CFPB Proposes Changes to Small-Dollar Rule

Feb 6, 2019Federal Regulation, News

Earlier today, the Consumer Financial Protection Bureau (CFPB) issued a notice of proposed rulemaking to rescind certain provisions of the final rule regarding “Payday, Vehicle Title, and Certain High-Cost Installment Loans,” also known as the small-dollar rule or the payday rule.

More specifically, the CFPB has proposed rescinding the final rule’s “Ability-to-Repay” (ATR) requirements, 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 Rule would force these lenders to ascertain a borrower’s ability-to-repay a loan, requiring a fairly substantial increase in underwriting costs.

In rescinding this rule, the CFPB argued that this provision may “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 also argued that the evidence used to impose the ATR requirements was not “sufficiently robust and reliable.” The CFPB announced that it would be accepting public comments for a period of 90 days.

The notice of proposed rulemaking specifically mentioned the Tribal Consultation meeting it held on December 19, 2018. The CFPB said that the meeting “generated frank and valuable input from Tribal leaders to Bureau senior leadership and staff about the effects such a proposal could have on Tribal nations and lenders.”

The CFPB also proposed extending the compliance date for the mandatory underwriting provisions of the final rule from August 2019 to November 2020. The federal agency argued that without extending the compliance date, “industry participants will expend significant resources and incur significant costs in order to comply with the 2017 Final Rule, and industry participants could experience substantial revenue disruptions that could impact their ability to stay in business once the compliance date has passed.” The open comment period for this proposed rule is 30 days.

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