BCFP Revisits Payday Rule, Expected January 2019

On October 26, 2018, the Bureau of Consumer Financial Protection (BCFP or Bureau) announced that it expects to issue a proposed rule in January 2019 reconsidering its previously-issued rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans (Payday Rule or the Rule). According to the Bureau, it will revisit only the ability-to-repay provisions of the original rule since they “have much greater consequences for both consumers and industry than the payment provisions.”

The original Rule was issued by the Bureau in October 2017 under Former Director Richard Cordray. The ability-to-pay provision of the original rule requires lenders to determine whether a borrower can repay the loan and still meet basic living expenses both during the life of the loan and for 30 days after the highest payment. For longer-term loans with a balloon payment, full payment means being able to afford the payments in the month with the highest total payments on the loan. Lenders must verify income and major financial obligations and estimate basic living expenses for a one-month period--the month in which the highest sum of payments is due. The original rule also caps the number of successive short-term loans to three, with a cooling off period of 30 days thereafter. 

The Bureau initially announced it will be reconsidering the Payday Rule back in January 2018. The original rule had a compliance date of August 19, 2019. The Bureau's October 26 announcement indicates that the compliance date will also be addressed.

insideARM Perspective

It appears that the BCFP will have a busy start to 2019 with its rulemaking initiatives. In addition to the rule above, the Bureau is expected to issue its third party debt collection rules in March 2019. Also on the horizon (although the expected date is not certain) is the Bureau’s definition of “abusive” in unfair, deceptive or abusive acts or practices (or UDAAP).

At least one industry group raised issues with the original rule, including that the Bureau ignored the comments of consumers and industry members. One of the more substantial concerns is that the rule is extremely complex for small balance loans (the final rule was 1,700 pages long). This complexity has the potential to cut off consumers' access to these types of loans because credit issuers may find the compliance burden not worth it for such small balances. This goes against one of the Bureau's goals in its FY 2018-2022 strategic plan of ensuring that "all consumers have access to markets for consumer financial products and services."