Community banks and credit unions have joined together to warn the Consumer Financial Protection Bureau that its proposed rules on payday loans would harm lending by their companies.
Rather than entice banks and credit unions into the market for small-dollar loans as the rules’ proponents hoped, the industry groups told the agency in a letter sent Monday that the regulations will “disrupt” existing lending by community financial institutions.
The rule as written “would unquestionably disrupt lending by credit unions and community banks,” the Independent Community Bankers of American and Credit Union National Association wrote, because of its “extremely complex and prescriptive nature.”
In particular, the groups said, the stringent requirement that payday borrowers demonstrate an “ability to repay” is inappropriate for community banks and credit unions, which often extend loans based on relationships with individuals and specific knowledge of their situations.
Advocates of the payday lending regulations, which payday lenders have warned could put their industry out of business, initially hoped that one result would be that more people in need of quick emergency loans would be able to go to banks rather than payday lenders.
When the rule was introduced at the beginning of this month, however, analysts warned that it didn’t include the kinds of specifications that could draw banks into the market, such as an option capping payments as a share of income rather than setting an ability-to-repay standard.
“[W]e believe the proposed rule not only falls short of that goal but will almost certainly cause credit unions and community banks offering short term, small dollar loans…to exit the marketplace,” the ICBA and CUNA warned.
