Paper: Despite Looming CFPB Regs, Credit Unions Shouldn’t Fear Short-Term Lending
With the CFPB’s recently announced NPRM on small-dollar loans expected to have significant effects on the industry, QCash Financial released a white paper to quell concerns credit unions might have about entering the space.
The paper identifies and attempts to debunk four common fears about small-dollar lending that often holds credit unions—and likely others—back from capitalizing on the opportunities presented by offering such loans, according to QCash, which offers a white-label, cloud-based lending platform to credit unions. Of the more than 6,550 credit unions in the U.S., only about 600 offer small-dollar loans—defined as loans of between $300 and $5,000 dollars—and credit unions comprise less than 2 percent of the $38.5 billion small-dollar credit market, the white paper says. “As a result, credit union executives are leaving small-dollar lending monies on the table that could otherwise be responsibly lent to deserving members at reasonable rates,” the paper notes.
QCash identified credit union concerns related to CFPB regulation of short-term loans as one of the four common fears that keep them from entering the market. While the bureau’s new rules could necessitate modifications to some short-term lending products, most credit union lending platforms already have taken action to help borrowers avoid debt traps and high fees. As such, the forthcoming regulations should be viewed not as something to fear—the paper argues—but as an opportunity for credit unions to further develop products that meet the needs of borrowers.
The other perceived fears of entering small-dollar lending identified in the paper are: the financial risk of implementing a new product; reputational risk; and draining of financial resources. The challenges presented in all three areas can be overcome by developing well-researched, well-designed short-term loan products that fit a given credit union’s size, risk appetite and the needs of its members, the paper concludes.