Today, July 7, 2020, the Consumer Financial Protection Bureau (“CFPB”) released final amendments to its small-dollar lending rule published in November 2017 (the “2017 Rule”), specifically repealing the mandatory underwriting provisions of the rule. The CFPB did not rescind or alter the payments provisions of the 2017 Rule, and instead ratified those provisions and will move forward to implement those provisions. We address each aspect of the final amendments below.
Mandatory underwriting provisions. The mandatory underwriting provisions of the 2017 Rule required lenders to assess borrowers’ ability to repay, verify borrowers’ incomes, and furnish certain information regarding payday loans to registered information systems, among other things. A legal challenge to the 2017 Rule was filed in the U.S. District Court for the Western District of Texas on April 9, 2018. On February 14, 2019, the Bureau published a notice of proposed rulemaking to revoke the mandatory underwriting provisions of the 2017 Rule. On June 6, 2019, the CFPB issued a final rule to delay the compliance date for the mandatory underwriting provisions of the 2017 Rule to November 19, 2020, to allow time for the CFPB to complete its rulemaking to amend these provisions. In addition, the Texas federal district court judge presiding over the lawsuit issued a litigation stay, which the court most recently upheld on May 13, 2020.
The CFPB based its decision to repeal the mandatory underwriting provisions on “the insufficient legal and evidentiary bases for the 2017 rule’s mandatory underwriting provisions.” It also noted that its action “will help to ensure the continued availability of small dollar lending products for consumers who demand them, including those who may have a particular need for such products as a result of the current pandemic.”
Payment provisions. The final amendments do not rescind or amend the payments provisions of the 2017 Rule. Instead, the CFPB issued a ratification of the payment provisions of the 2017 Rule in response to the U.S. Supreme Court’s recent decision in Seila Law; see our post on this decision here. (Today, the CFPB also ratified most of its other regulatory actions between January 4, 2012, and June 30, 2020, in light of this decision.) The CFPB denied a petition to commence a rulemaking to exclude debit and prepaid cards from the payments provisions of the small dollar lending rule, and issued limited guidance in the form of FAQs clarifying the payments provisions’ scope and assisting lenders in complying with those provisions. Although the payments provisions are currently stayed by the court order in the U.S. District Court for the Western District of Texas, the CFPB notes that it “will seek to have them go into effect with a reasonable period for entities to come into compliance.” The CFPB indicated that it “is continuing to monitor and assess the effects of the Payment Provisions, including their scope, and the agency may determine whether further action is needed in light of what it learns.”
In connection with the finalization of these amendments, the CFPB published (i) a redline of the effect of these amendments to the 2017 Rule, (ii) an executive summary of the amendments, (iii) an updated small entity payday lending rule compliance guide, and (iv) payday lending FAQs. The 2017 Rule was originally finalized on October 5, 2017 (see our summary here).