CFPB Amends Small-Dollar Lending Rule

Key locks on a dollar bill

On July 7, 2020, the Consumer Financial Protection Bureau (CFPB) issued its final small-dollar lending rule, revoking the original rule’s mandatory underwriting provisions but leaving the payment provisions intact. 

Original Rule

The CFPB’s original rule, issued in 2017, had two distinct components. The first included mandatory underwriting requirements on certain covered short-term and longer-term balloon loans, including payday, vehicle title, and high-cost installment loans. The second component involved payment provisions and set limitations on withdrawing payments from consumers’ checking and other accounts.

The original rule was effective on January 16, 2018. On the effective date, the CFPB announced its intent to engage in rulemaking reconsidering the mandatory underwriting provisions of the 2017 rule. 

Revocation of Underwriting Provisions

The final rule revokes provisions of the original rule that state, “it is an unfair and abusive practice for a lender to make a covered short-term or longer-term balloon-payment loan, including payday and vehicle title loans, without reasonably determining that consumers have the ability to repay those loans according to their terms; [and] prescribe mandatory underwriting requirements for making the ability-to-repay determination.” The CFPB says these changes were based on re-evaluations of the legal and evidentiary basis of the original rule provisions. 

Payment Provisions Intact

The new rule doesn’t change the payment provisions of the original rule. These provisions impose certain limitations on how lenders may initiate payments from consumers’ accounts for covered loan payments. Specifically, a lender must provide certain notices to consumers before initiating payment transfers from their accounts and refrain from making prohibited payment transfer attempts under 12 CFR Section 1041.8.

Uncertainty on how to comply with the payment provisions of the small-dollar lending rule for large loans not covered under Regulation Z remains. The CFPB said in its statement on July 7, 2020, that it will continue to monitor and assess the effects of the payment provisions and it “does not intend to take supervisory or enforcement action under the Payment Provisions with regard to covered loans that exceed the Regulation Z coverage threshold.”

The final rule will be effective 90 days after publication in the Federal Register. The final rule is available on the CFPB’s website. Read the CFPB’s statement regarding the final rule here

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