On July 7, 2020, the Consumer Financial Protection Bureau (CFPB) issued its final rule in regard to so-called small dollar loans. The biggest change from the CFPB’s original iteration of the rule, the 2017 Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule (“small dollar rule”) is the bureau’s decision to rescind the ability to repay and underwriting provisions. The bureau also rescinded certain definitions, exemptions, record keeping, and reporting requirements related to those provisions. However, the final rule does not rescind or alter the payment provisions in the small dollar rule, and the CFPB indicated that it would be moving forward with those provisions. In fact, the bureau released a ratification of the payment provisions in light of the Supreme Court’s recent decision in Seila Law. The final rule does not address the uncertainty surrounding the August 19, 2019 compliance date, which is currently stayed by the Texas federal district court hearing the lawsuit filed by two trade groups challenging the small dollar rule.
The payment provisions contain several payment withdrawal protections aimed at protecting consumers from repeated collection attempts that can potentially lead to a pattern of insufficient funds fees or closure of the consumer’s bank account. The payment provisions require lenders to provide consumers with three new written notices related to payments and new methods for obtaining consent after two consecutive failed payment transfers from a consumer’s account. Lenders that offer covered loan products that are subject to the small dollar rule would be well-served to revisit the numerous notice form and timing requirements related to each notice, i.e., the first payment (first payment withdrawal notice), unusual withdrawals (payments differing in amount, timing, payment channel, or initiated as a second presentment following a returned transfer) (unusual withdrawal notice), and when the lender has two consecutive failed attempts at collecting payment on a consumer’s account (consumer rights notice). Additionally, special attention should be given to the definition of a ‘covered loan’ and the exemptions and exclusions under the Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule as it covers more loan products than its title states. Finally, there are two methods for obtaining additional payment transfers after two consecutive failed payment transfers and delivery of consumer right notice: new specific authorization and single immediate transfer.
The CFPB has promulgated permissible notice forms and gives examples and scenarios to assist lenders with compliance in its updated Small Entity Compliance Guide. The CFPB also recently provided FAQs for the small dollar rule. Of equal importance, lenders cannot take any action with the intent of evading the requirements of payment withdrawal restrictions. From this point forward, lenders should prepare to comply with the payment provisions because the Texas federal court could lift the stay at any time.
For more details on this CFPB update, signup here to attend a webinar presented by Jennifer Galloway, Preston Neel, Michael Gordon and Brian Epling.