What are the new CFPB regulations for small dollar loans and payday lending for credit unions?
In late 2017, the Consumer Financial Protection Bureau (CFPB) finalized new regulations for small-dollar loans and payday lending.
QCash, a subsidiary of Washington State Employees Credit Union (WSECU), has engaged in conversations throughout the process, including WSECU President & CEO, Kevin Foster-Keddie who participated in the CFPB credit union roundtable. Foster-Keddie provided feedback to CFPB and shared the QCash experiences about short-term, small-dollar lending concepts as it applies to credit union members.
For QCash, the involvement in the new rule formation has been essential to understanding the impact on the platform and credit unions…
New CFPB Small-Dollar Loan Rule for Non-Covered Loans
The new small-dollar loan rule provides more regulatory guidance around non-covered and covered loans to borrowers who may be unable to pay the high fees typically attached with payday loans. CFPB cites that payday loans often force borrowers into another, short-term loan with an inability to pay, calling this process a “debt trap” for consumers.
Credit unions, however, have long provided members with Payday Alternative Loan (PAL) programs. These short-term, small-dollar loans are less costly for members than traditional payday lending.
The new CFPB rule provides a safe harbor for programs like the QCash financial platform and its non-covered loans, making it exempt from added regulatory burdens.
What is a Non-Covered Loan?
The CFPB defines a non-covered loan with an annual percentage rate (APR) of less than 36% and repayment terms that are greater than 45 days. These non-covered loans are exempt from additional regulations.
Covered loans (parameters greater than non-covered loans) will require supporting documentation from the institution, mostly focused on the borrower’s ability to repay.
QCash Automation Provides Compliance Assurance
QCash, developed before new CFPB regulations, is based on the premise that automation is necessary to deliver short-term, small-dollar loans. QCash’s automated workflow provides flexibility for credit unions to establish the methodology they choose and configure the options they want to include. The QCash financial platform also provides an all-in-one system for required documentation.
Although the new rule doesn’t impact QCash, the financial platform supports all applicable CFPB requirements. Credit unions have the assurance that QCash provides everything needed to continue to offer compliant, short-term, small-dollar loans to its members.
May 17, 2018
by Ben Morales, QCash CEO
Why did WSECU start offering small dollar loans?