The CFPB issued its long-awaited payday lending rules Thursdayand they specifically exempt loans modeled after the NCUA payday alternative loanprogram, regardless of whether the loan is made by a bank or creditunion.

“The loans currently offered by federal credit unions appear tobe substantially safer with regard to risk of default, reborrowingand collateral harms from unaffordable payments than manyalternative products on the market today,” the CFPB said.

The CFPB conducted a field hearing on the proposed rules onThursday in Kansas City, Mo.

Credit unions have been pressing for an exemption from the rules, which are designed torein in payday lending the CFPB considered predatory. The agencydefined a payday loan as a short-term loan that is typically due onthe borrower's next payday. Borrowers are typically requiredto give lenders access to a checking account or write a post-datedcheck for the full balance. The loan's cost may range from $10 to$30 for every $100 borrowed and sometimes carries an APR of almost400%.

“I think there's deeper digging that has to go on,” Ben Morales,CEO at QCash, which markets a payday alternative loan program tocredit unions. He said certain definitions could be a stickingpoint for the CFPB, although he added credit unions that QCashserves likely could comply with the rules.

Through its PAL program, the NCUA permits federal credit unionsto charge an interest rate of 1,000 basis points above the maximuminterest rate established by the NCUA board and an application feeof not more than $20. The loan would need to be structured with aterm of 46 days to six months, with substantially equal andamortizing payments due at regular intervals and no prepaymentpenalty. The minimum loan size would be $200 and the maximum loansize $1,000.

The CFPB estimated that in 2015, more than 700 federal creditunions offered PALs, with originations at $123.3 million,representing a 7.2% increase from 2014.

The CFPB expressed concern that in many cases, payday borrowerstake out multiple loans from several lenders. That is unlikely tooccur with credit union borrowers since they have to be members ofthe credit union to obtain a loan.

And the CFPB said credit unions that make or are interested inmaking payday loans have expressed concern that if additional rulesare placed on top of NCUA PAL rules, they might have to considerdropping the borrowing opportunity.

Credit union officials were cautious in their reaction to therules.

NAFCU President/CEO Dan Berger said the PAL exemption was a verygood sign, but that NAFCU wanted to review the rules before makingan additional comment.

CUNA Chief Advocacy Officer Ryan Donovan called the proposedrule complicated and said it will take some time for all affectedparties to discern its implications.

“We would rather be right in our analysis than first with ananalysis,” he said.

The payday alternative offered by the $33 million One DetroitCredit Union in Detroit does not exactly follow the NCUA PAL model,according to President/CEO Hank Hubbard.

“It is structured differently from the PAL program because it isa line of credit that can be accessed numerous times,” he said. “Webelieve that our program is more cost effective for members, and Ihope this is not the end of creative alternatives.”