NAFCU Asks CFPB to Exempt All Payday Alternative Loans from Payday Lending Rule

Last October, when the agency was still helmed by former Director Richard Cordray, the Consumer Financial Protection Bureau finalized a rule that required lenders to determine up front whether people can afford to repay their loans. This so-called “payday lending rule” exempted all loans issued by credit unions in conformance with National Credit Union Administration (NCUA) parameters for payday-alternative loans (PALs).

At the time, loans that met the NCUA’s PALs obligations were exempted from the rule’s “full-payment test” or “principal-payoff option” requirements, as well as other less-risky, small personal loans offered by credit unions and community banks.

Now, nearly a year after the CFPB initially finalized its rule, the National Association of Federally Insured Credit Unions (NAFCU) is asking acting CFPB Director Mick Mulvaney to exempt all credit union PALs loans. As the system currently stands, the Bureau exempts PALs I loans but not PALs II loans, which were initially proposed earlier this year.

“Expansion of the safe harbor exemption will give credit unions peace of mind knowing that they are in compliance with both the NCUA and the Bureau’s rules,” said NAFCU Regulatory Affairs Counsel Kaley Schafer. “Credit Unions will be more apt to begin PALs programs if they have not already done so, or to expand their PALs programs to include additional PALs options. Greater competition in the marketplace will lead to greater innovation, and will ultimately force high-cost, traditional payday lenders to improve their product offerings, leading to safer products for consumers.”