The NCUA—and not the CFPB—should regulate small-dollar lending by federal credit unions, NCUA Chairman Rick Metsger said Tuesday.
Commenting on the CFPB’s proposed rules regulating payday loans, Metsger said that his agency developed the payday loan alternative (PAL) program and has ensured that members are well-protected. And so, he said, the CFPB’s oversight is not needed.
The CFPB issued the proposed rules in June and comments on them are due by Friday. So far, more than 188,000 comments have been filed with the CFPB. The payday loan industry has encouraged borrowers to file comments opposing the rules.
CUNA has filed its comments, while NAFCU has not yet done so.
In his letter, Metsger said that the NCUA protects members of federal credit unions.
“As the prudential regulator for federal credit unions, NCUA already ensures that members receive the type of protections the Bureau is seeking to address,” he wrote.
He added that while the CFPB has said the proposed rules would exempt the PAL program, in reality, the rules would impose new requirements on credit unions offering the loans. They also would eliminate the flexibility the NCUA has in altering the program.
“The Bureau should therefore defer to determinations of the FCU prudential regulator about this product,” Metsger wrote.
In issuing the rules in June, the CFPB said that the regulations were needed to rein in the abuses by payday lenders, following widespread and well-publicized reports of industry abuses.
The agency defined a payday loan as a short-term loan that is typically due on the borrower’s next payday. Borrowers are typically required to give lenders access to a checking account or write a post-dated check for the full balance. The loan’s cost may range from $10 to $30 for every $100 borrowed and sometimes carries an APR of almost 400%.
Through its PAL program, the NCUA permits federal credit unions to charge an interest rate of 1,000 basis points above the maximum interest rate established by the NCUA board and an application fee of not more than $20. The loan would need to be structured with a term of 46 days to six months, with substantially equal and amortizing payments due at regular intervals and no prepayment penalty. The minimum loan size would be $200 and the maximum would be $1,000.
The CFPB estimated that in 2015, more than 700 federal credit unions offered PALs, with originations at $123.3 million, representing a 7.2% increase from 2014.
CUNA also is unhappy with the proposed rules, Chief Advocacy Officer Ryan Donovan said. “We think the bureau should withdraw the proposal and start over,” he said, in a conference call with reporters. “If the agency does not wish to withdraw the rules, it should provide a blanket exemption for credit unions,” he said
In its letter, CUNA said that the CFPB proposal is overly broad and overly complex.
“Nevertheless, statements by the CFPB made over the past several months to credit unions and CUNA show a clear lack of understanding of how the rule will impact credit union lending,” CUNA said, in its letter.
Donovan said that an examination of the CFPB’s Consumer Complaint Database showed that only four of the 4,493 consumer complaints about payday loans filed between November 2013 and September 27, 2016 dealt with credit unions.
“It really raises the question of: Where are the abuses in the credit union space?” he asked.
NAFCU has not yet filed its letter. However Alexander Monterrubio, the association’s director of regulatory affairs applauded NCUA’s position.
“Credit unions cannot be expected to offer their members the same excellent products and services while also facing inconsistent regulation from multiple regulators,” he said. “CFPB must provide an explicit exemption for credit unions in the final rule in order to avoid punishing good actors along with bad.”
