Consumer bureau publishes FAQs on payday lending rule

A set of 34 frequently asked questions (with answers) regarding its payday lending rule – addressing covered loans, payment transfers, and payment notices – has been published by the Consumer Financial Protection Bureau (CFPB), the bureau said in a notice issued Tuesday.

Eleven of the FAQs deal with covered loans, meaning loans subject to the payday rule (titled “Payday, Vehicle Title, and Certain High-Cost Installment Loans” rule, and also known as the small-dollar lending rule).

The rule provides two exemptions – one for “alternative” loans, and another for “accommodation” loan. In brief, the FAQs note that a loan can be exempted as an alternative loan if it meets certain loan term, borrower history, and income documentation conditions. To be exempted as an accommodation loan, the loan must meet both a volume condition and a receipts condition.

Of particular note is that a federal credit union loan that complies with the conditions set for the National Credit Union Administration (NCUA) PAL I program (“PAL” being payday alternative loan) is not subject to the CFPB’s payday rule because it meets the rule’s conditions for an alternative loan. Whether a loan conforming with the NCUA PAL II program is covered, however, depends on the terms.

PAL I loans are limited to $1,000; PAL II, $2,000. To qualify for the CFPB payday rule’s definition of alternative loan, the FAQs show that loans must, among other things, be capped at $1,000; carry a rate not higher than that allowed under PAL I (28%, currently); and amortize fully over the life of the loan, not to exceed six months.

The FAQs also note the rule’s specific exclusion for eight types of loans, provided they meet certain conditions: purchase money security interest loans; real-estate-secured credit; credit card accounts; student loans; non-recourse pawn loans; overdraft services and overdraft lines of credit; wage advance program loans; and no-cost advances.

The rule changes adopted last month revoked mandatory underwriting provisions addressing a consumer’s ability to repay.

Payday Lending Rule FAQs