The CFPB yesterday finalized its rule on short-term, small-dollar lending. The regulation is aimed at payday loans, auto title loans, deposit advance products and longer-term loans with balloon payments.
Significantly for credit unions, the final rule appears to completely exempt credit union Payday Alternative Loans—which are already regulated by NCUA—from the regulation.
“While we are still in the process of reviewing the CFPB’s final payday lending rule, it appears the final rule contains some real improvements over the proposal that were sought by New York’s credit unions,” said New York Credit Union Association President/CEO William J. Mellin. “This goes to show the power of regulatory advocacy and the importance of effectively engaging with all policymakers on credit union issues.”
After the rule was first proposed, Mellin penned a comment letter to the CFPB that raised some concerns with the proposal while commending the bureau for taking aim at unscrupulous lenders.
“It is clear that credit unions in New York not only want to discourage payday lending, but also actively assist members who are experiencing financial difficulty,” Mellin wrote at the time.
He further explained that “there is no evidence that the credit union industry systematically engages in predatory pay day lending practices. Nevertheless, all credit unions will have to develop policies and procedures specifically designed to comply with this new regulation. This is not what Congress intended when it created the bureau, in large part to curtail the lending practices of the larger banking industry.”
Mellin went on to write that NCUA encourages federally chartered credit unions to make Payday Alternative Loans, and–as originally drafted–PALs would have been subject to parts of the CFPB’s proposed regulations.
The Association is still analyzing the final rule. Additional details will be provided to credit unions as necessary.