Collector - December 2017 - 38

INDUSTRYNEWS

CFPB Issues Final Rule for Small Dollar Lending Market
The controversial rulemaking, which drew a record-breaking number of comments from both industry stakeholders
and consumers opposed to the CFPB's proposals, imposes complex ability-to-repay requirements on payday and other
loans, along with new debit disclosures and limitations.
By Katy Zillmer and Maria Wolvin

T

he Consumer Financial Protection
Bureau issued its final rule for
the small-dollar lending market
in October, imposing complex new
requirements on payday loans, auto title
loans, deposit advance products and
longer-term loans with balloon payments.
The proposed rule reportedly drew over
one million comments, the majority of
which were from opponents of the CFPB's
proposals, including a huge number from
consumers who have relied upon and
benefited from payday loans.
The final rule, which is just under 1,700
pages long, identifies it as an unfair and
abusive practice for a lender to make covered
short-term or longer-term balloon-payment
loans without reasonably determining that
the consumers will have the ability to repay
the loans according to their terms.
Requirements under this part of the
rule include:
* Full-payment test: Lenders are required
to determine whether the borrower can
pay the loan payments and still meet
basic living expenses and major financial
obligations both during the loan and for
30 days after the highest payment on

38

the loan. To support the full-payment
test, the lender must verify income and
major financial obligations and estimate
basic living expenses for a one-month
period-the month in which the highest
sum of payments is due. The rule also
caps the number of short-term loans that
can be made in quick succession at three.
* Principal-payoff option for certain
short-term loans: Consumers may take
out a short-term loan of up to $500
without the full-payment test if it is
structured to allow the borrower to get
out of debt more gradually. Under this
option, consumers may take out one
loan that meets the restrictions and pay
it off in full. For those needing more
time to repay, lenders may offer up to
two extensions, but only if the borrower
pays off at least one-third of the original
principal each time. These loans can only
be offered if certain conditions are met,
e.g. the lender cannot take an auto title
as collateral or structure a loan as openend credit.
* "Less risky" loan options: Loans that
pose "less risk" to consumers do not
require the full-payment test or the

principal-payoff option. This includes
loans made by a lender who makes 2,500
or fewer covered short-term or balloonpayment loans per year and derives no
more than 10 percent of its revenue
from such loans. According to the
CFPB, these are usually small personal
loans made by community banks or
credit unions to existing customers or
members. In addition, the rule does
not cover loans that generally meet the
parameters of "payday alternative loans"
authorized by the National Credit Union
Administration or no-cost advances
under wage-advance programs offered
by employers or their business partners.
The rule also requires covered lenders to
report basic loan information and updates,
as well as obtain information about loans,
using credit reporting systems registered by
the CFPB. These designated companies will
be "registered information systems."
In addition, for short-term loans, balloonpayment loans and longer-term loans with
an annual percentage rate over 36 percent,
the rule identifies it as an unfair and abusive
practice to make 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. Lenders
must also provide written notice before the
first attempt to debit a payment and for any
subsequent transfers that may be different
from what the consumer expected.
Although much of the final rule reflects
the CFPB's proposals published in July 2016,
the CFPB changed course by not applying
the ability-to-repay requirements to all of
the longer-term loans that would have been
covered in the original proposals. According
to the CFPB, it "is conducting further study

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Table of Contents for the Digital Edition of Collector - December 2017

President’s Page
Industry News
Best Practices
FYI
Collection Tips
Stronger Together
Taking a Layered Approach
Lines of Communication
Calendar
Honor Roll
Collective Intelligence
CFPB Issues Final Rule for Small Dollar Lending Market
Ask the Experts: Training Advice
Court Rules Voicemail is a “Communication" and Disclosing Name of Collection Agency Provides “Meaningful Disclosure” Under FDCPA
Compliance
ACA SearchPoint
Last Word
Collector - December 2017 - Cover1
Collector - December 2017 - Cover2
Collector - December 2017 - 1
Collector - December 2017 - 2
Collector - December 2017 - President’s Page
Collector - December 2017 - Industry News
Collector - December 2017 - 5
Collector - December 2017 - 6
Collector - December 2017 - 7
Collector - December 2017 - Best Practices
Collector - December 2017 - 9
Collector - December 2017 - FYI
Collector - December 2017 - 11
Collector - December 2017 - Collection Tips
Collector - December 2017 - 13
Collector - December 2017 - Stronger Together
Collector - December 2017 - 15
Collector - December 2017 - 16
Collector - December 2017 - 17
Collector - December 2017 - 18
Collector - December 2017 - 19
Collector - December 2017 - Taking a Layered Approach
Collector - December 2017 - 21
Collector - December 2017 - 22
Collector - December 2017 - 23
Collector - December 2017 - 24
Collector - December 2017 - 25
Collector - December 2017 - Lines of Communication
Collector - December 2017 - 27
Collector - December 2017 - 28
Collector - December 2017 - 29
Collector - December 2017 - 30
Collector - December 2017 - 31
Collector - December 2017 - 32
Collector - December 2017 - 33
Collector - December 2017 - Calendar
Collector - December 2017 - Honor Roll
Collector - December 2017 - Collective Intelligence
Collector - December 2017 - 37
Collector - December 2017 - CFPB Issues Final Rule for Small Dollar Lending Market
Collector - December 2017 - 39
Collector - December 2017 - Ask the Experts: Training Advice
Collector - December 2017 - 41
Collector - December 2017 - Court Rules Voicemail is a “Communication" and Disclosing Name of Collection Agency Provides “Meaningful Disclosure” Under FDCPA
Collector - December 2017 - 43
Collector - December 2017 - Compliance
Collector - December 2017 - 45
Collector - December 2017 - ACA SearchPoint
Collector - December 2017 - 47
Collector - December 2017 - Last Word
Collector - December 2017 - Cover3
Collector - December 2017 - Cover4
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