Banking and Finance Law Daily CFPB delays compliance date for underwriting provisions of Payday Loan rule
Friday, June 7, 2019

CFPB delays compliance date for underwriting provisions of Payday Loan rule

By Colleen M. Svelnis, J.D.

The Bureau has issued a final rule delaying the Aug. 19, 2019, compliance date for the mandatory underwriting provisions of its Payday Lending Rule—the new compliance date will be Nov. 19, 2020.

The Consumer Financial Protection Bureau has delayed the compliance date for the mandatory underwriting provisions of its Payday Rule, which was finalized in 2017 at 12 CFR Part 1041—Payday, Vehicle Title, and Certain High-Cost Installment Loans. The final rule also makes other technical corrections. The final rule will delay the compliance date for Sections 1041.4 through 1041.6, 1041.10, and 1041.12(b)(1) through (3) of the Payday Rule until Nov. 19, 2020. With the Bureau’s proposal to amend the rule to allow lenders to extend short-term, high-cost loans to consumers without needing to satisfy regulatory underwriting requirements already in process, the extended compliance date of the rule’s underwriting duties will enable the CFPB to eliminate the requirements before they take effect.

The Bureau also issued an unofficial redline of the "Delay Final Rule" to assist in reviewing the changes that the Delay Final Rule makes to the regulatory text and commentary of the Payday Lending Rule.

Payday Rule. The effective date of the Payday Lending Rule was Jan. 16, 2018, with most of its terms—including the underwriting requirements—scheduled to take effect on Aug. 19, 2019. The Payday Rule established restrictions on short-term loans, including a test to ensure that consumers can afford payments, a limit on the number of loans that may be made in close succession, and a limit on the ability of lenders to continue debiting consumer accounts for payments after two consecutive failures (see Banking and Finance Law Daily, Oct. 5, 2017).

Regulatory process and comments received. In October 2018, the Bureau indicated that it planned to revisit the ability-to-repay provisions. In February 2019, the Bureau issued its Notice of Proposed Rulemaking to extend the compliance date while at the same time proposing to eliminate the underwriting requirements.

The Bureau reviewed all the comments received in response to its proposal to extend the compliance date, and determined that finalizing the proposed delay was appropriate "because there are strong reasons for rescinding the Mandatory Underwriting Provisions of the 2017 Final Rule and because significant and potentially unwarranted consequences to covered entities, consumers, and the market would occur if compliance with those aspects of the Rule was required by August 19, 2019." The Bureau also concluded that 15 months is an adequate amount of time to allow it to complete its reconsideration rulemaking.

The Bureau received approximately 150 comment letters including from individuals, consumer advocacy groups, a group of state attorneys general, depository and non-depository lenders, tribal governments, national and regional trade associations, service providers, the Small Business Administration’s Office of Advocacy, and legislative and executive branch state government officials. According to the notice, those opposed to the proposed delay generally spoke to the consumer harms that they asserted occur with loans covered by those provisions. Additionally, opposition letters focused on alleged bad practices of short-term lenders. Issues such as requirements under the Administrative Procedure Act for compliance date delays and the Bureau’s authority to delay the compliance date of the Rule were also raised in the comments.

Comments in support of the proposed delay stressed harms to industry and to consumers that could occur if the August 2019 compliance date for the Mandatory Underwriting Provisions stayed in place and that would be postponed if those provisions were delayed.

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