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CUs aim to get members out of payday loan cycle, CFO says

RICHMOND, Va. (3/27/15)--The credit union mission stood out during a Consumer Financial Protection Bureau hearing in Richmond, Va., Thursday, as panelists addressed various aspects of payday lending. The field hearing was held in conjunction with the bureau's new proposal on payday lending.

While some at the hearing defended such lending as a consumer's choice, and others compared payday loans to "giving a starving man food laced with poison," panelist Stan Leicester of BayPort CU, Newport News, Va., offered a simple alternative: come to a credit union.

"Credit unions have two primary objectives: get the member out of the payday lending cycle from week to week and improve credit scores," said Leicester, senior vice president/chief financial officer at BayPort CU.

"We feel like our two primary objectives have been reached: We've done over $50 million [in short-term loans] since we started our program, and we've converted about 3,300 members out of the payday lending cycle. We're really proud of that."

BayPort started its short-term lending program in 2007, Leicester said, and it also offers a line of credit good for up to one year with a small fee and interest charged. Borrowers are required to pay off the loan within 30 days.

Leicester also added that borrowers are provided with financial counseling when they look into those types of loans. Counselors on staff look at ways the member can improve their credit score and get out of the payday loan cycle.

During the question-and-answer portion of the panel discussion, Leicester was asked what features credit union loans have that protect consumers.

"We carefully underwrite those loans to make sure the borrower has the ability to repay. Our main goal is to get them out of that payday lending cycle and get them into a more traditional product," he said. "We also do feel like many people end up improving their credit score and then once we ultimately get them into that newer product, we can do that at a lower cost."

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CFPB proposes to end payday lending 'debt trap'

WASHINGTON (3/27/15)--The Consumer Financial Protection Bureau (CFPB) released a plan early Thursday morning aimed at eliminating payday lending "debt traps," and CUNA is evaluating it to determine if it accomplishes its goal without hindering credit unions' efforts to provide credit to their members.

The new consumer protections would apply to payday loans, vehicle title loans, deposit advance products and certain high-cost installment and open-end loans.

"One of the goals of the founders of the American credit union movement was to create a system of cooperative finance that provided consumers with access to credit, including short-term, small-dollar loans, on fair terms and rates. Therefore, CUNA supports the ability of credit unions to provide beneficial short-term, small loans as alternatives to predatory payday lending, which has no place in the financial marketplace," said CUNA President/CEO Jim Nussle.

"The extent to which credit unions will be able to continue to productively, efficiently and responsibly serve their members' short-term, small-dollar credit needs will be a key measure we use in evaluating these proposals.  If the rule results in consumers having reduced access to credit from credit unions or if the access to credit is made more expensive by regulatory burdens imposed on credit unions which would be more appropriately targeted toward the abusers of consumers, it will have failed to adequately protect consumers.

"We are evaluating the proposals the bureau released overnight, and we look forward to discussing them with our members, the CFPB and other policymakers," Nussle added.

The proposal would cover both short-term credit products (which must be paid in full within 45 days), and long-term loans where the lender collects payments through access to the borrower's bank accounts. One of the proposal's main focuses is requiring a lender to determine a borrower's ability to repay a loan before granting it.

For long-term loans, the CFPB is considering protections already used by the National Credit Union Administration for its payday alternative loan program. Those loans are capped at 28% interest and an application fee of no more than $20.

The other approach the bureau is examining for long-term loans would cap a loan payment amount at no more than 5% of the borrower's gross monthly income, and no more than two such loans can be made to a borrower within a 12-month period.

For short-term loans, lenders would have to verify a borrower's income, financial obligations and borrowing history to determine the consumer's ability to repay. There would be a 60-day "cooling off period" between loans--loans cannot be made within that period unless there is documentation the borrower's circumstances have improved enough to repay without re-borrowing.

Lenders also would not be allowed to keep consumers in debt on short-term loans for more than 90 days in a 12-month period. Rollover loans would be capped at two, followed by a mandatory 60-day cooling off period.

For the second and third consecutive short-term loans, the bureau is considering two options. One would require the principal decrease with each loan, so that it is repaid after the third loan, or require the lender provide a no-cost "off-ramp" after the third loan, to allow the consumer to pay the loan off over time without further fees.

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Calif. district court overturns anti-surcharging law

SACRAMENTO, Calif. (3/27/15)--The U.S. District Court for the Eastern District of California ruled Thursday that the state's anti-surcharging law is unconstitutional.

CUNA filed an amicus brief in a similar case in Florida earlier this month, arguing that allowing merchants to add additional surcharge fees to card transactions will give merchants full value of participation in the credit card system while passing costs to consumers.

"Credit cards provide the consumer a safe, efficient, convenient, seamless transaction that redounds to the benefit of merchants," CUNA Senior Director of Advocacy and Counsel for Special Projects Robin Cook argued in the brief. "Meanwhile, card issuers like credit unions assume all of the risk and guarantee the merchant will receive payment immediately. The interchange component of the merchant discount fee is how issuers are appropriately compensated for providing this service."

CUNA anticipates filing an amicus brief in the California case, arguing that a surcharge on credit card transactions could lead to consumers using credit cards less frequently.

From a credit union perspective, lower usage could cause credit unions to exit the credit card market, and be unable to provide access to consumer-friendly products such as free checking, which the interchange fees help subsidize.

Retailers have brought lawsuits in three other states arguing that price determination is a form of free speech, and by banning surcharges, merchants cannot protest the interchange fees which they believe are too high.

A similar decision was reached in New York on a similar case, and that decision is now on appeal. Anti-surcharging laws have been upheld in Texas.

Reg. relief package steps toward removing barriers: CUNA

WASHINGTON (3/27/15)--Nine regulatory relief bills supported by CUNA were approved by the House Financial Services Committee Thursday after a two-day markup of a series of bills.

"These bills are a step in the right direction toward removing barriers and allowing credit unions to efficiently serve their members," said CUNA President/CEO Jim Nussle.

"I look forward to seeing these pieces of legislation that reduce regulatory burden come the House floor for a vote. When credit unions boards and managers--not government bureaucrats--are making decisions about how to provide services, it's the 102 million member-owners of the credit union who benefit."

The bills that passed the committee Thursday include:
  • H.R. 299, the Capital Access for Small Community Financial Institutions Act, introduced by Reps. Steve Stivers (R-Ohio) and Joyce Beatty (D-Ohio), corrects a drafting oversight in the Federal Home Loan Bank Act that has resulted in a small number of privately insured credit unions being ineligible to join a Federal Home Loan Bank. This bill passed by a vote of 56-1;
  • H.R. 601, the Eliminate Privacy Notice Confusion Act, introduced by Reps. Blaine Luetkemeyer (R-Mo.) and Brad Sherman (D-Calif.), would eliminate the requirement financial institutions currently face to send their members or customers privacy policy notifications annually, and instead would only require such notifications when the privacy policy is changed. This bill passed by a vote of 57-0;
  • H.R. 1195, the Bureau of Consumer Financial Protection Advisory Board Act, introduced by Reps. Pittenger (R-N.C.) and Denny Heck (D-Wash.), would require the Consumer Financial Protection Bureau (CFPB) by law to establish the Credit Union Advisory Council, as well as the Small Business Advisory Board and the Community Bank Advisory Council. These advisory councils had previously been voluntarily established by the CFPB.  The separate Consumer Advisory Board is already codified in statute. This bill passed by a vote of 53-5;
  • H.R. 1265, the Bureau Advisory Commission Transparency Act, introduced by Rep. Sean Duffy (R-Wis.), would, in effect, open CFPB advisory committee meetings to the public. This bill passed by a vote of 56-2;
  • H.R. 1259, the Helping Expand Lending Practices in Rural Community Act, introduced by Reps. Andy Barr (R-Kan.) and Ruben Hinojosa (D-Texas), directs the CFPB to establish an application process determining whether an area should be designated as a rural area if the CFPB has not designated it as one. This bill passed by a vote of 56-2;
  • H.R. 1480, the SAFE Confidentiality and Privilege Enhancement Act, introduced by Reps. Robert Dold (R-Ill.) and Ed Perlmutter (D-Colo.), would require that confidentiality protections provided by federal and state laws apply when state and federal regulatory officials with mortgage or financial services industry oversight authority access any information provided to the Nationwide Mortgage Licensing System and Registry. This bill passed by a vote of 58-0;
  • H.R. 1408, the Mortgage Servicing Asset Capital Requirements Act, introduced by Reps. Perlmutter and Luetkemeyer, requires federal banking agencies to conduct a study of the appropriate capital requirements for mortgage servicing assets for nonsystemic banking institutions. This bill passed by a vote of 49-9;
  • H.R. 1529, the Community Institution Mortgage Relief Act, introduced by Reps. Sherman and Luetkemeyer, would exempt mortgage loans made by financial institutions under $10 billion in assets and held in portfolio for three years from RESPA's escrow requirements and would also exempt mortgage servicers that service fewer than 20,000 mortgages annually from a number of requirements of RESPA.  This bill passed by a vote of 48-10; and
  • H.R. 685, Mortgage Choice Act, introduced by Reps. Bill Huizenga (R-Mich.) and Gregory Meeks (D-N.Y.), would make an important modification to the Truth-in-Lending Act's definition of "points and fees." This bill passed by a vote of 43-12.
The next step in the House for these bills would be a vote on the House floor.

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Transportation Network Co. legislation pending in 35 states

WASHINGTON (3/28/15)--Legislation regulating Transportation Network Company (TNC) vehicles--covering services like Uber and Lyft and including insurance requirements--continues to be a hot topic in the states and among some credit unions.

A number of state credit union leagues are active--or have been in recent years--in advocating for rules that would protect credit unions and other lenders with an interest in a car being used as a TNC vehicle.

"The primary credit union concern," explained Shelton Roulhac, a CUNA director of advocacy, "is that the vehicles used for these services are personal vehicles and oftentimes, have loans on them.

"Credit unions and other lien holders require proper collision insurance to protect their collateral and personal auto insurance policies do not cover commercial use, thus leaving lapses in coverage."

Some TNCs have insurance policies that may, under certain circumstances, pay claims by drivers and passengers. However, Roulhac noted, depending on the policy terms, there still could be gaps in coverage, thus prompting legislation to require sufficient coverage.

Thus far in the 2015 session, TNC legislation has been enacted in Virginia and is awaiting the governor's signature in Utah. In 2014, bills were enacted in California, Colorado, Connecticut and Rhode Island.

And currently legislation is pending in 34 other states . See the resource link for a full listing of where TNC bills await final action.

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