On payday loans, let state rules be guide NASCUS writes

Oct. 11, 2016 -- Concerned that the CFPB’s payday lending proposal will hinder the ability of state chartered credit unions’ ability to administer innovative short-dollar loan programs, NASCUS has urged the agency in a comment letter to provide compliance exemptions for states that have in place “comparable regulation” to avoid increasing the regulatory burden on an “already heavily regulated class of entities.”

Additionally, NASCUS urged the bureau to be prepared to address “anticipated state requests for inconsistency determinations regarding their existing short-term, small amount regulations.”

In the letter submitted Oct. 7 (the deadline for comments) on the CFPB’s proposal on Payday, Vehicle Title and Certain High-Cost Installment Loans (Docket No. CFPB-2016-0025), NASCUS noted that it supports the agency’s efforts to “promulgate regulation to curve abusive practices in the consumer financial product/service market and strengthen consumer financial protection.” However, the association noted that it also has concerns that the proposal would “severely hinder the ability of credit unions to provide payday alternative products to consumers in dire need of short term, small dollar credit.”

Noting the extensive underwriting process required under the proposal, NASCUS stated that it would result in higher costs for the lender. Those costs, NASCUS wrote, 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.”

NASCUS reminded the bureau that the state credit union system has a history of encouraging innovation in consumer financial product and 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,” NASCUS wrote. “For example, the state of Colorado enacted legislation in 2010 to stymie bad actors and protect pay day borrowers.”

NASCUS wrote that 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, 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,” NASCUS wrote.

NASCUS comment letter to CFPB/small dollar loans