The CFPB is proposing to rescind the ability-to-repay provisions of its payday loan rule and delay the provisions’ compliance date while leaving in place the rule’s troublesome payment provisions and their August 19 compliance date.  In this week’s podcast, we look at the CFPB’s rationale for rescinding the ATR provisions, what the payment provisions require and the implementation challenges they present, how industry input could improve the final outcome, the potential impact of the pending litigation challenging the rule, and possible legal challenges to the proposals.

Click here to listen to the podcast.

 

 

The CFPB’s proposal to revise its final payday/auto title/high-rate installment loan rule to rescind the rule’s ability-to-repay (ATR) provisions in their entirety and its proposal to delay the compliance date for the ATR provisions until November 19, 2020 were published in today’s Federal Register.  The CFPB’s proposals would leave unchanged the rule’s troublesome payment provisions and continue to require compliance by August 19 with those provisions.

The publication of the proposals starts the clock running on the comment periods.  Comments on the proposal to rescind the ATR provisions are due on or before May 15, 2019.  Comments on the proposal to delay the compliance date for the ATR provisions are due on or before March 18, 2019.

On February 21, 2019, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar, “CFPB Payday Lending Rule: Status and Prospects.”  The webinar registration form is available here.

 

 

The CFPB has issued highly-anticipated proposed revisions to its final payday/auto title/high-rate installment loan rule (Rule) that would rescind the Rule’s ability-to-repay provisions in their entirety (which the CFPB refers to as the “Mandatory Underwriting Provisions”).  The Bureau will take comments on the proposal for 90 days after its publication in the Federal Register.  In a separate proposal, the CFPB has proposed a 15-month delay in the Rule’s August 19, 2019 compliance date to November 19, 2020 that would apply only to the Mandatory Underwriting Provisions.  This proposal has a 30-day comment period.  Importantly, the proposals would leave unchanged the Rule’s payment provisions and the August 19 compliance date for such provisions.

On February 21, 2019, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar, “CFPB Payday Lending Rule: Status and Prospects.”  The webinar registration form is available here.

Rescission of Mandatory Underwriting Provisions.  The Mandatory Underwriting Provisions, which the Bureau proposes to rescind, consist of the provisions that: (1) deem it an unfair and abusive practice for a lender to make certain “covered loans” without determining the consumer’s ability to repay; (2) establish a “full payment test” and alternative “principal-payoff option;” (3) require the furnishing of information to registered information systems to be created by the CFPB; and (4) related recordkeeping requirements.  In the proposal’s Supplementary Information, the CFPB explains why it now believes that the studies on which it primarily relied do not provide “a sufficiently robust and reliable basis” to support its determination that a lender’s failure to determine a borrower’s ability to repay is an unfair and abusive practice.  It also declines to use its rulemaking discretion to consider new disclosure requirements regarding the general risks of reborrowing, observing that “there are indications that consumers potentially enter into these transactions with a general understanding of the risks entailed, including the risk of reborrowing.”  The proposal seeks comments on the various determinations that form the basis of the CFPB’s conclusion that rescission of the Mandatory Underwriting Provisions is merited.

Preservation of Payment Provisions.  The CFPB is not proposing to change the Rule’s provisions establishing certain requirements and limitations on attempts to withdraw payments from a consumer’s account (Payment Provisions) nor is it proposing to delay the August 19 compliance date for such provisions.  Rather, it has declared the Payment Provisions to be “outside the scope of” the proposal. In the Supplementary Information, however, the Bureau notes that it has received “a rulemaking petition to exempt debit payments” from the Payment Provisions and “informal requests related to various aspects of the Payment Provisions or the Rule as a whole, including requests to exempt certain types of lenders or loan products from the Rule’s coverage and to delay the compliance date for the Payment Provisions.”  The Bureau states that it intends “to examine these issues” and commence a separate rulemaking initiative (such as by issuing a request for information or notice of proposed rulemaking) if it “determines that further action is warranted.”

We are disappointed that the CFPB has excluded the Payment Provisions from its proposals since they raise numerous issues that merit reconsideration and/or clarification.  See our legal alert for a list of some of the troublesome issues we have noted.  The Supplementary Information suggests that the Bureau may be receptive to informal requests to revisit various Payment Provisions, and our Group intends to accept this invitation to comment.  In addition to addressing issues we have identified to date, we also propose to include in our comment letter subjects brought to our attention by our clients and other affected parties.

 

 

After several years of rulemaking, amendments, and delays, the CFPB’s Prepaid Rule (the “Rule”) is finally set to take effect on April 1, 2019.  This rapidly approaching effective date means that prepaid issuers have only two months left to confirm that their prepaid programs and materials are fully compliant with the Rules’ complex and specific new requirements.

Ballard Spahr attorneys will hold a webinar, “The Prepaid Rule Takes Effect: Considerations for Properly Implementing the CFPB’s Prepaid Accounts Rule” to discuss key compliance considerations ahead of the Prepaid Rule’s effective date. The webinar will take place on February 27, 2019, from 12:00 p.m. to 1:00 p.m. ET and a registration form is available here.

The Rule brings most prepaid accounts within the consumer protection regime of Reg. E. The Rule also applies certain Reg. Z requirements to prepaid products involving credit features.  On top of the existing complexity of those regulations, the Rule adds provisions unique to prepaid accounts, including rigorous and specific requirements for pre-acquisition short and long form disclosures and disclosures on the prepaid access device itself. Because much of the Rule applies uniformly across the spectrum of prepaid products, many of the Rule’s real-world applications to actual products will require significant analysis beyond the language of the Rule itself, the CFPB’s samples and illustrations, and currently available guidance. This compliance challenge will require deep familiarity with the existing Reg. E and Reg. Z frameworks, the Rule itself and its rulemaking background, the Rule’s commentary in its current form, and the practical and legal implications of prepaid products.

Some of the complicated applications of the Rule include:

  • Proper formatting and wording of the pre-acquisition short and long form disclosure documents. Both formatting and wording require deep analysis where a prepaid product differs from the CFPB’s samples and illustrations.
  • Determining how many and which additional fees and fee types to disclose on the pre-acquisition short form disclosure.
  • Adequately describing each and every fee on the long form disclosure, including appropriate categorization and grouping of fee types.
  • Navigating the provisions and exceptions applicable to retail and telephone acquisition contexts.
  • Understanding other specific requirements and exceptions, including the tests and thresholds applicable to the posting and submission of cardholder agreements and the re-printing of existing consumer disclosure materials.
  • Applying Reg. Z requirements to hybrid prepaid accounts with credit features, including both disclosures and substantive provisions.
  • Determining where changes to the specific provisions for payroll or government benefit cards are required.
  • Harmonizing new terms and references across all existing product materials without jeopardizing compliance with Reg. E and Reg. Z, as amended by the Rule.

Prepaid issuers and other entities involved with the provision of prepaid products should take advantage of the remaining two months to confirm that their prepaid programs and documentation are fully compliant with the Rule. Compliance risks are particularly significant for prepaid programs in which a third-party program manager or similar entity with more limited compliance resources is responsible for preparing disclosures and consumer-facing materials.  It is even more important in such programs to bring adequate expertise into the review process early enough to work through necessary changes.

Confirming complete compliance with the Rule will require more analysis and diligence than many entities are accustomed to performing in the existing and relatively well-defined worlds of Reg. E and Reg. Z. The universe of prepaid products involves countless unusual or unique features that will not fit neatly within the CFPB’s new framework or model forms. In addition, because the Rule is new and interpretive guidance is limited, the compliance challenge it presents will be particularly difficult.  Ballard Spahr’s Consumer Financial Services group possesses the deep experience with prepaid and other consumer financial products necessary to help navigate the Rule’s complexity, its highly nuanced relationship with existing regulatory regimes, and its implications for specific prepaid account characteristics.

Webinar. On February 27, 2019, from 12:00 p.m. to 1:00 p.m. ET, Ballard Spahr attorneys will hold a webinar, “The Prepaid Rule Takes Effect: Considerations for Properly Implementing the CFPB’s Prepaid Accounts Rule,” to discuss key compliance considerations ahead of the Prepaid Rule’s effective date. The webinar registration form is available here.

The CFPB published two notices in today’s Federal Register seeking OMB approval for two surveys, one dealing with debt collection and the other with household balance sheets.

Debt collection.  The request described in the notice is a resubmission of a previously published request to OMB seeking approval to conduct an online survey of 8,000 individuals as part of its research on debt collection disclosures.  The Bureau withdrew the request in December 2017.  (We surmised that the withdrawal reflected the 30-day regulatory freeze imposed by former Acting Director Mick Mulvaney.)  Comments on the resubmitted request are due on or before March 6, 2019.

In its Fall 2018 rulemaking agenda, the CFPB estimated that a notice of proposed rulemaking regarding debt collection would be issued in March 2019.  The agenda indicated that the NPRM would address “such issues as communication practices and consumer disclosures.”  Since the notice references the CFPB’s “consumer protection rule writing” authority and its reliance on “empirical evidence and rigorous research to improve its understanding of consumer financing markets for regulatory purpose,” the CFPB presumably intends to use the survey results in connection with its debt collection rulemaking.  Accordingly, the survey’s timing would seem to make it unlikely that the Bureau will issue an NPRM in March.

Household balance sheets. The Bureau is seeking OMB approval for a survey entitled “Making Ends Meet” to solicit information on consumers’ experiences “related to household financial shocks and how households respond to those shocks, including the use of credit products that do and do not appear in the [Consumer Credit Panel].”  (The CCP is a proprietary sample dataset from one of the national credit reporting agencies.)  The survey is intended to support the Bureau’s “household balance sheets” research agenda, which the CFPB describes as research that seeks “to monitor developments in consumers’ financial situations, related changes in their use of financial products, and the effects that these decisions have on their balance sheets.”  The CFPB states that the research “will be for general, formative, and informational research on consumer financial markets and consumers’ use of financial products and will not directly provide the basis for specific policymaking at the Bureau.”  Comments are due on or before March 6, 2019.

 

 

The Cato Institute announced that it will hold a policy forum in Washington, D.C. on January 17, 2019 at which the topic will be “Promoting Fintech Innovation and Consumer Choice: The Role of Regulatory Sandboxes.”

The forum will feature Paul Watkins, Director of the CFPB’s Office of Innovation at the CFPB.  He is expected to discuss the Bureau’s “BCFP Product Sandbox” proposal and proposed revisions to its no-action letter policy.

Paul was recently our guest for our weekly podcast series.  In the podcast, in addition to responding to our questions about the sandbox proposal and proposed revisions to the NAL policy, Paul also discussed the Bureau’s proposed revisions to its trial disclosure policy.  To listen to the podcast, click here.

 

 

 

The CFPB, Fed, and OCC have published notices in the Federal Register announcing that they are increasing three exemption thresholds that are subject to annual inflation adjustments. Effective January 1, 2019 through December 31, 2019, these exemption thresholds are increased as follows:

With the August 19, 2019 compliance date for the CFPB’s small dollar lending rule drawing nearer, industry anxiety is growing as to the CFPB’s plans for delaying the compliance date and what changes will be proposed.  In this episode, we review what the rule’s ability to pay and repayment provisions would require and why those provisions are problematic.  We also discuss changes we expect the CFPB to propose, developments in the pending industry lawsuit challenging the rule, and steps companies can take in advance of the compliance date.

To listen and subscribe to the podcast, click here.

 

Yesterday, the court reversed course in the lawsuit filed by two industry trade groups challenging the CFPB’s final payday/auto title/high-rate installment loan rule (Payday Rule).  On its own initiative, the Texas federal district court granted a stay of the Payday Rule’s August 19, 2019 compliance date and continued in force its stay of the lawsuit.  Unfortunately, the court did not specify a termination date for the stay of the compliance date, as the trade groups and CFPB originally requested.  Instead, the compliance date is stayed “pending further order of the court.”

To my mind, the court’s failure to specify how long the stay of the compliance date will remain in effect leaves the Rule’s status hopelessly muddled.  The CFPB has stated that its current plan is to revisit the Payday Rule’s ability-to-repay (ATR) provisions but not its payment provisions.  CFPB officials have indicated that the Bureau intends to propose a delay of the Payday Rule’s ATR provisions but not the payment provisions.  What happens if the CFPB follows through with that plan?  When the parties report that development to the court, might the court just lift its stay of the compliance date, without affording lenders additional time to address the payment provisions?

My guess is that the court intends its stay to function like the tolling of a statute of limitations—meaning that, for each day the stay remains in effect, the August 19 compliance deadline is extended for an additional day.  But alas, the court’s order does not specify this intent.  I hope the parties in the case ask for clarification that the compliance date will be extended day-for-day so long as the stay remains in effect.  Alternatively, the CFPB could announce that it will propose a delay in the compliance date for the payment provisions when it moves forward with its rule-making next January.

Unless and until the court and/or the CFPB clarify their intentions, prudent lenders will continue to prepare for the advent of the payment provisions of the Payday Rule.  As Ned Stark from The Game of Thrones might say (if he were alive):  “August 19 is coming.”

 

 

Earlier today, the Bureau of Consumer Financial Protection released a Public Statement Regarding Payday Rule Reconsideration and Delay of Compliance Date. Echoing rumors that have been circulating in the industry for several weeks (which we had agreed not to address in our blog), the Statement reads in full as follows:

The Bureau expects to issue proposed rules in January 2019 that will reconsider the Bureau’s rule regarding Payday, Vehicle Title, and Certain High-Cost Installment Loans and address the rule’s compliance date. The Bureau will make final decisions regarding the scope of the proposal closer to the issuance of the proposed rules. However, the Bureau is currently planning to propose revisiting only the ability-to-repay provisions and not the payments provisions, in significant part because the ability-to-repay provisions have much greater consequences for both consumers and industry than the payment provisions. The proposals will be published as quickly as practicable consistent with the Administrative Procedure Act and other applicable law.

Of course, the Bureau is correct in observing that the ability-to-repay (ATR) provisions of the Rule “have much greater consequences for both consumers and industry than the payment provisions.”  That is because the ATR provisions, if allowed to go into effect, would largely kill the industry and thus deprive millions of consumers of a source of credit they deem essential.  Nevertheless, the draconian potential consequences of the ATR provisions do not justify leaving the payment provisions intact. These provisions are unduly complicated. They require hard-to-reach consumers to affirmatively reauthorize lender-initiated payment attempts after two consecutive unsuccessful attempts rather than relying on a simpler and more straightforward notice and opt-out regimen.

Also, while the payment provisions are supposedly designed to prevent excessive NSF fees, as we have pointed out in a comment letter to the Bureau and elsewhere, they treat attempts to initiate payments by debit card, where there is no chance of any NSF fee, the same as other forms of payment that can give rise to NSF fees. This treatment of card payments can only be ascribed to the hostility to high-rate lending characteristic of the former leadership of the Bureau. If the Bureau does nothing else with the Rule’s payment provisions, it should certainly correct this wholly indefensible aspect of the Rule.

We note that the Bureau requested an extension until Monday, October 29, to respond to the preliminary injunction motion by the Community Financial Services Association and Consumer Service Alliance of Texas. If the Bureau files its response Monday, we will likely have more to report.