Proposed CFPB payday lending regulations could make it moredifficult for credit unions to offer such services, even though therules would exempt the model contained in the NCUA's PAL program,credit union officials said Thursday.

The CFPB released the document totaling more than 1,300 pages lateWednesday and conducted a field hearing on the proposal Thursday inKansas City, Mo.

“The sheer enormity … just leads to confusion,” Ben Morales, CEOof QCash, which markets short-term loan products to credit unions,said. “That's just going to scare people off.”

He added, however, that while the complexity of the rules isdaunting, he believes that QCash will be able to continue to marketits loans.

“We've got to understand what is in and what is out,” he said.“I still think we can make it work. I think we have a solution thatis viable.”

Credit unions had been pushing for a blanket exemption from therules. They didn't get that. Instead, the CFPB gave a blanketexemption to NCUA PAL loans.

The problem, according to Keith Sultemeier, president of the $4billion Kinecta Federal Credit Union, based in Manhattan Beach,Calif., is that credit unions do not necessarily make money whenthey offer PAL loans. Testifying at the field hearing, he said hiscredit union lost $20 on every PAL loan made.

He said making a profit on small, short term loans has been achallenge, adding that his credit union is a not-for-profit, not acharity.

Having reviewed the CFPB proposal, Hank Hubbard, president/CEOof the $33 million One Detroit Credit Union in Detroit, said hedoes not think the CFPB proposal will affect the product his credit union offers.

“It does not appear to prohibit our product the way it iscurrently designed,” he said. “Ours is a line of credit for$500 with an annual fee of $70 and 18% APR. Draws are for$500 only and must be repaid in two months.”

He said that his credit union designed its short-term loan tohelp members avoid the so-called debt trap that the CFPB isconcerned about.

He said, however, that he is concerned that the rules coulddiscourage responsible lenders from offering alternatives.

“These rules may place even more real – or perceived –roadblocks to more responsible lenders trying to address the veryobvious demand,” he said. “I worry that it could make unregulatedor illegal alternatives even more prevalent. Those are evenmore toxic than what we have now.”

That is exactly the problem CFPB DirectorRichard Cordray said Thursday he wants to avoid.

“In particular, we are not intending to disrupt existing lendingby community banks and credit unions that have found efficient andeffective ways to make small-dollar loans to consumers that do notlead to debt traps or high rates of failure,” he said. “Indeed, wewant to encourage other lenders to follow their model.”

Members of Congress immediately weighed in on the issue.

House Financial Services Chairman Jeb Hensarling (R-Texas), acritic of the CFPB, condemned the rules and Cordray inparticular.

“Accountable to no one, he alone decides for all Americanswhether they can take out a small-dollar loan to meet emergencyneeds,” he said, adding that states already regulate small dollarlenders.

However, Sen. Elizabeth Warren (D-Mass.), a defender of theCFPB, said the rules are a step in the right direction.

“The proposed new rule would crack down on the tricks paydaylenders use to generate thousands of dollars in interest and feesfrom desperate families who get trapped in a cycle of debt thatthey can't escape,” she said.