CUs Get Partial Carve-Out in CFPB PayDay Loan Proposal Posted by AVCU on 11:24 AM

 As reported by CUToday.info, cedit unions appear to have been spared from proposed new rules from the CFPB on payday loans, auto title loans and other installment lending.  Specifically, the CFPB is exempting from its proposed rules loans that are made in compliance with NCUA’s payday alternative loan (PAL) program, with the CFPB even holding up PALs as an example of responsible small-dollar lending.

The CFPB proposal is 1,549 pages long, and it remains to be seen how credit union loans might be fully affected, even indirectly. The CFPB said the proposal, which is is now out for comment, is aimed at those who attempt to trap consumers in a cycle of debt.

The proposed rules have not been embraced by everyone, with the Pew Charitable Trusts saying the proposal does not go far enough in protecting consumers and “misses the mark.”

 “The very economics of the payday lending business model depend on a substantial percentage of borrowers being unable to repay the loan and borrowing again and again at high interest rates,” said CFPB Director Richard Cordray in prepared remarks shared before today’s field hearing in Kansas City, Mo. “It is much like getting into a taxi just to ride across town and finding yourself stuck in a ruinously expensive cross-country journey.”
 
The new rules apply more “mainstream banking” measures to payday and auto title lenders, including requiring lenders to determine the ability of borrowers to afford the monthly payment before issuing a loan. Among new requirements are a “full-payment test” to loans covered by the payday lending proposal (and not PAL loans), which would require that a lender determine the consumer will be able to repay a loan up front without having to re-borrow. The number of times that people could roll over their loans into newer and pricier ones would be curtailed, as well.

Cordray explained that the proposal would require the loans to meet "three main conditions."

Credit unions and their trade associations are now carefully reviewing the lengthy rule to see if any aspects of the proposal impact credit union lending. Comments are due by Sept. 14.

The proposal includes a number of consumer protections. The full story, including details on those protections and how consumer groups are responding to the CFPB's plan, can be found here.

The CFPB has also released the findings of "extensive research" on payday lending both in storefront locations and online, as well as automobile title loans, which can be found here.