The Consumer Financial Protection Bureau (CFPB) has issued highly anticipated proposed revisions to its final payday/auto title/high-rate installment loan rule that would rescind the rule's ability-to-repay provisions—which the CFPB refers to as the "Mandatory Underwriting Provisions"—in their entirety. The CFPB will take comments on the proposal for 90 days after its publication in the Federal Register.

In a separate proposal, the CFPB seeks a 15-month delay in the rule's August 19, 2019, compliance date to November 19, 2020, that would apply only to the Mandatory Underwriting Provisions. This proposal has a 30-day comment period. It should be noted that the proposals would leave unchanged the rule's payment provisions and the August 19 compliance date for such provisions.

Rescission of Mandatory Underwriting Provisions. The Mandatory Underwriting Provisions, which the CFPB proposes to rescind, consist of the provisions that: (1) deem it an unfair and abusive practice for a lender to make certain "covered loans" without determining the consumer's ability to repay, (2) establish a "full payment test" and alternative "principal-payoff option," (3) require the furnishing of information to registered information systems to be created by the CFPB, and (4) related recordkeeping requirements. In the proposal's Supplementary Information, the CFPB explains why it now believes that the studies on which it primarily relied do not provide "a sufficiently robust and reliable basis" to support its determination that a lender's failure to determine a borrower's ability to repay is an unfair and abusive practice. It also declines to use its rulemaking discretion to consider new disclosure requirements regarding the general risks of reborrowing, observing that "there are indications that consumers potentially enter into these transactions with a general understanding of the risks entailed, including the risk of reborrowing." The proposal seeks comments on the various determinations that form the basis of the CFPB′s conclusion that rescission of the Mandatory Underwriting Provisions is merited.

Preservation of Payment Provisions. The CFPB is not proposing to change the rule's provisions establishing certain requirements and limitations on attempts to withdraw payments from a consumer's account (Payment Provisions), nor is it proposing to delay the August 19 compliance date for such provisions. Rather, it has declared the Payment Provisions to be "outside the scope of" the proposal. In the Supplementary Information, however, the CFPB notes that it has received "a rulemaking petition to exempt debit payments" from the Payment Provisions and "informal requests related to various aspects of the Payment Provisions or the Rule as a whole, including requests to exempt certain types of lenders or loan products from the Rule's coverage and to delay the compliance date for the Payment Provisions." The CFPB states that it intends "to examine these issues" and commence a separate rulemaking initiative (such as by issuing a request for information or notice of proposed rulemaking) if it "determines that further action is warranted."

Among other requirements, the Payment Provisions (1) prohibit a lender that has had two consecutive attempts to collect money from a consumer's account returned for insufficient funds from making any further attempts to collect from the account unless the consumer has provided a new and specific authorization for additional payment transfers and (2) generally require a lender to give the consumer at least three business days' advance notice before attempting to obtain payment by accessing a consumer's checking, savings, or prepaid account. (The CFPB indicates that it intends to use its market monitoring authority to gather data on whether the requirement for such notice to contain additional information for "unusual" withdrawal attempts "affects the number of unsuccessful withdrawals from consumers' accounts.")

We are disappointed that the CFPB has excluded the Payment Provisions from its proposals since they raise numerous issues that merit reconsideration and/or clarification. It is not surprising that the CFPB has received a rulemaking petition to exempt debit payments, and a change in the rule is certainly warranted here. While supposedly designed to prevent excessive nonsufficient funds (NSF) fees, the Payment Provisions treat attempts to initiate payments by debit card—where there is no chance of any NSF fee—the same as other forms of payment that can spawn NSF fees. Other troublesome issues we have noted include the absence of any definition for "business days," the rule′s creation of "dead periods" when the customer cannot pay by alternate means even if he or she wishes to do so, the rule′s failure to address adequately what happens upon assignment of a loan to a debt collector or other third party, the rigidity of the required notices (which do not allow creditors to provide sufficient information in all circumstances), and the rule's potential to disincentive creditors from providing payment deferrals or other relief that benefits the consumer or is initiated at the consumer's request.

The Supplementary Information suggests that the CFPB may be receptive to informal requests to revisit various Payment Provisions, and our Group intends to accept this invitation to comment. In addition to addressing issues we have identified to date, we also propose to include in our comment letter subjects brought to our attention by our clients and other affected parties.

On February 21, 2019, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar: "CFPB Payday Lending Rule: Status and Prospects." The webinar registration form is available here.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.


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