On October 5, 2017 the Consumer Financial Protection Bureau (CFPB) made available a final new rule, 12 CFR Part 1041 (Regulation OO), for Payday, Vehicle Title and Certain High-Cost Installment Loans. The 1,690 page rule is, for the most part, effective 21months after publication in the Federal Register.
The rule is complex and controversial. The development of the rule involved over five years of research, outreach, and a review of more than one million comments on the proposed rule from payday borrowers, consumer advocates, faith leaders, payday and auto title lenders, tribal leaders, state regulators and attorneys general, and others.
In simple terms, the rule applies to loans that require consumers to repay all or most of the debt at once, including payday loans, auto title loans, deposit advance products, and longer-term loans with balloon payments.
- Payday loans are typically for small-dollar amounts and are due in full by the borrower’s next paycheck, usually two or four weeks. They are expensive, with annual percentage rates of over 300 percent or even higher. As a condition of the loan, the borrower writes a post-dated check for the full balance, including fees, or allows the lender to electronically debit funds from their checking account.
- Single-payment auto title loans also have expensive charges and short terms usually of 30 days or less. But for these loans, borrowers are required to put up their car or truck title for collateral.
- Some lenders also offer longer-term loans of more than 45 days where the borrower makes a series of smaller payments before the remaining balance comes due. These longer-term loans – often referred to as balloon-payment loans – often require access to the borrower’s bank account or auto title.
Among other provisions the rule:
- Identifies as an unfair and abusive practice the practice of making covered short-term or longer-term balloon-payment loans, including payday and vehicle title loans, without reasonably determining that consumers have the ability to repay the loans according to their terms. The rule exempts certain loans from the underwriting criteria prescribed in the rule if they have specific consumer protections.
- Identifies, for the same set of loans along with certain other high-cost longer-term loans, as an unfair and abusive practice continued attempts to withdraw payment from consumers’ accounts after two consecutive payment attempts have failed, unless the consumer provides a new and specific authorization to do so.
- Prescribes notices to consumers before attempting to withdraw payments from their account, as well as processes and criteria for registration of information systems, for requirements to furnish and obtain information from them, and for compliance programs and record retention.
- Prohibits evasions and operates as a floor leaving State and local jurisdictions to adopt further regulatory measures (whether a usury limit or other protections) as appropriate to protect consumers.
Information regarding the June 2, 2016 proposed regulation is available at https://www.jackscomplianceresource.com/cfpb-releases-proposal-to-eliminate-payday-debt-traps/
A copy of the final rule is available at https://files.consumerfinance.gov/f/documents/201710_cfpb_final-rule_payday-loans-rule.pdf.
A Payday Loan Factsheet is available at https://files.consumerfinance.gov/f/documents/201710_cfpb_fact-sheet_payday-loans.pdf.