The National Credit Union Administration’s proposed Credit Union Service Organization rule would allow CUSOs to become predatory payday lenders that could make loans that far exceed the interest rate in the Federal Credit Union Act, consumer groups are warning.
“This proposal will authorize predatory lending by credit unions, hampering household security at a time when greater security is badly needed,” the Center for Responsible Lending, the Self-Help Federal Credit Union, the Self-Help Credit Union, and the National Consumer Law Center, wrote in a letter commenting on the proposal.
“The rule appears to allow federal credit unions to participate in lending that the Federal Credit Union Act specifically prohibits — posing severe reputation risk to federal credit unions as well as legal and compliance risks,” the groups said, as they released the comment letter.
The NCUA board in January issued a proposed rule that would allow CUSOs to engage in all lending that federal credit unions may engage in. Credit union trade groups have said they support the rule, while banking groups oppose it.
The Federal Credit Union Act sets an interest rate cap of 28% for payday loans and 18% for all other loans.
The CUSO rule would allow credit unions to circumvent that cap, the consumer groups said “We believe it will also increase racial discrimination, as families of color are disproportionately targeted with these harmful loans,” the groups continued.
The groups said that credit unions historically have used CUSOs to engage in predatory lending. Credit unions facilitated payday loans by implementing products that the CUSOs designed, by earning finder’s fees for referring members to CUSO-issued payday loans or by funding and selling payday loans to CUSOs they owned, the consumer advocates said.
The rule also would allow CUSOs and credit unions to evade state laws governing high-cost lending, they added.