March 19, 2019

March 18, 2019

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CFPB Proposes Revisions to Final Payday/Auto Title/High-Rate Installment Loan Rule

The Consumer Financial Protection Bureau (CFPB) has issued highly anticipated proposed revisions to its final payday/auto title/high-rate installment loan rule that would rescind the rule's ability-to-repay provisions—which the CFPB refers to as the "Mandatory Underwriting Provisions"—in their entirety. The CFPB will take comments on the proposal for 90 days after its publication in the Federal Register.

In a separate proposal, the CFPB seeks a 15-month delay in the rule's August 19, 2019, compliance date to November 19, 2020, that would apply only to the Mandatory Underwriting Provisions. This proposal has a 30-day comment period. It should be noted that the proposals would leave unchanged the rule's payment provisions and the August 19 compliance date for such provisions.

Rescission of Mandatory Underwriting Provisions.

The Mandatory Underwriting Provisions, which the CFPB proposes to rescind, consist of the provisions that: (1) deem it an unfair and abusive practice for a lender to make certain "covered loans" without determining the consumer's ability to repay, (2) establish a "full payment test" and alternative "principal-payoff option," (3) require the furnishing of information to registered information systems to be created by the CFPB, and (4) related recordkeeping requirements. In the proposal's Supplementary Information, the CFPB explains why it now believes that the studies on which it primarily relied do not provide "a sufficiently robust and reliable basis" to support its determination that a lender's failure to determine a borrower's ability to repay is an unfair and abusive practice. It also declines to use its rulemaking discretion to consider new disclosure requirements regarding the general risks of reborrowing, observing that "there are indications that consumers potentially enter into these transactions with a general understanding of the risks entailed, including the risk of reborrowing." The proposal seeks comments on the various determinations that form the basis of the CFPB′s conclusion that rescission of the Mandatory Underwriting Provisions is merited.

Preservation of Payment Provisions.

The CFPB is not proposing to change the rule's provisions establishing certain requirements and limitations on attempts to withdraw payments from a consumer's account (Payment Provisions), nor is it proposing to delay the August 19 compliance date for such provisions. Rather, it has declared the Payment Provisions to be "outside the scope of" the proposal. In the Supplementary Information, however, the CFPB notes that it has received "a rulemaking petition to exempt debit payments" from the Payment Provisions and "informal requests related to various aspects of the Payment Provisions or the Rule as a whole, including requests to exempt certain types of lenders or loan products from the Rule's coverage and to delay the compliance date for the Payment Provisions." The CFPB states that it intends "to examine these issues" and commence a separate rulemaking initiative (such as by issuing a request for information or notice of proposed rulemaking) if it "determines that further action is warranted."

Among other requirements, the Payment Provisions (1) prohibit a lender that has had two consecutive attempts to collect money from a consumer's account returned for insufficient funds from making any further attempts to collect from the account unless the consumer has provided a new and specific authorization for additional payment transfers and (2) generally require a lender to give the consumer at least three business days' advance notice before attempting to obtain payment by accessing a consumer's checking, savings, or prepaid account. (The CFPB indicates that it intends to use its market monitoring authority to gather data on whether the requirement for such notice to contain additional information for "unusual" withdrawal attempts "affects the number of unsuccessful withdrawals from consumers' accounts.")

We are disappointed that the CFPB has excluded the Payment Provisions from its proposals since they raise numerous issues that merit reconsideration and/or clarification. It is not surprising that the CFPB has received a rulemaking petition to exempt debit payments, and a change in the rule is certainly warranted here. While supposedly designed to prevent excessive nonsufficient funds (NSF) fees, the Payment Provisions treat attempts to initiate payments by debit card—where there is no chance of any NSF fee—the same as other forms of payment that can spawn NSF fees. Other troublesome issues we have noted include the absence of any definition for "business days," the rule′s creation of "dead periods" when the customer cannot pay by alternate means even if he or she wishes to do so, the rule′s failure to address adequately what happens upon assignment of a loan to a debt collector or other third party, the rigidity of the required notices (which do not allow creditors to provide sufficient information in all circumstances), and the rule's potential to disincentive creditors from providing payment deferrals or other relief that benefits the consumer or is initiated at the consumer's request.

Copyright © by Ballard Spahr LLP

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About this Author

Kaplinksy, partner, New York, finance
Partner

Alan S. Kaplinsky is Co-Practice Leader of the firm's Consumer Financial Services Group, which has more than 115 lawyers. Mr. Kaplinsky devotes his practice exclusively to counseling financial institutions on bank regulatory and transactional matters, particularly consumer financial services law, and defending financial institutions that have been sued by consumers in individual and class action lawsuits and by government enforcement agencies. Visit Mr. Kaplinsky's profile in Wikipedia.

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215-864-8544
Jeremy T Rosenblum, consumer financial services group, finance partner, Philadelphia, Pennsylvania, Ballard Spahr, UDAAP, TILA
Partner

Jeremy T. Rosenblum is Co-Practice Leader of the firm's Consumer Financial Services Group. He has devoted the past 30 years in private practice to representing the consumer financial services industry.

Mr. Rosenblum's practice focuses on federal and state lending and consumer practices laws, with emphasis on the interplay between federal and state laws, joint ventures between banks and nonbank financial services providers, the development and documentation of new financial services products (especially products designed to serve the needs of unbanked and under-banked consumers), bank overdraft practices and disclosures, geographic expansion initiatives, and compliance with federal and state consumer protection and usury laws, including "UDAAP" statutes prohibiting unfair, deceptive, and abusive acts and practices; the Truth in Lending Act (TILA); the Electronic Funds Transfer Act; E-SIGN; the Equal Credit Opportunity Act; and the Fair Credit Reporting Act (FCRA).

Mr. Rosenblum's practice involves regular dealings with industry trade groups and regulators. In this regard, he has drafted a number of amicus curiae briefs, to the U.S. Supreme Court and other courts, on behalf of a number of industry and business trade groups, including the American Bankers Association, the Consumer Bankers Association, the U.S. Chamber of Commerce, the Mortgage Bankers Association, the Financial Services Roundtable, and the American Financial Services Association.

In addition to his consumer financial services regulatory and litigation practice, Mr. Rosenblum represents banks, thrifts, and other entities in charter transactions; mergers, acquisitions, and conversions; asset securitizations; purchases of loan servicing rights; and public offerings and private placements of equity and debt instruments.

215-864-8505
Mark Furletti, Partner, Ballard Spahr
Partner

Mark J. Furletti focuses on federal and state consumer lending and payments laws, including those that apply to payment cards, vehicle-secured loans, lines of credit, unsecured loans, and deposit products. He counsels providers of consumer financial services, including banks, on regulatory compliance matters and has successfully represented such providers in class action litigation and government supervisory and enforcement matters. He also regularly counsels purchasers of merchant receivables, companies that specialize in online small business lending and companies that...

215-864-8138
Jason Cover, Ballard Spahr Law Firm, Philadelphia, Finance Law Attorney
Associate

Jason M. Cover is an associate in the Business and Finance Department and a member of the Consumer Financial Services Group. As part of his practice, he provides counsel with respect to regulatory and transactional issues arising from state and federal consumer finance laws, including, among others, the Truth in Lending Act (TILA), Equal Credit Opportunity Act (ECOA), Servicemembers Civil Relief Act (SCRA), Fair Credit Reporting Act (FCRA), Fair Debt Collection Practices Act (FDCPA), Electronic Fund Transfer Act (EFTA), Electronic Signatures in Global and National...

215-864-8426