CFPB Issues Final Small Loan Rule With Good And Bad News For Industry | Manatt, Phelps & Phillips, srl

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On July 7, the CFPB published its final rule (the 2020 Final Rule) amending the regulations governing payday loans, vehicle title loans, and certain high-cost installment loans. As expected, the CFPB repealed the mandatory subscription provisions of its own final rule dated November 17, 2017 (the 2017 final rule) and reaffirmed the payment provisions of that same rule. In response to doubts that the recent Seila Law decision on the regulatory capacity of the CFPB during the period when it had a director who was not revocable at will by the president, the CFPB issued a ratification document for payment terms.
The repealed provisions

The most discussed provision in the 2017 Final Rule is almost certainly the provision which considered it to be an unfair and abusive practice for a lender to grant a short-term covered loan or a lump sum covered loan. longer term without reasonably determining that the applicant had an ability to repay the loan on his terms. This provision was removed by the 2020 Final Rule, largely out of concern that it would completely cut a particularly vulnerable – and often unbanked – group from the credit market, leaving them nowhere to turn when they did. need emergency funds.

Additional information released alongside the 2020 Final Rule deals with a Federal Reserve survey, the results of which showed that about 25% of adults ignored medical care in 2018 because they couldn’t afford it. and about 40% would be unable to cover an emergency expense. $ 400 or should sell something or borrow money to cover it. CFPB Press release Notes the need for the continued availability of low-cost payday loans- GreendayOnline products, especially given the financial hardship many are experiencing as a result of the COVID-19 pandemic.

The following five provisions were also repealed by the 2020 Final Rule:

  • The provision establishing specific underwriting requirements for short term secured loans or longer term lump sum secured loans
  • The main degressive exemption which allowed lenders to grant short-term covered loans without determining repayment capacity in certain circumstances
  • Provisions requiring lenders to provide certain information regarding covered short-term loans and longer-term lump sum loans to registered information systems
  • The provisions relating to the keeping of registers
  • The provisions relating to the date of compliance

The ratified provisions

The 2020 Final Rule reaffirms the provision prohibiting lenders (or their agents, including payment processors) from making a third attempt to withdraw funds from an account after two consecutive failed attempts without the new consent and consumer specific. The final rule also reaffirms the provisions requiring written notice before the first attempt to withdraw funds and before any subsequent attempt with different dates, amounts or payment channels. The CFPB rejected a request to begin developing rules excluding debit and prepaid cards from these provisions on the grounds that these payment methods do not incur NSF fees.

To help lenders comply with these new requirements, the CFPB has published a set of Payday Loan Rules FAQ and an update Small Entity Compliance Guide. The FAQ includes a discussion of the two types of loans that are exempt from the 2020 Final Rule: certain alternative loans and certain home loans. The FAQ also includes a list of eight types of loans that are excluded from loans covered under the 2020 Final Rule:

  • Buy guaranteed interest loans
  • Secured real estate loan
  • Credit card accounts
  • Student loans
  • Non-recourse pawn shops
  • Overdraft service and lines of credit
  • Payday Advance Loans
  • Free advances

What happens next?

The CFPB plans to monitor and assess the effects of these provisions in order to determine whether further measures are necessary. The CFPB also announced in its press release that it will undertake further research to identify the types of information that should be disclosed to consumers during the small dollar lending process in order to enable them to make more informed choices.

The provisions that the CFPB reaffirmed and ratified (along with the rest of the 2017 Final Rule) are currently suspended by an order from the United States District Court for the Western District of Texas, Austin Division, but the release CFPB press release indicates that it will seek to put them into effect within a reasonable period of time for the entities to comply.

There may still be additional challenges to the 2020 Final Rule on both sides: consumer protection groups challenging the repealed provisions and lenders challenging the reaffirmed and ratified provisions. In addition, the Seila Law The decision brought an elephant into the room with the possibility that a new CFPB director appointed by a new president will rewrite those rules in 2021.

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