Payday: CFPB proposals rescind ability-to-repay, delay their implementation to Nov. 2020

Proposed rulemakings to eliminate the ability-to-repay provisions of the consumer bureau’s payday lending rule and delay the implementation of those measures by 15 months – to Nov. 19, 2020 – were released Wednesday for 90-day and 30-day public comment periods.

The proposed revisions to the Consumer Financial Protection Bureau’s (CFPB) payday lending rule (“Payday, Vehicle Title, and Certain High-Cost Installment Loans”) would rescind the rule’s requirements that lenders make certain underwriting determinations before issuing payday, single-payment vehicle title, and longer-term balloon payment loans. Also, the bureau “is preliminarily finding that rescinding this requirement would increase consumer access to credit,” the agency said in a release.

The provisions of the rule, referred to as mandatory underwriting provisions, that are proposed for rescission currently:

(1) provide that it is an unfair and abusive practice for a lender to make a covered short-term or longer-term balloon-payment loan, including payday and vehicle title loans, without reasonably determining that consumers have the ability to repay those loans according to their terms;

(2) prescribe mandatory underwriting requirements for making the ability-to-repay determination;

(3) exempt certain loans from the mandatory underwriting requirements; and

(4) establish related definitions, reporting, and recordkeeping requirements.

In October 2018, under the leadership of then-Acting Director John (“Mick”) Mulvaney, the Bureau announced that it would issue notices of proposed rulemaking to reconsider the rule’s mandatory underwriting requirements and to address the rule’s compliance date. The bureau said Wednesday’s proposals fulfill that commitment.

The bureau’s proposal suggests there was insufficient evidence and legal support for the mandatory underwriting provisions in the 2017 final rule. Additionally, the bureau says it’s concerned that the provisions would 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 notice of proposed rulemaking on rescission of the mandatory underwriting requirement is open to public comment for 90 days following its publication in the Federal Register.

In a separate notice, the bureau also proposes to delay the Aug. 19, 2019, compliance date for the mandatory underwriting provisions of the 2017 final rule to Nov. 19, 2020. This proposal is open to public comment for 30 days following publication in the Register. (A federal court has also stayed the August 2019 effective date in response to Mulvaney’s decision last year to reconsider the rule, which is being challenged by two payday lender advocacy groups.)

The 2017 final rule provisions governing payments, and scope of their coverage, are not proposed for reconsideration in the bureau’s proposals. The payment provisions prohibit payday and certain other lenders from making a new attempt to withdraw funds from an account where two consecutive attempts have failed unless consumers consent to further withdrawals. They also require such lenders to provide consumers with written notice before making their first attempt to withdraw payment from their accounts and before subsequent attempts that involve different dates, amounts, or payment channels.

In a tweet Wednesday, former CFPB Director Richard Cordray — who supervised the development of the rule now in effect — disparaged the proposal and predicted a lawsuit against it.

“CFPB is proposing to unwind the core part of its payday loan rule – that the lender must reasonably assess a borrower’s ability to repay before making a loan,” Cordray wrote. “It’s a bad move that will hurt the hardest-hit consumers. It should be and will be subject to a stiff legal challenge.”

Consumer Financial Protection Bureau Releases Notices of Proposed Rulemaking on Payday Lending

Proposed rescission of payday rule’s mandatory underwriting provisions

Proposed delay of compliance date on mandatory undewriting provisions