CBAI Urges CFPB to Broadly Exempt Community Banks from Payday Lending Rules

The Community Bankers Association of Illinois (CBAI) urged the Consumer Financial Protection Bureau (CFPB) to broadly exempt community banks from their proposed payday lending rules. In a Comment Letter to the CFPB, CBAI recommended the proposed rules be directed at the unfair and abusive practices of other lenders and not community banks that treat their customers and communities fairly and with respect. CBAI expressed concern that the rules, as proposed, would harm community bank small-dollar consumer lending and provided the Bureau with numerous recommendations to mitigate the harmful impact of the proposed rules on community banks.

A statement submitted to the CFPB by an Illinois community banker captures the sentiment of many others.

    “We do these [small-dollar consumer] loans to take care of our customers that have an emergency need – for no other reason. That’s just what community bankers do. But if this new rule is implemented as proposed we would have to stop offering this kind of help to our customers. The increased operating costs (both in time and money) and the harsh penalties for inadvertently violating the new rules would preclude this type of lending for us going forward – plain and simple.”

CBAI specifically urged the Bureau to:

  • Modify the proposal to more accurately target those that abuse consumers;
  • Broadly exempt community banks so they can continue to meet the small-dollar lending needs that they currently satisfy, and provide meaningful encouragement to community banks to expand their small-dollar consumer lending;
  • Establish at least a minimum $10 billion asset exemption threshold for community banks in the proposal.

CBAI also urged the Bureau to:

  • Not so prescriptively mandate the loan structure and terms to remove this flexibility from community banks;
  • Modify the proposed loan information system requirements so it does not create a new expense and regulatory burden on community banks;
  • Address community banker questions and concerns about the additional costs and regulatory burden which will be created by a new consumer Registered Information System prior to finalizing the new reporting system;
  • Maintain community banks’ ability to continue to exercise their legal right of offset;
  • Make it clear to community bank prudential regulators and the Department of Justice that a decision to not make small-dollar consumer loans, as a result of the harmful impact of the proposed rules, is a legitimate business decision and that decision should not result in either a downgrade in CRA ratings or the initiation of fair lending actions;
  • Unequivocally state to the prudential regulators that community bank exemptions in the final rules are solid barriers and must not be contravened by trickle-down regulation;
  • Do all that the Bureau is able to do internally and to urge Congress, the Federal Deposit Insurance Corporation, the Office of Comptroller of the Currency, and the Federal Reserve System to provide additional encouragement to community banks to maintain and expand small-dollar consumer lending through new legal safe-harbors, Community Reinvestment Act (CRA) credit, examination consideration and forbearance while innovating/testing new programs, and tax incentives/credits (for community banks only since credit unions already enjoy tax-exempt status).

CBAI looks forward to reviewing the revisions to the final rules and will closely monitor its implementation to minimize any negative impact on community banks. Read CBAI’s Comment Letter to the CFPB.

October 5, 2016