CFPB final payday settlement and small dollar loans
July 7, 2020 The CFPB has published its long-awaited final rule (the “revocation rule”) on small dollar loans repealing the mandatory underwriting provisions of its 2017 payday rule, vehicle title and certain high cost installment loans (the “2017 rule”). In line with its proposal last year, the revocation rule overrides the mandatory underwriting provisions of the 2017 rule, including those that provide (1) that this is an unfair and abusive practice for a lender to create a short or long term covered balloon. -the loan-repayment without reasonably determining that consumers have the capacity to repay these loans on their terms; (2) prescribing mandatory underwriting requirements to determine repayment capacity; (3) exempt certain loans from mandatory underwriting requirements; and (4) establish related definitions, reporting, record keeping and compliance date requirements. The changes to the revocation rule are based on the Office’s “reassessment of the legal and evidentiary basis of these provisions”.
Specifically, the Bureau overturned the 2017 Rule’s ruling that it is unfair for a lender to provide covered short-term loans or longer-term lump-sum loans without reasonably determining that consumers will have the capacity. to repay loans according to their terms. And, it also overturned the 2017 rule’s determination that such a practice is abusive, concluding that a lender is not taking an unreasonable advantage of consumers’ vulnerabilities when the lender ignores the repayment capacity of a borrower.
However, in line with its proposal last year, the revocation rule does not change the payment provisions of the 2017 rule, which address certain requirements and limitations with respect to attempts to withdraw payments on same day loans from the Bank. account of a consumer. On the contrary, with the revocation rule, the Office ratified the payment provisions in light of the recent Supreme Court decision in Seila Law. And, he noted that even though the payment arrangements are currently suspended by court order, the Bureau will seek to have the arrangements come into effect within a reasonable time to allow entities to comply.
It is a difficult task for an agency to change course as drastically as the Bureau has done here, and every time it does, there is inevitably a risk. Industry will have to be careful not to exploit the gaps between rule of origin and revocation. The revocation rule is effective 90 days after it is posted in the Federal Register.
© Copyright 2021 Squire Patton Boggs (US) LLPRevue de droit national, volume X, number 196