WASHINGTON–– The Consumer Financial Protection Bureau today appears to be dialing back its proposals to tighten rules around payday, vehicle title and other high-cost installment loans, otherwise known as its “Payday Rule.”
The rule was to go into effect today with compliance required on April 19, 2019, but the agency has now issued a statement saying it intends to “engage in a rulemaking process so that the Bureau may reconsider the Payday Rule.”
The Jan. 16 effective date also establishes April 16, 2018 as the deadline to submit an application for preliminary approval to become a registered information system (“RIS”) under the Payday Rule. “However, the Bureau may waive this deadline pursuant to 12 C.F.R. 1041.11(c)(3)(iii),” the CFPB said. “Recognizing that this preliminary application deadline might cause some entities to engage in work in preparing an application to become a RIS, the Bureau will entertain waiver requests from any potential applicant."
The scaling back of the payday lending proposal would seem to be consistent with acting Director Mick Mulvaney’s desire to reduce regulations and oversight by the CFPB.
At the time it announced the rule, the CFPB said, “The Bureau has determined that risky lender practices are pushing borrowers into debt traps or forcing them to cede control of their financial decisions. Chief among these problems is that consumers are being set up to fail with loan payments that they are unable to repay. Faced with unaffordable payments, cash-strapped consumers must choose between defaulting, re-borrowing, or skipping other financial obligations like rent or basic living expenses such as buying food or obtaining medical care.”
The proposed rule had two primary parts. First, for short-term and longer-term loans with balloon payments, the Bureau said it is “identifying it as an unfair and abusive practice for a lender to make such loans without reasonably determining that consumers have the ability to repay the loans according to their terms. The rule generally requires that, before making such a loan, a lender must reasonably determine that the consumer has the ability to repay the loan.”
The Bureau has exempted certain short-term loans from the ability-to-repay determination prescribed in the rule if they are made with certain consumer protections.
Second, the CFPB ruled that for the same set of loans and for longer-term loans with an annual percentage rate greater than 36% that are repaid directly from the consumer’s account, “the rule identifies it as an unfair and abusive practice to attempt to withdraw payment from a consumer’s account after two consecutive payment attempts have failed, unless the lender obtains the consumer’s new and specific authorization to make further withdrawals from the account. The rule also requires lenders to provide certain notices to the consumer before attempting to withdraw payment for a covered loan from the consumer’s account.”
Many payday lenders have said the proposed rule will put them out of business.
CUNA said that it hopes the CFPB strongly considers credit unions as it re-evaluates its proposed rule.
“We greatly appreciate that the CFPB made many of CUNA’s suggested changes in its final rule for payday and small dollar lending," said CUNA Chief Advocacy Officer Ryan Donovan. "We hope that if the CFPB makes any changes to its final rule it still addresses consumer abuse in this market, while considering a full exemption for credit unions, who have been recognized as the safest and most affordable providers for these loans.”
CUToday.info earlier profiled Kinecta FCU, which operates 30 Nix Neighborhood Lending stores, for its views on the proposed rule here.