Credit unions say CFPB's APR proposal would create borrower confusion

The Consumer Financial Protection Bureau continues its attempts to reform the country's lending environment, efforts that affect more than just large institutions. As this blog reported yesterday, short-term lenders have also felt the heat of the CFPB's increased scrutiny, with many executives wary of the agency's expanded evaluations.

Credit unions are also concerned, specifically regarding a July proposal that would change the way APR is calculated, according to a report. The Credit Union Times reported this month that, as part of a series of new mortgage regulations, the CFPB proposed including previously excepted loan fees in the new calculation of the APR – everything except charges that are made after the loan closes would be taken into account.

The agency says this is meant to simplify matters for consumers taking out a loan, but critics argue that the change would negatively impact the efficiency of application processing at small banking institutions such as credit unions. Borrowers would also be more confused because adding additional fees into APR would distort its true cost, credit union executive Rita McCaslin wrote in a letter to the agency.

"Including the costs of voluntary credit insurance premiums and debt protection fees in the calculation of the APR would make the loan appear to be significantly more expensive with coverage as compared to the rule as it currently exists," wrote McCaslin.

The rule is expected to be finalized in January but opponents are asking for more time to consider its impact. The proposal is another step in CFPB's efforts to increase disclosures to borrowers and simplify the loan application process, changes that have significant effect on lenders both large and small.


Request a Demo

From loan originations and decisioning, to customer management and beyond, GDS Link helps thousands of clients manage risk while driving growth.