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On February 20, the CFPB released the Small Entity Compliance Guide covering the payment-related requirements of the Payday, Vehicle Title, and High-Cost Installment Lending Rule, which, among other things, prohibits payday and certain other lenders from making a new attempt to withdraw funds from an account where two consecutive attempts have failed unless consumers consent to further withdrawals. (Detailed coverage on the Rule’s payment provisions available here.)
Notwithstanding the Bureau’s recently issued proposed rulemakings (covered by InfoBytes here), which, if finalized, would rescind certain provisions of the Rule related to underwriting standards and seek to delay the Rule’s compliance date for the underwriting provisions until August 2020, the payment-provisions will take effect August 19, 2019.
On February 11, the OCC released a statement from Comptroller of the Currency Joseph Otting supporting the CFPB’s proposed rule rescinding certain requirements relating to underwriting standards for short-term small-dollar loans. (Covered by InfoBytes here.) Calling the proposal “important and courageous,” Otting praised the Bureau, noting that it was “[t]he shrinking supply and steady demand” that “drove up prices and promoted much less favorable terms.” He continued to state that a framework of rules that allows responsible lenders to compete in the market will make the market “work better for everyone.”
As previously covered by InfoBytes, in May 2018, the OCC released a Bulletin encouraging banks to meet the credit needs of consumers by offering short-term, small-dollar installment loans subject to the OCC’s core lending principles.
On February 6, the CFPB released two notices of proposed rulemaking (NPRM) related to certain payday lending requirements under the agency’s 2017 final rule covering “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (the Rule). As previously covered by InfoBytes, last October the Bureau announced plans to reconsider the Rule’s mandatory underwriting requirements and address the Rule’s compliance date.
The first NPRM proposed will rescind certain provisions of the Rule related to underwriting standards for payday loans and related products scheduled to take effect later this year. Specifically, the CFPB proposes to rescind the portion of the Rule that would make it an unfair and abusive practice for a lender to make covered high-interest rate, short-term loans or covered longer-term balloon payment loans without reasonably determining that the consumer has the ability to repay. The proposed changes would also rescind prescribed mandatory underwriting requirements for making the ability-to-repay determination, provisions exempting certain loans from the mandatory underwriting requirements, as well as related definitions, reporting, and recordkeeping requirements. The CFPB explains that it now initially determines that the evidence underlying the identification of the unfair and abusive practice in the Rule “is not sufficiently robust and reliable to support that determination, in light of the impact those provisions will have on the market for covered short-term and longer-term balloon-payment loans, and the ability of consumers to obtain such loans, among other things.” If finalized, the proposals represent a significant change to the Rule as finalized during the tenure of former Bureau Director Richard Cordray in October 2017. (See Buckley Special Alert for more detailed coverage on the Rule.) Comments will be accepted for 90 days following publication in the Federal Register.
The second NPRM seeks to delay the Rule’s compliance date for mandatory underwriting provisions from August 19, 2019 to November 19, 2020. Notably, the Bureau states in a press release announcing the NPRMs that the proposal to delay the effective date does not extend to the Rule’s provisions governing payments, which “prohibit payday and certain other lenders from making a new attempt to withdraw funds from an account where two consecutive attempts have failed unless consumers consent to further withdrawals.” Lenders also will still be required to provide written notice to consumers both before the first attempt to withdraw payment from their accounts, as well as prior to subsequent attempts involving different dates, amounts, or payment channels. These provisions are not under reconsideration and will take effect August 19, 2019. Comments will be accepted for 30 days following publication in the Federal Register.
On November 14, the FDIC issued a request for information (RFI) seeking public comment on ways it can encourage FDIC-supervised financial institutions to offer “responsible, prudently underwritten small-dollar credit products that are economically viable and address the credit needs of bank customers.” In the RFI’s release, FDIC Chairman Jelena McWilliams pointed to studies showing that “[c]onsumers benefit when small-dollar credit products are available from banks” and requested “the public to use the RFI process to tell [the FDIC] how to ensure that consumers can obtain small dollar credit from banking institutions in a responsible manner.” The RFI seeks information related to the “full spectrum of issues” related to banks offering small-dollar credit, including regulatory and non-regulatory obstacles for banks, as well as actions the FDIC could take to assist banks in serving the small-dollar market. In addition to general feedback, the RFI includes a list of suggested topics and questions for commenters to address. Comments will be due 60 days after publication in the Federal Register.
Recently, the OCC and the CFPB have also made efforts to encourage banks to meet the small-dollar credit needs of consumers. In May, the OCC issued Bulletin 2018-14 encouraging banks to offer responsible short-term, small-dollar installment loans with typical maturities between two and 12 months (covered by InfoBytes here). In addition to applauding the OCC’s Bulletin, the CFPB announced it expects to publish proposed rules reconsidering the ability-to-repay provisions of the rule covering Payday, Vehicle Title, and Certain High-Cost Installment Loans in January 2019 (covered by InfoBytes here).
On November 6, the U.S. District Court for the Western District of Texas granted two payday loan trade groups’ request to reconsider the court’s June decision to deny a stay of the compliance date (August 19, 2019) of the Bureau’s final rule on payday loans, vehicle title loans, and certain other installment loans (Rule). The court styed the compliance date until further order of the court. The court previously (twice) denied requests to stay the compliance date (covered by InfoBytes here and here). However, the court reconsidered its decision after an October 26 status update, in which the Bureau informed the court of its intention to issue a notice of proposed rulemaking in January 2019 to reconsider parts of the Rule and the compliance date (covered by InfoBytes here).
As previously covered by InfoBytes, the payday loan trade groups filed a lawsuit against the Bureau in April asking the court to set aside the Rule on the grounds that, among other reasons, the Bureau is unconstitutional and the rulemaking failed to comply with the Administrative Procedure Act.
On October 26, the CFPB announced it expects to publish proposed rules reconsidering the ability-to-repay provisions of the rule covering Payday, Vehicle Title, and Certain High-Cost Installment Loans (the Rule) in January 2019. The Bureau does not intend to reconsider the payment provisions of the Rule, noting that the ability-to-repay provisions “have much greater consequences for both consumers and industry than the payment provisions.” Under the current Rule, it is an unfair and abusive practice for a lender to make a covered short-term loan or a covered longer-term balloon payment loan without reasonably determining that the consumer has the ability to repay the loan (see the Buckley Sandler Special Alert for more detailed coverage on the Rule). The Bureau also intends to address the compliance date for the Rule, which is currently set at August 19, 2019.
On August 7, the U.S. District Court for the Western District of Texas denied a request by two payday loan trade groups to reconsider its June decision denying a stay of the compliance date (August 19, 2019) of the Bureau’s final rule on payday loans, vehicle title loans, and certain other installment loans (Rule) until 445 days after final judgment in the pending litigation. As previously covered by InfoBytes, the court granted the trade groups’ and the CFPB’s joint request to stay the lawsuit—which asks the court to set aside the Rule— because of the Bureau’s plans to reconsider the Rule, but the court denied, without explanation, the request to stay the compliance date. In denying the reconsideration request, the court acknowledged considering, among other things, the trade groups’ motion and the CFPB’s response, which supported the motion but again, did not provide a substantive justification for the denial.
Buckley Sandler Special Alert: OCC announces it will accept fintech charter applications, following the release of Treasury report on nonbank financial institutions
On July 31, the OCC announced that nondepository financial technology firms engaged in one or more core banking functions may apply for a special purpose national bank (SPNB) charter. The announcement follows a report released the same day by the Treasury Department, which discusses a number of recommendations for creating a streamlined environment for regulating financial technology, and includes an endorsement of the OCC’s SPNB charter for fintech firms (fintech charter).
If you have questions about the report or other related issues, please visit our Fintech practice page, or contact a Buckley Sandler attorney with whom you have worked in the past.
On June 12, the U.S. District Court for the Western District of Texas denied a joint request by the CFPB and two payday loan trade groups to stay the compliance date (August 19, 2019) of the Bureau’s final rule on payday loans, vehicle title loans, and certain other high-cost installment loans (Rule) until 445 days after final judgment in the pending litigation. The court declined to provide an explanation for the denial, but did grant the parties’ joint request to stay the lawsuit pending further court order. As previously covered by InfoBytes, the payday loan trade groups filed a lawsuit in April asking the court to set aside the Rule on the grounds that, among other reasons, the CFPB is unconstitutional and the Bureau’s rulemaking failed to comply with the Administrative Procedure Act. On May 31, the parties filed a joint request to stay the lawsuit and the compliance date for the Rule because of the Bureau’s plans to reconsider the Rule, which may repeal or revise certain provisions rendering the case moot or otherwise resolved.
CFPB Succession: Bureau asks court to stay payday rule litigation; Mulvaney: Bureau may resume PII collection; working on a fintech regulatory “sandbox”; will consider scale and frequency of violations in future actions
On May 31, the CFPB filed a joint motion with two payday loan trade groups, requesting a stay of litigation pending the Bureau’s reconsideration of its final rule on payday loans, vehicle title loans, and certain other high-cost installment loans (Rule) and requesting a stay of the compliance date—currently set for August 19, 2019 for most substantive sections—of the Rule until 445 days after final judgment in the litigation. The motion argues that the stay is necessary for the duration of the rulemaking process because “the rulemaking process may result in repeal or revisions of the [Rule] and thereby moot or otherwise resolve this litigation.” As previously covered by InfoBytes, on April 9, the payday loan trade groups filed the lawsuit in the U.S. District Court for the Western District of Texas asking the court to set aside the Rule because, among other reasons, the CFPB is unconstitutional and the Bureau’s rulemaking failed to comply with the Administrative Procedure Act. The Bureau announced its intention to reconsider the Rule in January, and reiterated that intent in its Spring 2018 rulemaking agenda.
Additionally, acting Director of the CFPB, Mick Mulvaney, reportedly lifted the ban on the Bureau’s collection of personally identifiable information after an independent review concluded that “externally facing Bureau systems appear to be well-secured.” The ban was initially announced in December 2017, soon after Mulvaney began his acting role.
On May 29, Mulvaney stated in response to a question at a luncheon hosted by the Women in Housing & Finance that the CFPB is working closely with the U.S. Commodities Futures Trading Commission (CFTC) on developing a regulatory “sandbox” for fintech companies—which would provide targeted regulatory relief for companies to test new consumer financial products. While he did not provide many details on the project, he did note the Bureau was reviewing similar state actions for guidance (as previously covered by InfoBytes, Arizona was the first state to create a regulatory sandbox for fintech innovation). Additionally, in response to another question, Mulvaney noted that the Bureau may begin to take into account the scale and frequency of violations when determining whether to take action against a company; a practice, according to Mulvaney, that was not done under previous leadership. When referring to his authority to decide when to pursue an action, he stated, “I think if [a company is] doing something less than one-tenth of 1 percent of the time, maybe…it's evidence of a lack of criminal intent, and maybe there's a good place ... for me to execute some prosecutorial discretion."
Overall, Mulvaney’s remarks were consistent with previous comments about the direction of the Bureau, including his intention to end the practice of “regulation by enforcement” and his desire to move the CFPB under the Congressional appropriations process. He noted that he is still in the process of reviewing the public disclosure of consumer complaints and whether or not the Consumer Complaint Database will continue to be publicly available. Additionally, he was unable to provide a status update on the Bureau’s future debt collection rule (the Spring 2018 rulemaking agenda lists the rule in a “Proposed Rule Stage” and has the deadline for a notice of proposed rulemaking set for February 2019, see InfoBytes coverage here). Lastly, he reiterated the Bureau’s recent announcement that it is reviewing applications of the disparate impact doctrine under ECOA, stating that he is “reviewing all of [the Bureau’s] rules regarding ECOA, not just in auto lending” because Dodd-Frank requires that the Bureau “enforce federal consumer financial law consistently without regard to the status of the person.”