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CFPB Proposed Small-Dollar Loan Rule Would Hurt Millions of Americans
Thursday, October 6, 2016 6:35 AM

The Consumer Financial Protection Bureau proposed rule on short-term, small-dollar loans could rob consumers of safe and affordable alternatives to the predatory lenders in the market, the Credit Union National Association has written to the bureau in its comment letter on the proposal.

CUNA’s full letter can be read here.

In a 61-page letter to the CFPB, with an attached 21-page legal support letter from Dentons US LLP, CUNA urges the bureau to withdraw its proposal or exempt credit unions as a class due to the many consumer dangers in the proposed rule. In lieu of that, CUNA asks the bureau to consider addressing the substantial shortcomings of the proposed rule with several recommendations outlined in its letter and asks the CFPB to publish a revised proposal for public comment.

“The rule is overbroad and misses the mark of enhancing consumer protections because it fails to consider consumers’ needs, particularly those of modest means with financial challenges, and does not provide a clear and concise path to allow credit unions to meet these needs,” said Jim Nussle, president/CEO of CUNA. “The rule would have a detrimental impact on credit union programs that are widely recognized as being consumer-friendly, even by the CFPB itself. This does not achieve greater protection for members but instead will limit their options and could force them to turn to much worse options.”

The CUNA/League system has met repeatedly with the CFPB on this issue because of their concern over a credit union member’s ability to have safe and affordable credit options.

CUNA’s letter details several problems with the proposed rule, including:

  • CFPB did not take into account the unique way credit unions operate in this market, nor did they consider the existing regulatory oversight that provides significant consumer protection.
  • Credit unions typically offer these as a member service, and their income is strikingly low or in many instances done at a loss.
  • CFPB only provided a limited conditional exemption for NCUA’s PAL program, which has been widely recognized as a model for consumer-friendly lending. The proposed rule imposes significant additional regulatory requirements on and prohibitions to credit unions originating loans under existing NCUA PAL programs.
  • While CUNA supports curbing the abuses in the market, CFPB must do so in a manner that maintains credit availability to meet consumer demands. Otherwise, only those that choose to engage in predatory behavior and skirt the law will be the sole source for consumers.
  • While the rule was written to target abuses in the payday lending market, the rule could sweep in numerous other products by credit unions where there is no evidence of abuse by credit unions (auto refinances, auto purchases, credit cards, etc.).
  • The underwriting requirements for a small $100 loan are in some instances more onerous than that of a $500,000 mortgage.
  • Director Cordray has stated that the bureau does not intend to disrupt credit union lending, and he has held credit unions out as an example of how this lending can be done safely and affordably. The rule should be tailored to allow those practices to continue for the benefit of consumers, and they should not be unduly restricted by a well-intentioned but overly broad rule.
  • The five studies cited by the CFPB as justification for the rule contain extremely limited, if any, information about credit union lending.
  • Based on data from the CFPB’s Consumer Complaint Database, we found that only four of the 4,493 consumer complaints regarding payday loans filed between Nov. 6, 2013, and Sept. 27, 2016, involved a credit union. This represents 0.088 percent of payday lending complaints. This is also approximately 0.0006 percent of all complaints the CFPB has received to date.

CUNA is advocating that the CFPB should withdraw the rule or provide a blanket exemption for credit unions (including PAL loans). Absent the foregoing, the bureau should make significant changes to the rule and re-propose it for public comment.

CUNA’s full letter can be read here.

About CUNA
With its network of affiliated state credit union leagues, Credit Union National Association (CUNA) serves America's credit unions, which are owned by more than 100 million consumer members. Credit unions are not-for-profit cooperatives providing affordable financial services to people from all walks of life. For more information about CUNA, visit or follow @CUNA on Twitter. For more information about credit unions, visit and follow @asmarterchoice on Twitter.