More comment time for new CFPB consumer-lending rules

July 26, 2016

Screen-shot-2011-04-13-at-7.57.17-PMThe Consumer Financial Protection Bureau has been looking to more highly regulate payday and other small-dollar loans for quite some time — and now it will take a little bit longer to accomplish that goal than originally intended.

The bureau released its long-anticipated proposal to regulate the provision and collection of certain short-term, small-dollar consumer credit products on June 2, 2016. Authorized under the Dodd-Frank Act, the CFPB will regulate such products that require consumers to pay back the loan in full within 45 days or less.

This includes payday loans, deposit-advance products, certain open-end lines of credit, and some vehicle title loans.

The CFPB’s authority also extends to longer-term credit products for which a lender obtains a non-purchase money lien on a consumer’s vehicle, or the right to collect repayment from the consumer’s account or paycheck through a payment authorization from the consumer.

The comment period on the proposed rule was originally intended to end Sept. 14, 2016. Unexpectedly, the bureau on July 22 pushed back the comment period for its proposed rules to Oct. 7, 2016, giving the consumer lending industry and other interested parties a month or so more to digest the proposed rule and provide their observations and opinions.

Right after the bureau’s proposed payday rules first came out in early June, Clifford S. Stanford and Ross M. Speier of Alston & Bird published an overview and commentary on them in Consumer Financial Services Law Report.

(Westlaw users: Click here for the article, and here for the latest from Consumer Financial Services Law Report.)

Stanford and Spier observed that the CFPB’s proposal expressly excludes several types of consumer credit products, including;

  • Loans extended solely to finance the purchase of a car or other consumer good in which the good secures the loan
  • Home mortgages and other loans secured by real property or a dwelling if recorded or perfected
  • Credit cards
  • Student loans
  • Nonrecourse pawn loans
  • Overdraft services and lines of credit

Perhaps most significantly, the proposed rules derive primarily from a determination by the CFPB — subject, of course, to comment — that covered loans are per se “abusive and unfair” if the lender does not make a determination of the borrower’s ability to repay, the authors emphasized.

The CFPB proposal would generally oblige lenders either to determine whether a consumer has the ability to repay a loan, including by accessing information about the borrower from a “registered information system,” or alternatively, to adhere to certain requirements governing the terms of the loan.

The proposal would also require lenders to follow a set of guidelines when attempting to collect loan repayments. Lenders covered by the rule include nonbank entities, as well as banks and credit unions.

Stretching some 1,334 pages, the proposed rules include 1,077 footnotes, and is the culmination of years of market study by the bureau.

And it appears there is more to come.

Concurrent with the proposal, the CFPB released a request for information seeking feedback from interested parties on “risky” products and practices not covered by the proposal.

(Find the proposed rule at gpo.gov/fdsys/pkg/FR-2016-07-22/pdf/2016-13490.pdf)