Bureau reconsidering payday rule, set to take effect Tuesday; rulemaking process in future

Most provisions won't take effect until August, 2019

The payday loan rule, scheduled to take effect now, may be reconsidered, the Consumer Financial Protection Bureau (CFPB) said Tuesday.

In a statement, the bureau said it intends to engage in a rulemaking process that may lead it to reconsider the rule.

Although most provisions of the payday rule (officially known as the “Payday, Vehicle Title, and Certain High-Cost Installment Loans” rule) do not require compliance until Aug. 19 of next year, the effective date marks codification of the payday rule in the Code of Federal Regulations (CFR).

The bureau said it may also waive a deadline for registered information systems (RIS) associated with the rule. “However, the Bureau may waive this deadline pursuant to 12 C.F.R. 1041.11(c)(3)(iii),” the bureau’s statement said. “Recognizing that this preliminary application deadline might cause some entities to engage in work in preparing an application to become a RIS, the Bureau will entertain waiver requests from any potential applicant,” it added.

The final rule, as approved by the agency in October, required payday lenders and others to determine upfront whether consumers can repay their loans. Under the 1,690-page rule, the agency had set a goal of stopping “debt traps” by installing ability-to-repay protections, which apply to loans requiring consumers to repay all or most of the debt at once.

Under the rule, lenders are required to conduct a “full-payment test” to determine upfront that borrowers can afford to repay their loans without re-borrowing. For certain short-term loans, lenders can skip the full-payment test if they offer a “principal-payoff option” that allows borrowers to pay off the debt more gradually.

The rule requires lenders to use credit reporting systems (RIS) registered with the agency to report and obtain information on certain loans. According to the bureau, the rule allows less-risky loan options, including certain loans typically offered by community banks and credit unions, to forgo the full-payment test.

The rule also includes a “debit attempt cutoff” for any short-term loan, balloon-payment loan, or longer-term loan with account access and an annual percentage rate higher than 36% that includes authorization for the lender to access the borrower’s checking or prepaid account.

CFPB Statement on Payday Rule