A Brief History of the Consumer Financial Protection Bureau’s Payday Loan Rule

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Between 2013 and 2016, the Consumer Financial Protection Bureau (CFPB) published no less than six white papers or reports relating to payday loan protection.[1] On the date of the last report, June 2, 2016, the CFPB issued a proposed rule[2], and on October 5, 2017, a final rule was released that addresses payday loans, auto title loans, and other loans that require that the entire loan balance, or the majority of a loan balance, be be reimbursed in one go.[3] The stated purpose of the rule was to eliminate “payday debt traps” by addressing, among other things, underwriting by establishing “repayment capacity” protections that vary by type of loan.[4]

Under the final rule, for payday loans, auto title loans, and other loans with longer terms and lump sum payments, the CFPB would require a “” full payment “test” to establish that borrowers can afford to repay the loan and also limit the amount of loans taken “in quick succession” to just three.[5] The rule also provides for two cases where the “full payment” test is not required: (1) borrow up to $ 500 when the loan balance can be repaid at a more gradual pace; and (2) take out less risky loans, such as personal loans for smaller amounts.[6] The rule would also establish an “attempted debit threshold,” which requires lenders to obtain a renewed authorization from a borrower after two consecutive unsuccessful debits from a borrower’s account.[7] The rule was to come into effect a year and 9 months after it was published by the Federal Register last month.[8] (the rule was published on November 17, 2017[9]).

However, on February 6, 2019, the CFPB announced that it was proposing to issue a new rule to repeal the underwriting provisions of the previous rule, namely the requirements for payday loans, auto title loans and debt. other loans with longer terms and lump sum payments.[10] According to the preliminary findings of the CFPB, the reversal of the requirements would make credit more easily accessible to consumers.[11] On the same day, the CFPB also proposed to postpone the rule’s compliance date from August 19, 2019 to November 19, 2020.[12]

On June 6, 2019, the CFPB issued a final rule to extend the compliance date for the mandatory underwriting provisions of the 2017 Final Rule to November 19, 2020 in order to provide additional time to allow an orderly conclusion of its process of separate rule development to reconsider mandatory underwriting provisions.[13] Note that the final rule payment provisions, which deal with the withdrawal of payments from accounts, have not been delayed by regulation, and the CFPB has taken no action to reverse these provisions.[14] However, the CFPB also did not object to the suspension of the compliance date for those provisions until at least December 6, 2019, in a lawsuit in the Western District of Texas that is challenging the regulations.[15]

So the earliest any part of the rule will come into effect is December 2019.

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