What to Expect in the Proposed Pay Day Lending Rules

It is anticipated that the CFPB will unveil their proposed pay day lending rules at tomorrow's field hearing in Kansas City.  The subject of the field hearing is, of course, small dollar lending.  Over a year ago, the CFPB released its proposal for pay day lending in advance of the SBREFA panel being convened on the same issue.  Here are a few things to look for when the Rule is released:

• The proposed rule is likely to require all short term loans take into account the consumer's ability to repay without defaulting or re-borrowing.  We anticipate that the Rule's ability to repay will be modeled after the mortgage rules.  One of the big talking points the CFPB pushed forward last Spring was requiring that the lender make a good faith determination at the outset of the loan to determine whether the consumer has an ability to repay the loan when due, including all associated fees and interest, without reborrowing or defaulting.  For each loan, the lender would be required to verify the consumer’s income, major monthly financial obligations and borrowing history (with the lender, its affiliates and possibly other lenders). 
• The proposed rule is likely to set limits on rollovers.  Last spring, the CFPB suggested they would require a 60 day cooling off period between loans and limit rollovers to those circumstances where the lender could document a change in the borrower's financial condition.  Don't be surprised if the proposed rule limits the number of rollovers and limits the conditions upon which rollovers may be made.
• The proposed rule may ban vehicle title loans.  As we indicated in a prior post, the CFPB recently issued a scathing report condemning title loans. Don't be surprised if the proposed rule either bans or significantly curtails vehicle title loans.
• The proposed rule is likely to curtail certain collection techniques - particularly, account drafts.  Don't be surprised if the Rule requires prior written notice to the consumer prior to the lender initiating a draft on the consumer's account.
• The proposed rule is likely to impose onerous data collection and record keeping requirements on pay day lenders.  The 2015 proposal contemplated significant record keeping requirements. In addition to requiring record retention, it would not be a surprise to see reporting requirements similar to those included in the arbitration rule requiring periodic reporting to the CFPB by small dollar lenders.