CFPB Proposes to Rescind Underwriting Requirement of 2017 Payday Loan Rule

ABSTRACT: The CFPB, under new director Kathleen Kraninger, has submitted a Notice of Proposed Rulemaking seeking to rescind the underwriting requirements set forth in the CFPB's 2017 Rule regarding payday loans, on the basis that there was inadequate support for these requirements in the first place. The proposal is open for comment through early May.

Earlier this month, the CFPB took one of its first substantial steps under new leadership, with a Notice of Proposed Rulemaking seeking to rescind the underwriting requirements of the Bureau’s 2017 Final Rule regarding payday loans, vehicle title loans, and high-cost installment loans (the “2017 Payday Loan Rule”). Signed by new director Kathy Kraninger and published on February 6, this proposal is open for comment through May 7, 2019.

This recent proposal seeks to eliminate the “identification” provision in the 2017 Payday Loan Rule that makes it an unfair and abusive practice for lenders to make these types of loans without making a reasonable determination that the customer will have the ability to repay those loans. The new proposed rule also seeks to remove the “prevention” provision, which set forth certain underwriting guidelines that lenders were going to be required to use in an effort to prevent loans from issuing to borrowers not reasonably likely to be able to repay. Also subject to elimination were new recordkeeping and reporting requirements promulgated by the 2017 Rule. Director Kraninger’s new proposal did not seek to remove any of the new payment policies put into effect by the 2017 Rule.

In its Notice, the CFPB reasoned that there was not sufficient evidence to support the 2017 Rule, particularly where the 2017 Rule would prevent many consumers from accessing credit when needed. The CFPB also noted that most states have some degree of regulation in place as to payday loans, with varying levels of oversight and intricacy. To impose an additional federal, uniform requirement over the industry, it maintains, would be overly burdensome to both lenders and consumers seeking credit.

The CFPB acknowledged that, in response to the original proposed 2017 Payday Loan Rule, it received a substantial number of comments from those who observed undesirable consequences from payday lending. However, those comments were far outnumbered by those from consumers who reported that payday loans, title loans, and other applicable products had been a necessary tool for survival in hard times where no other financing was available due to poor or nonexistent credit history.

In the alternative, the CFPB also proposed that enforcement of the 2017 Payday Loan Rule underwriting requirements be delayed due to massive overhaul in technology and training payday lenders would have to undergo in order to meet these underwriting requirements.

Director Kraninger has welcomed comment on all sides regarding this proposal, but it seems likely at this point that the anticipated underwriting requirements of the 2017 Rule will not be implemented or enforced.

The Notice of Proposed Rulemaking to rescind the underwriting requirements may be found here. Baker Sterchi will continue to monitor until a final rule is issued.