On July 22, the Consumer Financial Protection Bureau (CFPB) issued a notice of proposed rulemaking, suggesting consumer protection regulations for payday loans, vehicle title loans, and certain high-cost installment loans. The Bureau’s proposal would apply to two types of covered loans: (1) short-term loans that have terms of 45 days or less, and (2) longer-term loans with terms of more than 45 days that have: (a) a total cost of credit that exceeds 36 percent; and (b) either a lien or other security interest in the consumer’s vehicle or a form of “leveraged payment mechanism” that gives the lender a right to initiate transfers from the consumer’s account or to obtain payment through a payroll deduction or other direct access to the consumer’s paycheck. The notice and comment period ends on October 7, 2016.
The proposed rule would identify it as an abusive and unfair practice for a lender to make a covered short-term or longer-term loan without reasonably determining that the consumer will have the ability to repay the loan. The proposed rule would require lenders to make a reasonable determination of a borrower’s ability to pay. Before making a covered loan, a lender would have to:
- verify the consumer’s net income;
- verify the consumer’s debt obligations using a national consumer report and a consumer report from a “registered information system” as described below;
- verify the consumer’s housing costs or use a reliable method of estimating a consumer’s housing expense based on the housing expenses of similarly situated consumers;
- forecast a reasonable amount of basic living expenses for the consumer—expenditures (other than debt obligations and housing costs) necessary for a consumer to maintain the consumer’s health, welfare, and ability to produce income;
- project the consumer’s net income, debt obligations, and housing costs for a period of time based on the term of the loan;
- determine the consumer’s ability to repay the loan based on the lender’s projections of the consumer’s income, debt obligations, and housing costs and forecast of basic living expenses for the consumer; and
- reasonably account for the possibility of volatility in the consumer’s income, obligations, or basic living expenses during the term of the loan, for longer-term loans.
Additionally, the proposed rule would identify as “abusive and unfair” any attempt to withdraw payment from a consumer’s account in connection with a covered loan—after two unsuccessful attempts to withdraw payment due to a lack of sufficient funds—without new and specific authorization from the consumer. The Bureau also proposed requiring lenders to “furnish to registered information systems basic information for most covered loans at origination, any updates to that information over the life of the loan, and certain information when the loan ceases to be outstanding.”
The final rule would prospectively become effective 15 months after the final rule is published in the Federal Register.
The notice of proposed rulemaking is available at: https://www.federalregister.gov/articles/2016/07/22/2016-13490/payday-vehicle-title-and-certain-high-cost-installment-loans.