Credit union members will continue to have safe and affordable alternatives for small dollar loans through credit unions, based on a final rule issued this month by the Consumer Financial Protection Bureau (CFPB). Our advocacy has paid off!
Over the past several years CUNA and the Leagues met with the CFPB over a dozen times and filed extensive comments outlining the problems with the original proposal. Just prior to the rule being issued CUNA's Consumer Protection Subcommittee met with several top CFPB staff. The League and credit unions also met with the CFPB and shared stories about members being helped by credit unions' small dollar lending programs.
CUNA and your League also submitted comment letters to the agency, urging it to narrow its focus on the bad actors that actually harm consumers, which it appears has been the outcome. Our letter asked for - and got - simplified underwriting requirements, key exemptions (including for PAL, limited portfolios on related loans and auto loan refinances), a less onerous APR calculation, more time for compliance, and protection for credit unions' statutory and consensual liens and setoff rights.
Thanks to advocacy by the Credit Union National Association, The League, credit unions and Activists, the CFPB's final rule - meant to protect consumers from predatory lending practices - carves out the types of loans credit unions make to help their members.
The 1,600+ page rule is still being analyzed but so far it appears that:
The rule excludes or exempts:
the National Credit Union Administration's PAL Program and other forms of "alternative loans." (Similar loans made by state chartered credit unions must meet somewhat tighter standards)
"accommodation loans" by lenders making fewer than 2,500 otherwise-covered loans and which represent no more than 10% of revenue.
loans over 45 days that do not have balloon payments (unless the APR is above 36 percent).
lenders from the notice and debit requirements that apply to most covered loans if the payments do not trigger overdraft or NSF fees.
certain salary advances
loans extended solely to finance the purchase of an automobile or other consumer good in which the automobile or other good secures the loan;
home mortgages and other loans secured by real property or a dwelling if recorded or perfected within the term of the loan
non-recourse pawn loans;
overdraft services and overdraft lines of credit; and
certain no-cost advances.
The rule covers:
- loans with a term under 45 days. Adjusting the loan length could exclude your program from coverage by the rule.
- longer-term loans that exceed 36 percent APR and authorize the lender to initiate transfers from the consumers' account without further action by the consumer. These are subject only to the requirements concerning payment withdrawal practices, related disclosures and recordkeeping.
- loans that are considered balloon loans. Modifying a program to allow borrowers to pay down principal more gradually, rather than in one large lump sum, could avoid the requirement of a "full-payment" test.
The final rule is effective in August 2019, 21 months after publication in the Federal Register. We had advocated for more time than the 15 months proposed initially.
To aid your compliance:
More Information & Updates
CUNA and The League work in concert with credit union Activists year-round as part of a 360-degree advocacy approach that seeks legislative and regulatory improvements to credit unions’ operating environment. In part by removing regulatory barriers, we help more Americans to see credit unions as their best financial partner and regard their credit union as their primary financial institution.