The CFPB Issued Proposed Rules Seeking to Rescind Parts of the Payday Lending Rule and to Delay Implementation

On February 6, 2019, the CFPB issued a notice of proposed rule (“NPRM”) seeking, among other things, to rescind the ability to repay and related mandatory underwriting provisions of Payday, Vehicle Title, and Certain High-Cost Installment Loans, which was finalized on October 5, 2017 (“Payday Lending Rule”). The NPRM is especially focused on rescinding the ability to repay and related underwriting requirements of the Payday Lending Rule, as summarized below. Comments to the NPRM are due within 90 days of the publication of the NPRM in the Federal Register.

This NPRM was issued together with a second notice of proposed rulemaking seeking to delay the August 19, 2019 effective date for the mandatory underwriting requirements governing the ability to repay determination, covered by the NPRM, by 15 months, until November 19, 2020 (“Delay Proposal”). Comments to the Delay Proposal are due within 30 days of the publication of the Delay Proposal in the Federal Register.

The following is a summary of the provisions proposed to be rescinded and links materials to aid stakeholders in reviewing the proposed changes.

In the NPRM, the CFPB proposes to rescind the following provisions of the Payday Lending Rule: (i) the “identification” provision which makes it an unfair and abusive practice for a lender to make covered short-term loans or covered longer-term balloon-payment loans without reasonably determining that consumers will have the ability to repay the loans according to their terms; (ii) the “prevention” provision that prescribes mandatory underwriting requirements for making the ability-to-repay determination for the loans referenced in the “identification” provision to prevent such loan from being deemed unfair and abusive practice; (iii) the “conditional exemption” provision for certain covered short-term loans; (iv) the “furnishing” provisions which require lenders making covered short-term or longer-term balloon-payment loans to furnish certain information regarding such loans to registered information systems and create a process for registering such information systems; and (v) the portions of the recordkeeping provisions related to the mandatory underwriting requirements.

In connection with the issuance of the NPRM, the CFPB issued the following unofficial and informal redline of the proposed changes, as well as a table of contents of the NPRM to aid the stakeholders in reviewing the changes proposed in the NPRM.

Takeaways

The NPRM is of significant importance to lenders who are currently making loans that would fall within the definitions of either covered short-term loans or covered longer-term balloon-payment loans. As projected by the CFPB in the preamble to the Payday Lending Rule, it was expected that more than 70% of such lenders in the industry would no longer be able to continue and operate as they did once the rule becomes effective, and thus, would likely close. This would have had a significant detrimental impact on the industry and on the credit availability to the borrowers, served by the industry, who even now, before the effective date of Payday Lending Rule, face significant challenges in securing loans.

Importantly, however, the NPRM does not reconsider the payment-related requirements of the Payday Lending Rule or relieves lenders from the need to a maintain compliance management program that includes policies and procedures reasonably applicable to each lender’s operations to ensure compliance with applicable law when making covered loans.

If you have any questions regarding the NPRM, please reach out to Solomon Maman.

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