Ryan Donovan, the chief advocacy officer at Credit Union National Association says that he’s hopeful that with some help from NCUA, credit unions will be better prepared to fulfill the need for small-dollar loans—a practice that’s central to their mission. “Credit unions were created about 100 years ago to provide this type of credit, they were the original small-dollar, short-term lender.” In order to do that, Berger, of NAFCU, says that their regulator might consider offering more flexibility in the rates charged on small-loans (including risk-based pricing) and the minimum requirements potential borrowers must meet. And the NCUA could also weigh in on whether or not they will consider adopting the widely-discussed 5 percent suggestion—that a loan shouldn’t exceed 5 percent of a borrower’s income—when it comes to determining whether or not a loan is affordable.
For banks, the calculations might be tricker. While credit unions are not-for-profit entities with a mandate to serve their communities, banks are profit-seeking businesses owned by shareholders. In 2008, the FDIC embarked upon a two-year pilot program with nearly 30 community banks to see if small-dollar lending could be profitable. The program was relatively small, with only around 450 offices in 27 states participating. The results were encouraging, but not definitive. Only some of the banks were able to profit from the loans, though many banks claimed that they remained interested in offering small loans for the purposes of building client relationships. It’s not clear if bigger banks with fewer ties to specific communities might feel similarly.
It’s likely that creating a larger market for small-dollar loans that would produce profit, without running afoul of CFPB rules, would require some new guidance, and perhaps regulation from bank regulators. In addition to the FDIC, experts say that the OCC could play a critical role in fostering a safe and flexible framework for small loans. Whether or not that happens might have a lot to do with the Comptroller of the Currency is, says Paul Bland, the executive director of the advocacy group, Public Justice.
Right now, the agency is in the midst of a leadership change. The interim head, Keith Noreika, has held his position for longer than the allotted 130 days, spurring criticism from some Democrats. And in that time he has sought to roll back regulations, not introduce new ones. And has maintained a contentious relationship with the CFPB. In the meantime, it’s unclear how Trump’s pick to take on the role full time, Joseph Otting, might handle the administration’s mandate to decrease regulation.
Though it’s possible that Republicans will attempt to use the Congressional Review Act to quash the payday rules before they go into effect, it’s unlikely that the attempt to squash the regulation will gain much traction. Since the CFPB reworked their proposal in a way that left the loans of credit unions and traditional financial institutions untouched, the dissenters to the final rules have dwindled. That gives regulators on both the state and federal level nearly two years to figure out how to bridge the gap between the need for small-dollar loans and the lackluster options. That’s enough time to come up with some potential strategies to usher former payday devotees into newer and safer products, but only if there’s the political will to do so.
Article Appeared @https://www.theatlantic.com/business/archive/2017/10/payday-loan-occ/543453/