CFPB Delays Effective Date of Underwriting Section of Payday Rule for 15 Months
According to the agency, the delay was needed as the bureau decides whether to rescind those underwriting rules.
The CFPB has decided to delay the effective date for the underwriting provisions of its payday lending rule for an additional 15 months, now setting a Nov. 19, 2020 compliance date.
The agency, which issued the final rule on Thursday, said the delay was needed as the bureau decides whether to rescind those underwriting rules. The agency noted that it has received more than 190,000 comments on the proposed rescission.
The delay will “permit an orderly conclusion to its separate rulemaking process to reconsider the Mandatory Underwriting Provisions,” the agency said.
“In particular, the Bureau is concerned that some smaller storefront lenders may permanently exit the market if they are required to comply with the 2017 Final Rule, even if the Rule is later rescinded after the compliance date,” the CFPB said, in issuing the delay.
Credit union trade groups praised the decision, while a consumer group said the agency was simply trying to help payday lenders.
In 2017, then-CFPB Director Richard Cordray issued strict rules governing payday lending, contending that many lenders make predatory loans that lock borrowers into a cycle of debt.
That rule provided a safe harbor for loans modeled after the NCUA’s Payday Alternative Loan program.
When former Acting Director Mick Mulvaney took charge of the agency, he said he intended to revisit the rule.
CFPB Director Kathy Kraninger said the research and legal basis for the rule was questionable.
She proposed two changes—a delay in the effective date for underwriting and elimination of the requirement that, before a loan is issued; borrowers would have to demonstrate that they will have an ability to repay it.
Credit union trade groups have supported the delay and have urged the bureau to guarantee that the PAL program maintains its safe harbor from agency rules.
The NCUA is considering additional alternatives under the PAL program and the trade groups have urged the CFPB to provide a safe harbor to any future versions of the loan.
“CUNA continues to urge the CFPB to further examine and revise the payday rule to avoid any negative effects on credit union small-dollar loan programs due to their history and mission of providing safe and affordable small-dollar credit, while still holding non-depository lenders with histories consumer abuse accountable,” said ,” said Elizabeth Eurgubian, CUNA’s deputy chief advocacy officer.
“NAFCU supports the removal of problematic ability to repay portions of the rule, but we also want to ensure that, going forward, the egregious practices of certain payday lenders are addressed, NAFCU President B. Dan Berger said when the rule delay was proposed.
A consumer group disagreed.
“The facts of the payday lending industry haven’t changed in the last two years – the only thing that’s changed is we have a President and a CFPB Director who don’t care if businesses prey on consumers, as long as they turn a profit,” said Jeremy Funk, spokesman for Allied Progress.