Bureau drops ‘ability to repay’ provision from payday lending rule but keeps provisions blocking unapproved withdrawals

A new final rule on small-dollar lending issued Tuesday by the federal consumer financial protection agency revokes “ability to repay” provisions of the previous rule but makes no changes to the payment protection provisions already in place.

The final rule will take effect 90 days after publication in the Federal Register.

The Consumer Financial Protection Bureau (CFPB) said rescinding the requirement in its “Payday, Vehicle Title, and Certain High-Cost Installment Loans” regulation that lenders verify that borrowers have the ability to repay a loan before it is issued, first adopted in 2017, “ensures that consumers have access to credit and competition in states that have decided to allow their residents to use such products, subject to state-law limitations.”

The bureau stated that the ability-to-repay and underwriting provisions were dropped because the 2017 rule lacked sufficient legal and evidentiary bases. Under those provisions, it was considered an “unfair and abusive practice” for a lender to make a 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.” The provisions also prescribed mandatory underwriting requirements for making the ability-to-repay determination.

The agency asserted that, as of now, 32 states allow small-dollar lending; many set maximum interest rates for small-dollar loans or impose other restrictions or limitations on their use. “Today’s action will help to ensure the continued availability of small dollar lending products for consumers who demand them, including those who may have a particular need for such products as a result of the current pandemic,” CFPB stated.

In February 2019, the bureau proposed removing the mandatory underwriting provisions of its regulations aimed at protecting consumers from abusive payday lending practices.

A federal court had issued a stay on the 2017 regulation until the bureau finalized a “reconsideration” of the payday lending rule. With the final rule announced Tuesday, the “reconsideration” has apparently been completed.

Meanwhile, also in Tuesday’s final rule, the bureau stated it is proceeding to apply payments provisions of the 2017 final rule that prohibit lenders from making a new attempt to withdraw funds from an account where two consecutive attempts have failed unless consumers consent to further withdrawals.

“The payment provisions 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,” the bureau stated. “These provisions are intended to increase consumer protections from harm associated with lenders’ payment practices.”

CFPB also announced that it has denied a petition to commence a rulemaking to exclude debit and prepaid cards from the payments provisions of the small-dollar lending rule.

Consumer Financial Protection Bureau Issues Final Rule on Small Dollar Lending

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