Payday lending rule, with promise of ‘reconsidered’ proposal, continues long string of action (and inaction)

When the federal consumer financial protection agency announced Friday that it would issue a proposal to ‘reconsider’ its payday lending regulation, it signaled yet a new chapter for a final rule that was issued more than a year ago.

The Bureau of Consumer Financial Protection (BCFP, formerly known as the CFPB) on Friday issued a statement saying that proposed rules that will “reconsider” its regulations regarding payday lending are expected to be issued in January. The bureau gave little additional information, other than saying it will make final decisions regarding the proposal’s scope closer to its issuance at the beginning of 2019.

However, the agency did say it only plans to propose revisiting the “ability-to-repay provisions” and not the payments provisions of the regulation. The bureau statement said it was making that distinction “in significant part because the ability-to-repay provisions have much greater consequences for both consumers and industry than the payment provisions.”

Friday’s statement marked the latest turn of the worm for a rule that was originally issued in October 2017, and has since seen the resignation of one bureau director, the controversial appointment of an acting bureau leader, the renaming of the agency (by essentially shuffling the letters in its acronym), the nomination of a new permanent director (whose nomination is pending before the Senate), and at least one court challenge to the rule’s effective date.

Here’s a timeline of developments about the rule (in addition to the “key dates” graphic at right):

Oct. 5, 2017: CFPB Director Richard Cordray issues the final payday rule, officially known as the “Payday, Vehicle Title, and Certain High-Cost Installment Loans,” and 1,690 pages long. In a conference call with the press, he says the rule is based on the the principle that lenders must actually evaluate the borrower’s chances of success before making a loan, which he calls “just plain common sense.” Under the final rule, lenders must 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. Cordray said the “full-payment test” requires lenders to verify the consumer’s income if evidence is reasonably available and pull a credit report to verify financial obligations. The rule also protects borrowers, he said, by capping at three the number of short-term loans that lenders can make in quick succession.

Oct. 5: Guidance to national banks issued four years before about “Deposit Advance Products” – including payday and other small-dollar, short-term loans – is rescinded by the Office of the Comptroller of the Currency (OCC), in response to the CFPB’s new payday lending rule. “The final rule regarding short-term, small-dollar loans submitted to the Federal Register by the Consumer Financial Protection Bureau necessitates revisiting the OCC guidance,” said Acting Comptroller Keith Noreika in a statement. “The OCC may consider issuing new guidance in the future,” he added.

Nov. 16: Final rule is finally published in Federal Register, giving it an overall effective date in mid-January 2018 (but with most parts of the rule becoming effective in August 2019).

Nov. 24: Cordray resigns as director; names Leandra English as deputy (to assume director role after Cordray leaves at end of day). President Donald Trump that evening designates Director of the Office of Management and Budget (OMB) John (“Mick”) Mulvaney as Acting CFPB Director; Mulvaney will hold both jobs. (Note: English attempts to block appointment by filing suit in federal court; Mulvaney/White House ultimately prevail, English drops her suit the following spring.) Cordray later declares his candidacy for governor of Ohio.

Jan. 16, 2018: Payday rule officially takes effect; CFPB Acting Director Mulvaney issues statement saying the agency intends to engage in a rulemaking process that may lead it to reconsider the rule. (Although most provisions of the rule did not require compliance until Aug. 19, 2019, the effective date marked codification of the payday rule in the Code of Federal Regulations, or CFR). The bureau also notes that the effective date established April 16, 2018, as the deadline to submit an application for preliminary approval to become a registered information system (“RIS”) under the rule. “However, the Bureau may waive this deadline pursuant to 12 C.F.R. 1041.11(c)(3)(iii),” the agency stated. “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.”

March 14: In the midst of issuing a series of “requests for information” (RFIs) seeking public comment on various bureau policies and procedures (which began in January), the agency issues its ninth request, focusing on adopted regulations and new rulemaking authorities. However, the agency specifically states that it is not looking for comments on the payday rule “because “the Bureau has previously announced that it intends to engage in rulemaking processes to reconsider” that rule.

May 18: Congress lets slip a deadline under the Congressional Review Act (CRA) to vote to eliminate the payday regulation. That was the end of a period of 60 “legislative days” (days that Congress is in session) to take action on the rule since it was issued by the bureau. The bureau gave no additional clues as to future intentions, except to keep action to “reconsider” the rule on the bureau’s regulatory agenda.

May 23: The OCC issues a bulletin encouraging banks and savings institutions to provide consumers short-term, small-dollar installment loans – and offering principles and polices to help them do so without running afoul of a federal payday lending rule. Mulvaney applauds the comptroller for addressing the need for small, short-term loans.

June 14: A federal district court in Texas judge found the regulation’s effective date for most of its provisions (August 2019) remains in force, denying a request by Acting Director Mulvaney and two payday lender advocacy groups to delay the effective date. The court had received motions filed by four consumer groups challenging the payday lenders’ groups efforts (with the agency’s support) to delay the compliance date of the rule.

July 31: Treasury report (the fourth and final report in a series that responded to President Trump’s 2017 executive order focusing on regulatory core principles) recommends that the bureau rescind its payday rule. “Treasury also recommends that regulators take steps to encourage sustainable and responsible short-term, small-dollar installment lending by banks,” the report stated. “Specifically, Treasury recommends that the FDIC reconsider its guidance on direct deposit advance services and issue new guidance similar to the OCC’s core lending principles for short-term, small-dollar installment lending,” it also stated.

Oct. 17: Bureau issues fall rulemaking agenda; bureau notes (in a blog post) that a proposal that could change the payday lending rule currently set to kick in next August is expected to be out for comment by the spring of 2019.

Oct. 26: Bureau issues statement that proposed rules that will “reconsider” its rules regarding payday lending are expected to be issued in January.