CFPB proposes changes to payday rule

The Consumer Financial Protection Bureau on Wednesday released proposed rules making changes to its short-term, small-dollar lending rule, saying that agency officials believe there was insufficient evidence and legal documentation to justify the 2017 rule.

Rescinding the 2017 rule might allow credit unions and banks with under $10 billion in assets to begin offering short-term loans, the agency said. Also, under the 2017 rule, loans modeled after the NCUA’s Payday Alternative Loan plan were exempt.

The new CFPB proposal would:

• Rescind provisions of the rule that concluded it was an abusive practice for a lender to make a short-term or longer-term balloon payment loan, including payday and vehicle title loans, without determining that consumers have an ability to repay the loan.
• Rescind provisions that prescribed mandatory underwriting requirements for making the ability-to-repay decision.

The payday lending rules were issued by former Director Richard Cordray in 2017. When Cordray left the agency, Acting Director Mick Mulvaney said he intended to reexamine that rule. New CFPB Director Kathy Kraninger is implementing that promise and said she will work with state and federal regulators to determine how to revise the rule.

Credit union trade groups CUNA and NAFCU praised the decision to re-examine the ability-to-pay sections of the 2017 rule.

“Credit unions are known for providing safe and affordable short-term, small-dollar loans designed to keep members away from predatory payday lenders and debt traps,” said CUNA Chief Advocacy Officer Ryan Donovan. “We support bureau efforts to revise this rule and urge the bureau to ensure these changes do not inhibit credit unions participating in the short-term, small-dollar loan market.”

“The Bureau will evaluate the comments, weigh the evidence, and then make its decision,” Kraninger said. “In the meantime, I look forward to working with fellow state and federal regulators to enforce the law against bad actors and encourage robust market competition to improve access, quality, and cost of credit for consumers.”

The agency is not proposing to reconsider the payments section of the 2017 rule.

The proposal will be open for comment for 90 days after it is published in the Federal Register.