NASCUS Comments: CFPB Proposed Rulemaking on Payday, Vehicle Title and Certain High-Cost Installment Loans
October 7, 2016
Office of the Executive Secretary Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 2552
Re: Docket No. CFPB-2016-0025; Proposed Rulemaking on Payday, Vehicle Title and Certain High-Cost Installment Loans
Dear Ms. Jackson:
The National Association of State Credit Union Supervisors (NASCUS)1 appreciates the opportunity to comment on the Consumer Financial Protection Bureau’s (“Bureau”) proposal on Payday, Vehicle Title and Certain High-Cost Installment Loans. While we support the Bureau’s efforts to promulgate regulation to curve abusive practices in the consumer financial product/service market and strengthen consumer financial protections, we do have concerns that the Bureau’s current proposed rule will severely hinder the ability of credit unions to provide payday alternative products to consumers in dire need of short term, small dollar credit.
The Bureau’s proposal would require lenders to (among other things) engage in an “Ability to Repay” (ATR) analysis, which would require credit unions to complete a more comprehensive underwriting process than the streamlined process most commonly used for such short term, small dollar credit. A more extensive underwriting process would result in higher costs for the lender, which would then have to be passed on to the consumer or could result in the termination of the credit union’s short term, small dollar lending program. We do note that the Bureau provides lenders that wish to engage in this business with alternatives to the ATR requirements. For example, the proposal provides a “conditional exemption” from the ATR requirements for short term, small dollar loan programs that mirror certain attributes of NCUA’s PAL or “payday alternative loan” program. However, data shows that only a small number of Federal credit unions have opted to utilize the PAL program. In 2015, approximately twenty percent of Federal credit unions offered NCUA’s PAL program.2 Additionally, a recent report (issued by the Pew Charitable Trusts) noted that it was unlikely that the PAL or similar programs would see a large degree of expansion among lenders due to the restrictive nature of the program and the limited revenue available from this type of loan.3 Likewise, doubts have been raised about the feasibility of the portfolio default rate alternative provided in the proposal.4
The State system has a history of encouraging innovation in consumer financial product/service development while maintaining safe and sound business practices. Many states currently have consumer protection regulatory schemes in place to address bad actors and encourage provision of fair and reasonably priced short term consumer credit. For example, the state of Colorado enacted legislation in 2010 to stymie bad actors and protect pay day borrowers5. In instances where a state has an effective short term, small dollar loan regulation in place that is not inconsistent with the spirit of the Bureau’s proposal, NASCUS strongly recommends that the Bureau defer to the state’s authority to regulate these products and services. NASCUS believes a state’s legislature and state supervisory agency are in the best position to determine the most effective means to protect its consumers within the long standing parameters of existing credit union regulation and supervision.
We encourage the Bureau to provide a compliance exemption for states that have in place comparable regulation to avoid placing undue and duplicative regulatory burden on an already heavily regulated class of entities. Finally, the Bureau should be prepared to address anticipated state requests for inconsistency determinations regarding their existing short term, small amount dollar regulations.6
NASCUS shares the Bureau’s commitment to ensuring that consumers are protected from predatory and abusive lending practices. We are also committed to ensuring a wide range of consumers have access to credit. NASCUS is concerned that this proposal will limit the ability of state chartered credit unions to administer innovative alternative short dollar loan programs. These alternative programs serve several important policy goals– including allowing state credit unions to serve members who might need alternative credit programs in a manner that is both safe and sound for the credit union and that member. We strongly suggest that the Bureau issue a final rule that will be less complex, less restrictive and that will provide depository institutions with the flexibility to continue to develop short term, small dollar products that are consumer friendly and that fill a significant consumer need.
NASCUS Legislative and Regulatory Counsel
1. NASCUS is the professional association of the nation’s state credit union regulatory agencies.
2. CFPB Proposed Rulemaking on Payday, Vehicle Title, and Certain High Cost Installment Loans, page 102.
3. Understanding the CFPB Proposal for Payday and Other Small Loans, Pew Charitable Trusts (July 2015) at page 9, available at http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2015/07/understanding-the-cfpb- proposal-for-payday-and-other-small-loans.
4. The CFPB’s Proposed Payday Loan Regulations Would Leave Consumers Vulnerable: An analysis of the draft rule, Pew Charitable Trusts (September 2016) at page 6, available at http://www.pewtrusts.org/en/research-and- analysis/analysis/2016/09/07/the-cfpbs-proposed-payday-loan-regulations-would-leave-consumers-vulnerable.
5. Trial, Error, and Success in Colorado’s Payday Lending Reforms, Pew Charitable Trusts (December 2014), available at http://www.pewtrusts.org/~/media/assets/2014/12/pew_co_payday_law_comparison_dec2014.pdf.
6. 12 U.S.C. § 5551(a)(2).