Read the Small-Dollar Lending Rule here and the ratification of the previously issued payment provisions here.

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Article Highlights:

On July 7, 2020, the Consumer Financial Protection Bureau (CFPB) finalized a rule governing payday, vehicle title, and certain high-cost installment loans (Small-Dollar Loans). In addition, the CFPB simultaneously ratified certain provisions of its November 17, 2017, rule governing Small-Dollar Loans.

The 2017 rule governing Small-Dollar Loans contained two primary components: the mandatory underwriting provisions and the payment provisions.  The 2020 Small-Dollar Loan rule rescinds all of the mandatory underwriting provisions and associated Official Interpretations of the 2017 rule , including:

  • The “identification” provision, which determined that it was an unfair and abusive practice to originate Small-Dollar Loans without a reasonable determination of the consumer’s ability to repay;
  • The “prevention” provision, which mandated underwriting requirements for originating Small-Dollar Loans in a manner that was neither unfair nor abusive;
  • The “furnishing” provision, which required lenders to report certain information about Small-Dollar Loans to registered information systems;
  • The “principal step-down” provision, which provided conditional exemption from the previous rule for unsecured loans that met certain limits on principal amounts, including reduction in principal amounts for each loan in a sequence, as well as other requirements; and
  • The recordkeeping and compliance dates provisions of the 2017 rule related to the rescinded provisions.

In ratifying the payment provisions of the 2017 rule, the CFPB reaffirmed the applicability of the 2017 rule’s restrictions withdrawing or attempting to withdraw payments for Small-Dollar Loans from consumers’ bank accounts through a leveraged payment mechanism.[i] The ratification of the payments provisions includes the CFPB’s prior determination that it is an unfair and abusive practice for a lender to make attempts to withdraw payment from consumers’ accounts in connection with a Small-Dollar Loan after the lender’s second consecutive attempts to withdraw payments from the accounts from which the prior attempts were made have failed due to a lack of sufficient funds, unless the lender obtains the consumers’ new and specific authorization to make further withdrawals from the accounts. The CFPB also ratifies the disclosure and record retention requirements related to the payments provisions.

[i] 12 CFR 1041.3(c)