October 05, 2017

CFPB heeds NAFCU, CU concerns in final payday rule

The CFPB released a final rule on payday lending yesterday that takes into account the concerns raised by NAFCU and its members, avoiding for now any major disruption in credit unions' ability to meet members' needs for short-term, small-dollar loans.

Specifically, it exempts all loans issued by credit unions in conformance with NCUA parameters for payday-alternative loans (PAL).

"In a marketplace well-populated by abusive operators, NAFCU is looking for ways that credit unions – the good actors in the consumer lending space – can offer more payday alternatives to their members," said Carrie Hunt, NAFCU's executive vice president of government affairs and general counsel. "What credit unions and consumers need is for the CFPB to focus on bad actors."

The final rule focuses on short-term loans with terms of up to 45 days, with the goal of stopping "debt traps" by putting strong protections in place to ensure a borrower's ability to repay the loan. It requires lenders to conduct a "full-payment test" upfront for any loan that requires a consumer to pay all or most of the debt at once, or to provide a more gradual payoff schedule option.

Loans that meet the NCUA's PAL obligations are exempted from the rule's "full-payment test" or "principal-payoff option" requirements, as well as other less-risky, small personal loans offered by credit unions and community banks.

Notably, the CFPB did not finalize the longer-term loan proposal, which would have impeded a substantial portion of responsible, small-dollar loans offered by credit unions. The bureau said additional study was needed to understand current and potential practices. The "full-payment test" provision does include longer-term balloon-payment loans.

NAFCU has been working with all stakeholders on this issue. Last month, the association hosted a small-dollar lending working group discussion with representatives from several NAFCU-member credit unions, Pew Research Center, Center for Financial Services Innovation and Filene Research Institute to discuss CFPB rulemaking and its impact on credit unions' ability to provide members' needs for affordable, safe loans.

NAFCU continues to seek a blanket exemption for credit unions from CFPB rulemaking.