The CFPB issued its final payday loan rule yesterday in a release running 1,690 pages.  Lenders covered by the rule include nonbank entities as well as banks and credit unions. In addition to payday loans, the rule covers auto title loans, deposit advance products, and certain high-rate installment and open-end loans.  The final rule becomes effective 21 months after publication in the Federal Register (except for certain provisions necessary to implement the rule’s consumer reporting requirements, which become effective 60 days after the rule’s publication).

On November 9, 2017, from 12 p.m. to 1 p.m. ET, we will hold a webinar, “First Takes on the CFPB Small Dollar Rule: What It Means for You.”  The webinar registration form is available here.

The final rule establishes limitations for a “covered loan,” which can be either (1) any short-term consumer credit with a term of 45 days or less, (2) any longer-term balloon-payment consumer credit, or (3) longer-term consumer credit with a term of more than 45 days and without a balloon payment where (i) the total cost of credit exceeds an annual rate of 36%, and (ii) the lender obtains a form of “leveraged payment mechanism” giving the lender a right to initiate transfers from the consumer’s account.

Among the changes from the CFPB’s proposal: vehicle security is no longer relevant to whether longer-term credit is a “covered loan” and a “leveraged payment mechanism” no longer includes payments obtained through a payroll deduction or other direct access to the consumer’s paycheck.

The final rule excludes from coverage (1) purchase-money credit secured by the car or other consumer goods purchased, (2) real property or dwelling-secured credit if the lien is recorded or perfected, (3) credit cards, (4) student loans, (5) non-recourse pawn loans, (6) overdraft services and overdraft lines of credit, (7) alternative loans that meet conditions similar to those applicable to loans made under the NCUA’s Payday Alternative Loan Program, and (8) subject to certain conditions, employer wage advance programs, no cost-advances, and accommodation loans.

The final rule contains an “ability to repay” requirement for covered short-term credit and longer-term balloon payment credit but provides an alternative.  A lender must choose between:

  • A “full payment test,” under which the lender must make a reasonable determination of the consumer’s ability to repay the loan and cover major financial obligations and living expenses over the term of the loan and the succeeding 30 days.  Under this test, the lender must take account of the consumer’s basic living expenses and obtain and verify evidence of the consumer’s income and major financial obligations  Unlike the proposed rule, the final rule does not require income verification in all instances.  In circumstances where a lender determines that a reliable income record is not reasonably available, such as when a consumer receives some income in cash and spends that money in cash, the lender can reasonably rely on the consumer’s statements alone as evidence of income.  Further new liberality allows a lender to verify housing expenses other than a payment for a debt obligation that appears on a national consumer report by reasonably relying on the consumer’s written statement.  The final rule does not include the proposal’s presumptions of unaffordability.  Among other changes from the proposal, the final rule permits lenders and consumers to rely on income from third parties, such as spouses, to which the consumer has a reasonable expectation of access as part of the ability to repay determination and permits lenders in certain circumstances to consider whether another person is regularly contributing to the payment of major financial obligations or basic living expenses.  A 30-day cooling off period applies after a sequence of three covered short-term or longer-term balloon payment loans.
  • A “principal-payoff option,” under which the lender can make up to three sequential loans in which the first has a principal amount up to $500, the second has a principal amount that is at least one-third smaller than the principal amount of the first, and the third has a principal amount that is at least two-thirds smaller than the principal amount of the first.  A lender could not use this option if (1) the consumer had in the past 30 days an outstanding covered short-term loan or an outstanding longer-term balloon payment loan, and (2) the new loan would result in the consumer having more than six covered short-term loans during a consecutive 12-month period or being in debt for more than 90 days on covered short-term loans during a consecutive 12-month period.  When using this option, the lender cannot take vehicle security or structure the loan as open-end credit.

In a major change from the proposal, the final rule does not include an underwriting requirement for covered longer-term credit without a balloon payment.  Instead, for such credit, lenders are subject only to the final rule’s “penalty fee prevention” provisions, which apply to all covered loans.  Under these provisions:

  • If two consecutive attempts to collect money from a consumer’s account made through any channel are returned for insufficient funds, the lender cannot make any further attempts to collect from the account unless the consumer has provided a new and specific authorization for additional payment transfers.  The final rule contains specific requirements and conditions for the authorization.
  • A lender generally must give the consumer at least three business days advance notice before attempting to collect payment by accessing a consumer’s checking, savings, or prepaid account.  The notice must include information such as the date of the payment request, payment channel, payment amount (broken down by principal, interest, fees, and other charges), and additional information “unusual attempts,” such as when the payment is for a different amount than the regular payment or initiated on a date other than the date of a regularly scheduled payment.

The final rule also requires the CFPB’s registration of consumer reporting agencies as “registered information systems” to whom lenders must furnish information about covered short-term and longer-term balloon payment credit and from whom lenders must obtain consumer reports for use in extending such credit.  If there is no registered information system or if no registered information system has been registered for at least 180 days of the final rule’s 21-month effective date, lenders will be unable to use the “principal-payoff” option.  The CFPB expects that there will be at least one registered information system by the effective date.

 

On September 5, 2017, the CFPB entered into a consent order with Zero Parallel, LLC (“Zero Parallel”), an online lead aggregator based in Glendale, California. At the same time, it submitted a proposed order in the U.S. District Court for the Central District of California, where it is litigating with Zero Parallel’s CEO, Davit Gasparyan. Zero Parallel and Gasparyan agreed to pay a total of $350,000 in civil money penalties to settle claims brought by the CFPB.

In the two actions, the CFPB claimed that Zero Parallel, with Gasparyan’s substantial assistance, helped provide loans to consumers which would be void under the laws of the states in which the consumers lived. Zero Parallel allegedly facilitated the loans by acting as a lead aggregator. In that role, Zero Parallel collected information that consumers entered into various websites indicating that they were interested in taking out payday or installment loans. Zero Parallel then transmitted consumers’ information to various online lenders which evaluated the consumers’ information. The lenders then decided whether they wished to make the loans. If they did, the lenders purchased the leads from Zero Parallel and interacted directly with consumers to complete the loan transactions. (More on the lead generation process in our previous blog postings.)

In some cases, the lenders who purchased the leads offered loans on terms that were prohibited in the states where the consumers resided. The CFPB claims that such loans were therefore void. Because Zero Parallel allegedly knew that the leads it sold were likely to result in void loans, the CFPB alleged that Zero Parallel engaged in abusive acts and practices. Under the consent order, and the proposed order, if it is entered, Zero Parallel will be prohibited from selling leads that would facilitate such loans. To prevent this from happening, the orders require Zero Parallel to take reasonable steps to filter the leads it receives so as to steer consumers away from these allegedly void loans.

The CFPB also faulted Zero Parallel for failing to ensure that consumers were adequately informed about the lead generation process. This allegedly caused consumers to get bad deals on the loans they took out.

Consistent with our earlier blog posts about regulatory interest in lead generation, we see two takeaways from the Zero Parallel case.  First, the CFPB remains willing to hold service providers liable for the alleged bad acts of financial services companies to which they provide services. This requires service providers to engage in “reverse vendor oversight” to protect themselves from claims like the ones the CFPB made here.  Second, the issue of disclosure on websites used to generate leads remains a topic of heightened regulatory interest. Financial institutions and lead generators alike should remain focused such disclosures.

The CFPB’s Spring 2017 rulemaking agenda has been published as part of the Spring 2017 Unified Agenda of Federal Regulatory and Deregulatory Actions.  The preamble indicates that the information in the agenda is current as of April 1, 2017.  Accordingly, the agenda does not reflect the issuance of the CFPB’s final arbitration rule on July 10 or other rulemaking actions taken since April 1 such as the proposed changes to the CFPB’s prepaid account rule and various recent mortgage-related developments.  In addition, the agenda and timetables are likely to be significantly impacted should Director Cordray leave the CFPB this fall to run for Ohio governor as has been widely speculated.

The agenda sets the following timetables for key rulemaking initiatives:

Payday, title, and deposit advance loans.  The CFPB released its proposed rule on payday, title, and high-cost installment loans in June 2016 and the comment period ended on October 22, 2016.  The Spring 2017 agenda gives a June 2017 date for completing the initial review of comments (which the CFPB states in the preamble numbered more than one million) but does not give an estimated date for a final rule.  There has been considerable speculation that a final rule will be issued by the end of next month.

Debt collection.  In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection.  In July 2016, it issued an outline of the proposals it is considering in anticipation of convening a SBREFA panel.  The coverage of the CFPB’s SBREFA proposals was limited to “debt collectors” that are subject to the FDCPA.  When it issued the proposals, the CFPB indicated that it expected to convene a second SBREFA panel in the “next several months” to address a separate rulemaking for creditors and others engaged in debt collection not covered by the proposals.  However, Director Cordray announced last month that the CFPB has decided to proceed first with a proposed rule on disclosures and treatment of consumers by debt collectors and thereafter write a market-wide rule in which it will consolidate  the issues of “right consumer, right amount” into a separate rule that will cover first- and third-party collections.

In the Spring 2017 agenda, the CFPB gives a September 2017 date for a proposed rule.  Presumably, that date is for a proposal that will deal with disclosures and treatment of consumers by debt collectors.  The new agenda gives no estimated dates for the convening of a second SBREFA panel or a proposed second rule.  In the preamble to the new agenda, the CFPB states only that it “has now decided to issue a proposed rule later in 2017 concerning FDCPA collectors’ communications practices and consumer disclosures.  The Bureau intends to follow up separately at a later time about concerns regarding information flows between creditors and FDCPA collectors and about potential rules to govern creditors that collect their own debts.”

Larger participants.  The CFPB states in the Spring 2017 agenda that it “expects to conduct a rulemaking to define larger participants in the markets for consumer installment loans and vehicle title loans for purposes of supervision.”  It also repeats the statement made in previous agendas that the CFPB is “also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to the Bureau by both consumer advocates and industry groups.”  (Pursuant to Dodd-Frank Section 1022, the CFPB is authorized to “prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”)  The new agenda estimates a June 2017 date for prerule activities and a September 2017 date for a proposed rule.

Overdrafts.  The CFPB issued a June 2013 white paper and a July 2014 report on checking account overdraft services.  In the Spring 2017 agenda, as it did in its Fall 2015 agenda and Fall and Spring 2016 agendas, the CFPB states that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the opt-in process.”  Although the Fall 2016 agenda estimated a January 2017 date for further prerule activities, the new agenda moves that date to June 2017.  As we have previously noted, the extended timeline may reflect that the CFPB feels less urgency to promulgate a rule prohibiting the use of a high-to-low dollar amount order to process electronic debits because most of the banks subject to its supervisory jurisdiction have already changed their processing order.

Small business lending data.  Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data includes the race, sex, and ethnicity of the principal owners of the business.  The new agenda estimates a June 2017 date for prerule activities.  The CFPB repeats the statement made in the Fall 2016 agenda that it “is focusing on outreach and research to develop its understanding of the players, products, and practices in business lending markets and of the potential ways to implement section 1071.  The CFPB then expects to begin developing proposed regulations concerning the data to be collected and determining the appropriate procedures and privacy protections needed for information-gathering and public disclosure under this section.”

Mortgage rules.  Earlier this month, the CFPB issued a proposed rule dealing with a lender’s use of a Closing Disclosure to determine if an estimated charge was disclosed in good faith.  The Spring 2017 agenda gives a March 2018 estimated date for issuance of a final rule.  This past March, the CFPB issued a proposal to amend Regulation B requirements relating to the collection of consumer ethnicity and race information to resolve the differences between Regulation B and revised Regulation C.  The Spring 2017 agenda gives an October 2017 estimated date for a final rule.

 

 

I recently blogged about the rumor I heard from a reliable source that the CFPB will issue a final arbitration rule by the end of July.  That rumor appears to be gaining traction, with a major industry trade group telling its members today that it expects the CFPB to issue a final arbitration rule “very soon.”

If and when the CFPB issues a final rule, it will have a compliance date that is the 211th day after the rule is published in the Federal Register (which is approximately seven months after publication).  The same source who told me that a final rule will be issued by the end of July also told me that Director Cordray will leave the CFPB in the fourth quarter of this year to run for Ohio governor.  If a final rule were to be issued this month and Director Cordray were to resign by year-end, that would mean compliance with a final arbitration rule would not yet be required when Director Cordray leaves.

Assuming a new CFPB Director appointed by President Trump was in place before the compliance date of a final arbitration rule, could the new Director stay the compliance date?  The decision issued earlier this week by the U.S. Court of Appeals for the D.C. Circuit in Clean Air Council v. Pruitt raises questions as to whether Director Cordray’s successor could validly issue such a stay unilaterally.  In that decision, the D.C. Circuit ruled that the EPA lacked authority to stay the compliance date of an EPA rule concerning methane and other greenhouse gas emissions and vacated the stay.

The EPA rule became effective in August 2016 and required regulated entities to conduct a monitoring survey by June 3, 2017.  After several industry associations filed a petition with the EPA seeking reconsideration of the rule and a stay of the compliance date pending reconsideration, the new EPA Administrator appointed by the Trump Administration announced that the EPA was convening a proceeding for reconsideration and issued a 90-day stay of the compliance date.  The EPA thereafter published a notice of proposed rulemaking and announced its intention to extend the stay for two years while it reconsidered the rule.  Several environmental groups then challenged the stay in the D.C. Circuit.

While agreeing with the EPA that an agency’s decision to grant a petition to reconsider a regulation is not a reviewable final agency action, the D.C. Circuit ruled that it did have authority to determine whether the stay was lawful.  According to the D.C. Circuit, by suspending the rule’s compliance date, the EPA’s stay was essentially an order delaying the rule’s effective date and therefore “tantamount to amending or revoking a rule.”  As a result, the D.C. Court concluded that it had jurisdiction to review the stay order’s validity.

The D.C. Circuit rejected the EPA’s reliance on its broad discretion to reconsider its own rules, observing that while agencies do have such broad discretion, they must comply with the Administrative Procedure Act (APA), including its notice and comment requirements.  It also rejected the EPA’s argument that it had inherent authority to stay or not enforce a final rule while it reconsidered the rule, and instead deemed it necessary for the EPA to “point to something in either the Clean Air Act or the APA” giving it authority to stay the rule.  The court then concluded that the only provision cited by the EPA, a Clean Air Act provision, did not give it the claimed authority because that provision only allowed a stay if reconsideration was mandatory and the court found reconsideration was not required.  However, the court also noted that “nothing in this opinion in any way limits the EPA’s authority to reconsider the final rule and to proceed with its June 16 NPRM.”

Based on the  D.C. Circuit’s Clean Air Council decision, it appears that while a new CFPB Director could issue a NPRM to reconsider a final arbitration rule, he or she might be unable to unilaterally stay the final rule’s compliance date.  Instead, it could be necessary for the new Director to propose a stay of the final rule pending its reconsideration that would be subject to notice and comment.

It is also possible that the CFPB will issue a final payday loan rule in the next few months.  Since the CFPB stated in its proposed rule that a final rule would generally not become effective until 15 months after its publication in the Federal Register and Director Cordray’s term expires in July 2018, even if Director Cordray stays at the CFPB until the end of his term, a new CFPB Director should be in place before a final payday loan rule becomes fully effective. However, any stay of a final payday loan rule’s effective date by a new Director could similarly be subject to notice and comment.

Other possible routes exist for overturning a final arbitration or payday loan rule.  Either rule could be invalidated through legislation eliminating the CFPB’s authority to issue such rule, a resolution of disapproval under the Congressional Review Act, or a lawsuit challenging the rule’s validity based on the CFPB’s failure to comply with Section 1028 of Dodd-Frank (which authorized the CFPB to regulate pre-dispute consumer financial services arbitration provisions) and/or the APA.

 

The CFPB’s Fall 2016 rulemaking agenda has been published as part of the Fall 2016 Unified Agenda of Federal Regulatory and Deregulatory Actions.  The preamble indicates that the information in the agenda is current as of October 19, 2016.  Accordingly, given the results of the Presidential election, including its potential impact on the CFPB’s leadership, there is likely to be a post-election reevaluation by the CFPB of its agenda.  The agenda sets the following timetables for key rulemaking initiatives:

Arbitration.  The CFPB released its proposed arbitration rule in May 2016 and the comment period ended on August 22, 2016.  The Fall 2016 agenda indicates that the CFPB “is reviewing and considering comments on the proposed rule” as it “considers development of a final rule for early 2017.”  The agenda gives a February 2017 estimated date for a final rule.  In recent days, we have heard speculation that the CFPB will issue a final rule before Donald Trump’s inauguration as President on January 20.  As we discussed in a recent blog post, a final arbitration rule or other new final rules issued by the CFPB (and potentially any final rules issued since late May 2016) could be nullified by Congress under the Congressional Review Act (CRA).  The CRA establishes a special set of procedures that allow Congress to pass a joint resolution disapproving a rule which cannot be filibustered in the Senate and can be passed by only a simple majority vote.

Payday, title, and deposit advance loans.  The CFPB released its proposed rule on payday, title, and high-cost installment loans in June 2016 and the comment period ended on October 22, 2016.  While there has also been speculation that the CFPB will attempt to finalize a rule by January 20, that possibility seems more remote given the unprecedented level of comments (approximately one million) received by the CFPB and the complexity of the proposed rule.  The Fall 2016 agenda does not give an estimated date for a final rule.

Debt collection.  In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection.  In July 2016, it issued an outline of the proposals it is considering in anticipation of convening a SBREFA panel.  It has been reported that the SBREFA panel for the CFPB’s debt collection rulemaking met with small entity representatives (SER) at the end of August 2016.  Within 60 days from the date it is considered to have “convened,” the panel must submit a report to the CFPB on the input received from the SERs.  However, the report will not become public until the CFPB issues its proposed rule.

The CFPB’s proposals only cover “debt collectors” that are subject to the FDCPA.  They are not intended to apply to a first-party creditor collecting its own debts or to a servicer when collecting debts that were current when servicing began to the extent the creditor or servicer would not be a “debt collector” under the FDCPA.  When it issued the proposals, the CFPB stated that it “expects to convene a second proceeding in the next several months” for creditors and others engaged in debt collection not covered by the proposals, noting that it believes a separate SBREFA process “is the most efficient way to proceed, particularly because it will allow participants to provide more focused and specific insights.”

In the Fall 2016 agenda, the CFPB states that it “expects to convene a separate SBREFA proceeding focusing on companies that collect their own debts in 2017.”  The agenda gives a February 2017 estimated date for further prerule activities.

Overdrafts.  The CFPB issued a June 2013 white paper and a July 2014 report on checking account overdraft services.  In the Fall 2016 agenda, as it did in its Fall 2015 and Spring 2016 agendas, the CFPB states that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the opt-in process.”  Although the Spring 2016 agenda estimated an August 2016 date for further prerule activities, the new agenda moves that date to January 2017.  As we have previously noted, the extended timeline may reflect that the CFPB feels less urgency to promulgate a rule prohibiting the use of a high-to-low dollar amount order to process electronic debits because most of the banks subject to its supervisory jurisdiction have already changed their processing order.

Larger participants.  As it did in its Fall 2015 and Spring 2015 agendas, the CFPB states in the Fall 2016 agenda that it is considering “larger participant” rules “in markets for consumer installment loans and vehicle title loans for purposes of supervision.”  It also repeats its previous statement that the CFPB is “also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to the Bureau by both consumer advocates and industry groups.”  (Pursuant to Dodd-Frank Section 1022, the CFPB is authorized to “prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”)  While the Spring 2016 agenda estimated a December 2016 date for prerule activities, the new agenda estimates a May 2017 date.

Small business lending data.  Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data include the race, sex, and ethnicity of the principal owners of the business.  While the Spring 2016 agenda estimated a December 2016 date for prerule activities, the new agenda estimates a March 2017 date.  The CFPB states in the Fall 2016 agenda that it “is focusing on outreach and research to develop its understanding of the players, products, and practices in business lending markets and of the potential ways to implement section 1071.  The CFPB then expects to begin developing proposed regulations concerning the data to be collected and determining the appropriate procedures and privacy protections needed for information-gathering and public disclosure under this section.”

Mortgage rules.  In July 2016, the CFPB issued a proposed rule containing both substantive amendments and technical corrections to the final TILA-RESPA Integrated Disclosure rule.  The comment period on the proposal ended on October 18, 2016 and the Fall 2016 agenda gives a March 2017 estimated date for issuance of a final rule.  The Fall 2016 agenda gives a March 2017 estimated date for a proposed rule “to amend certain provisions of Regulation C to make technical corrections and to clarify certain requirements under Regulation C” and a proposed rule “to amend Regulation B to reconcile how creditors may collect information about the ethnicity and race of applicants to clarify how financial institutions and creditors subject to Regulation C and Regulation B may comply with both regulations.”

Student Loan Servicing and Consumer Reporting.  As they were in the Fall 2015 and Spring 2016 agendas, both of these topics continue to be listed in the Fall 2016 agenda as “long-term action” items with no estimated dates for further action.  The Office of Management and Budget defines “long-term action” items as “items under development but for which an agency does not expect to have a regulatory action within 12 months after publication of this edition of the Unified Agenda.”

The Consumer Financial Services Association of America (CFSA) issued a statement in which it reported that documents it received from the CFPB in response to a Freedom of Information (FOIA) request filed on December 31, 2015 “reveal for the first time more than 12,000 positive testimonials that payday loan customers submitted to the [CFPB] as part of the Bureau’s “Tell Your Story” initiative.”

According to the CFSA, during the five-year period covered by the FOIA request, 12,308 comments (or more than 98%) of the 12,546 comments submitted on short-term loans praised the industry and its products and services, or otherwise indicated positive experiences.  The CFSA reported that the FOIA documents revealed that only an extremely small number of critical payday lending comments were submitted to the CFPB – just 240 or less than 2%.  (According to the CFSA, of the 240 negative comments, 84 comments were mistakenly categorized as payday lending comments.)

The CFSA observed that this data is consistent with complaint data from the CFPB and FTC.  It stated that “[s]ince the CFPB’s complaint portal came online in 2011, complaints regarding payday loans have been miniscule – just 1.5% of all complaints.  Meanwhile, these complaints continue to decline.”  The CFSA also stated that “[i]n its summary of 2015 consumer complaints, the FTC found that just 0.003% of more than three million complaints related to payday lending.”

The CFPB issued its payday loan proposal in June 2016 and comments are due by October 7, 2016.  The CFSA asserted that, by pursuing this proposal, the CFPB is “ignoring the positive experiences shared by consumers.”

 

The Small Business Administration’s Office of Advocacy will host a roundtable in London, Kentucky on September 14, 2016 on the CFPB’s proposed payday loan rule.  As the Office of Advocacy is an independent office within the U.S. Small Business Administration, the views expressed by the Office of Advocacy do not necessarily reflect the views of the SBA or the Administration.  According to the Office, the roundtable will focus on the proposal’s potential economic impact on small entities and rural communities and feasible alternatives that might be available that would achieve the regulatory objectives in a less costly way.  The tentative agenda indicates that a CFPB representative has been invited to attend.

Prior to issuing its proposed payday loan rule, the CFPB convened a SBREFA panel that met with small entity representatives (SERs) to provide input on the proposals under consideration by the CFPB.  The Chief Counsel for Advocacy was a member of the SBREFA panel.  We understand that the Office of Advocacy views the roundtables as an opportunity for all small businesses (such as those that did not serve as SERs) to provide input on the CFPB’s proposal.  The Office of Advocacy has indicated that it is planning to hold additional roundtables on the CFPB’s payday loan proposal in Madison, WI and Washington, D.C. and submit a comment letter to the CFPB based on the input received at the roundtables.

We understand that the Office of Advocacy expects to post information about the roundtables on its website.

 

The CFPB’s proposed payday loan rule and related Request for Information (RFI) were published in this past Friday’s Federal Register.  The RFI seeks feedback regarding consumer protection concerns pertaining to (1) loan products outside the scope of the proposed payday loan rule, and (2) “risky” credit practices not covered by the proposed rule.

When they were issued in June, the proposal and RFI had comment deadlines of, respectively, September 14, 2016 and October 14, 2016.  In the version published in the Federal Register, the comment deadline for the payday loan proposal is extended to October 7.  However, October 14 remains the comment deadline for the RFI in the published version.

 

 

A group of 27 Democratic Senators joined by Independent Senator Bernie Sanders have sent a letter to Director Cordray urging the CFPB to “strengthen” its proposed payday loan rule.

The Senators take aim at the proposal’s exemptions from an ability to repay (ATR) analysis for both short-term and longer-term credit.  The proposal’s ATR exemption can only be used if it would not result in the consumer having more than six covered short-term loans during a consecutive 12-month period or being in debt for more than 90 days on covered short-term loans during a consecutive 12-month period.  The Senators want the CFPB “to reconsider the six loan exemption and implement strong ability to pay requirements.”  For longer-term credit, they want the CFPB “to strengthen the analysis that lenders must undertake to ensure that borrowers have enough money to pay all basic living expenses.”

The Senators also express concern with the proposal’s 30-day “cooling off” or waiting period for short-term credit.  In particular, the Senators question the CFPB’s rationale for not using a 60-day waiting period, which the CFPB had indicated it was considering in the outline of its proposals used by the SBREFA panel.  The Senators state that “[b]y reducing the cooling off period, the CFPB’s protection against repeated borrowing is substantially weakened.”  They urge the CFPB “to ensure that a cooling off period is long enough that borrowers can manage their expenses and are not reborrowing to service prior short-term loans.”

 

The Independent Community Bankers of America and the Credit Union National Association have sent a letter to Director Cordray “to express serious concerns” about the CFPB’s proposed rule covering single-payment payday and auto title loans, deposit advance products, and certain high-rate installment and open-end loans.

ICBA and CUNA state that the proposal “if finalized in its current form, would unquestionably disrupt lending by credit unions and community banks.”  The trade groups indicate that they believe the proposal’s “extremely complex and prescriptive nature” and its resulting compliance burdens will lead community banks and credit unions “to curtail or eliminate existing products and remove incentives to innovate or develop new consumer-friendly, short-term products and small dollar loans.”  According to the groups, the proposal’s requirements, including its exceptions to an ability to repay analysis, are “inconsistent with how credit unions and community banks that know their members and customers underwrite a loan for a relatively small amount of money.”

ICBA and CUNA indicate that  the proposal’s exceptions need to be broader for community banks and credit unions to remain in the small dollar loan market.  The groups state that they plan to submit detailed comment letters outlining their specific concerns about how the proposal will limit credit availability from community banks and credit unions.