CFPB Delays Compliance Date for the Underwriting Provisions of the Small-Dollar Rule

The Consumer Financial Protection Bureau (CFPB) announced earlier today that it would extend the compliance date for the mandatory underwriting provisions (i.e. ability-to-repay standards) of the Small-Dollar Rule, also known as the Payday Rule. Those provisions will now go into effect on November 19, 2020.

Without the extension, the mandatory underwriting provisions were set to go into effect in August of this year, which would have applied to lenders with (1) loans of less than 45 days, (2) short-term auto-title loans, and (3) longer-term balloon-payment loans. The provisions would require covered lenders to conduct an expensive analysis to ascertain a borrower’s ability-to-repay a loan, leading to a fairly substantial increase in underwriting costs.

In February, the CFPB issued two notices of proposed rulemaking (NPRM) that would change the Small-Dollar Rule. The first NPRM extended the compliance date for the underwriting provisions. The second NPRM rescinded the underwriting standards altogether. CFPB’s decision to extend the compliance date for the underwriting provisions of the rule provides the federal agency more time to determine how to amend the provisions before they go into effect.

The payment provisions of the Small-Dollar Rule remain in effect, despite concern from stakeholders that the data used to justify the payment provisions are not sufficiently robust nor reliable. Without CFPB action, the payment provisions will go into effect in August 2019.