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Update: Payday Lending Rule on hold

 On October 5, 2017, the Consumer Financial Protection Bureau (CFPB) issued a final rule, known as the Payday Lending Rule, to create consumer protections for certain personal loans. Rule highlights include:

  • Short-term and longer-term loans with balloon payments were identified as unfair, deceptive and abusive practices (UDAAP) if a lender makes such loans without reasonably determining that the consumer has the ability to repay the loan according to its terms, the “underwriting conditions.”
  • The same set of loans and longer-term loans with an APR greater than 36 percent that are repaid directly from the consumer’s account were identified as UDAAP if after two failed consecutive payment withdrawal attempts, the lender does not obtain the consumer’s new and specific authorization to make further payment withdrawals.
  • A lender making a covered loan must develop, follow and retain for 36 months evidence of compliance with its written policies and procedures ensuring compliance with the Payday Lending Rule. (A lender is defined as a person who has extended credit to consumers primarily for personal, family or household purposes more than 25 times in the preceding or current calendar year, according to the Reg Z test.)

The Rule also included a requirement for lenders who do not hold the customer’s loan payment withdrawal account to provide a written notice:

  • Before its first covered loan payment withdrawal attempt and before subsequent attempts that are different from scheduled amounts or dates or that involve a different payment channel than the prior attempt
  • If two consecutive payment withdrawal attempts have failed due to insufficient funds

While the Rule became effective on January 16, 2018, with a compliance date of August 19, 2019, the compliance date is stayed under a court order issued in Community Financial Services Association v. CFPB, meaning financial institutions are not required to comply with the payment and record retention provisions until the stay is lifted by the court. 

Then, on February 6, 2019, CFPB Director Kathleen Kraninger proposed two changes to rescind the mandatory underwriting provisions of the Cordray-era Rule and to delay the compliance date for those underwriting provisions to November 19, 2020. In doing so, the CFPB may be seeking to loosen the reins on payday lenders.  

Read the Payday Lending Rule

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