On February 6, 2019, the Consumer Financial Protection Bureau (CFPB or Bureau) released a proposed rescission of the 2017 “Payday, Vehicle Title, and Certain High-Cost Installment Loans” final rule (Payday Rule), along with a “Payday, Vehicle Title, and Certain High-Cost Installment Loans; Delay of Compliance Date” (Delay of Compliance) notice. The Payday Rule, made final in November of 2017, has a compliance date of August 19, 2019. If the Bureau goes through with the Delay of Compliance, compliance with the Mandatory Underwriting Provisions in the Payday Rule will be delayed until November 19, 2020, or until the Underwriting Provisions in Payday Rule are fully rescinded. The Mandatory Underwriting Provisions apply to payday loans, vehicle title loans, and certain high-cost installment loans. They require, among other things, that the lender make a reasonable determination that the consumer is able to make the payments on the loan and without the need to take out another loan for payment of living expenses and other major financial obligations, within thirty days. If a borrower does not meet all underwriting criteria, then a loan can still be made, but it was must meet additional prescribed terms and requirements.
The Bureau’s reasoning for proposing the Delay in Compliance includes the fact that smaller lenders could experience substantial revenue disruptions that could impact their ability to stay in business in trying to comply with the Payday Rule’s Mandatory Underwriting Provisions. The CFPB apparently does not want lenders to be negatively impacted, or run out of business, while the Bureau takes public comments on the proposed rescission of the Mandatory Underwriting Provisions in the Payday Rule, and then makes a determination as to rescission. Further, lenders have indicated that they need additional time to finish building out, or otherwise make investments in, technology and critical systems necessary to comply with the Mandatory Underwriting Provisions.
As the CFPB recognized, a delay in compliance with the Mandatory Underwriting Provisions in the Payday Rule would prevent a decrease in revenues by fifteen months. Thus, payday lenders would expect an estimated increase in revenues of between $4.25 billion and $4.5 billion (based on the annual rate of $3.4 billion and $3.6 billion) relative to the baseline during the delay. Similarly, the delay would result in an estimated increase in revenues for vehicle title lenders of between $4.9 billion and $5.1 billion (based on the annual rate of $3.9 billion to $4.1 billion), relative to the baseline during the delay.
For those seeking to comment, the Delay of Compliance notice is open for public comment for thirty days (until March 8, 2019). The Bureau seeks comment on whether it has identified the potential circumstances of either delaying, or not delaying, compliance with the Payday Rule Underwriting Provisions. LenderLaw Watch has previously written about issues with the Payday Rule, found here.