Payday Rule and CFPB Statement

On January 16, 2017, the CFPB issued a statement that they intend to reconsider the final Payday Rule which was originally issued on October 5, 2017.  This publication, which came on the effective date of the final rule, explains that the reconsideration will occur through an official rulemaking process.  The CFPB also discusses how compliance with the final rule will be affected by this new statement:

"Although most provisions of the Payday Rule do not require compliance until August 19, 2019, the effective date marks codification of the Payday Rule in the Code of Federal Regulations.  Today’s effective date also establishes April 16, 2018, as the deadline to submit an application for preliminary approval to become a registered information system ("RIS") under the Payday Rule. However, the Bureau may waive this deadline pursuant to 12 C.F.R. 1041.11(c)(3)(iii). Recognizing that this preliminary application deadline might cause some entities to engage in work in preparing an application to become a RIS, the Bureau will entertain waiver requests from any potential applicant."

Overview of the Original Final Rule

On October 5, 2017, the CFPB issued a final rule to create consumer protections for certain consumer credit products, including payday, vehicle title, and other high-cost installment loans.  This rule essentially contained two parts.  The first part addressed requirements for balloon payments where the CFPB is now going to identify an unfair and abusive practice when a lender makes such loans without first determining that consumers have the ability to repay the loan, according to the loan terms.  The rule does exempt certain short-term loans from this new ability-to-reply if they are made with certain consumer protections.

The second part of the rule applies to the same set of loans as well as longer-term loans with an APR greater than 36% which are repaid directly from the consumers account.  This part of the rule identifies an unfair and abusive practice when a lender attempts to withdraw payment from a consumer’s account after two consecutive payment attempts have failed, unless the lender obtains the consumer’s new and specific authorization to make further withdrawals from the account.  The rule has an additional requirement for lenders to provide certain notices to consumers before attempting to withdraw payment for a covered loan from the consumer’s account.

The final rule was initially effective on January 16, 2018, with mandatory compliance dates for most parts of the rule being August 19, 2019.

How This Applies

While many community banks and credit unions don’t offer the types of loans covered by this rule (payday, vehicle title, and other high-cost installment loans), those that do offer these products will need to watch for a final CFPB final rule.

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