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CFPB Proposes Framework For Payday, Title as well as other Installment Loans

CFPB Proposes Framework For Payday, Title as well as other Installment Loans

On June 2, 2016, the customer Financial Protection Bureau (the “CFPB” or the “Bureau”) released a 1,340-page Notice of Proposed Rulemaking on short-term financing (the “Proposal”)[1]. Our initial, high-level findings in the Proposal, which we continue steadily to evaluate, are established below.

The Proposal, among other items, may be the time that is first CFPB has utilized its authority to stop unjust, misleading or abusive functions or techniques (“UDAAP”) as a basis for rulemaking. Though it is characterized as a “payday loan” rule, as talked about more completely below, the Proposal would use throughout the short-term customer financing industry, including payday advances, car title loans, deposit advance services and products and specific “high-cost” installment loans and open-end loans. Moreover it would affect “lenders” – bank, non-bank, and market alike – that make “covered” loans for individual family members or home purposes.

The Proposal has four major components:

  • Requiring covered lenders to find out if a borrower has the capacity to afford particular loans without resorting to duplicate borrowing (the “Comprehensive Payment Test”);
  • Permitting covered lenders to forego a Full Payment Test analysis when they provide loans with particular structural features, such as an alternative payoff that is”principal” for loans with a term under 45 times or two other alternative choices for longer-term loans;
  • Requiring notice to borrowers just before debiting a consumer banking account and repeat that is restricting efforts; and
  • Requiring covered lenders to work with and report to credit rating systems. Continue reading