CFPB Proposes Rescinding Major Part of Payday Lending Rule

Consumer Financial Protection Bureau

The Consumer Financial Protection Bureau (CFPB) —under new director Kathy Kraninger— has proposed to rescind the ability-to-repay and information furnishing provisions in its payday lending rule.

Specifically, the Bureau is proposing to rescind the rule’s requirements that lenders make certain underwriting determinations before issuing payday, single-payment vehicle title, and longer-term balloon payment loans.

“The Bureau is concerned that these provisions would reduce access to credit and competition in states that have determined that it is in their residents’ interests to be able to use such products, subject to state-law limitations,” the CFPB said in a news release.

The Leagues and many of our members share that concern. At a CFPB field hearing in 2016, one credit union representative cautioned the CFPB against excessive regulations that could have the unintended consequences of eliminating the availability of small dollar, short-term loans offered by licensed and regulated lenders and forcing consumers to seek assistance from less scrupulous and unregulated entities.

“We are pleased that Director Kraninger also recognizes the potential consumer impact of reduced access to credit and acted swiftly to reconsider the rule and issue proposed amendments,” said Sharon Turley, California and Nevada Credit Union Leagues vice president of regulatory advocacy. “We would prefer a full exemption for credit unions, and a rule that focuses on bad actors. Short of a full exemption, the proposed changes, if made final, will allow credit unions to continue to offer their members with consumer-friendly options. The Payday Rule provides an exemption for loans that meet NCUA’s Payday Alternative Loans (PAL) program. However, many credit unions find the PALs program too restrictive when trying to help their members. If they choose to offer loans with other features, they would be subject to the CFPB’s original Payday Loans Rule and its excessive underwriting and reporting requirements.”

The new proposal would leave intact the NCUA PAL loans exemption and the rule’s payment restrictions, which limit the number of times a lender can try to access a consumer's checking account to two consecutive attempts unless the consumer consents to further withdrawals.

The original rule became effective on Jan. 16, 2018; however, most provisions are not yet required. The Bureau is proposing to delay the compliance date for the provisions it is proposing to remove from Aug. 19, 2019 to Nov. 19, 2020. Delaying the effective date is meant to save industry stakeholders implementation costs and efforts for portions of the rule that may ultimately be rescinded.

The chart below summarizes the specific provisions the Bureau is proposing to rescind or delay.

graph 020819

The reconsideration proposal is open for public comment for 90 days; the proposal to delay the effective date is open for comments for 30 days. Both proposals will be available soon in PowerComment.

The Bureau has issued a summary of proposed reconsideration rule and an unofficial, informal redline of the proposal’s amendments to the regulatory text and commentary of the 2017 Final Rule.


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