemption authority more effectively to provide credit unions regulatory relief. It has urged CFPB to include an express exemption for credit unions conducting short-term, small-amount loans in accordance with current state or federal laws, such as the PAL program.

This long-awaited proposal has been the subject of numerous, lengthy discussions among NAFCU and CFPB officials and staff. Berger, NAFCU Executive Vice President of Government Affairs and General Counsel Carrie Hunt and Director of Regulatory Affairs Alexander Monterrubio met with Cordray in April to discuss the anticipated payday rule as well as the bureau's exemption authority under the Dodd-Frank Act.

Prior to Dodd-Frank's enactment, NAFCU was the only financial services trade association to oppose CFPB regulatory authority over credit unions.