ABA Wins CFPB Exemption for ‘Accommodation Loans’

The American Bankers Association won a helpful exemption in the Consumer Financial Protection Bureau’s final small-dollar lending rule that protects banks’ ability to make small-dollar “accommodation loans” to customers. The bureau today finalized its long-awaited rule to curtail short-term, small-dollar consumer loans. Under the final rule — as ABA advocated in its comment letter — small-dollar loans will be exempt entirely from the rule, provided they are made by a lender that has made fewer than 2,500 of these loans in each of the current and previous years and for whom these loans account for less than 10 percent of revenues.

The accommodation loan exemption applies regardless of the size of the lender offering it. In addition, for banks that exceed the threshold for the accommodation loan exemption, the final rule preserves the ability of these banks to offer installment loans of 46 days or more, which ABA believes will allow banks to innovate and increase their responsible small-dollar credit products.

“With today’s rule, the bureau has reiterated its earlier view that banks can play an important role in meeting the needs of small-dollar borrowers,” said ABA SVP Ginny O’Neill. “As we continue to analyze the final rule’s 1,690 pages, we hope that it will allow banks to expand programs to effectively meet the small-dollar credit needs of their customers.”

ABA will continue to review the final rule, which covers a wide swath of small-dollar loans of 45 days or less, including payday loans, auto title loans, deposit advances and longer-term loans with balloon payments — all of which are subject to an ability-to-pay test unless exempt. The rule also includes provisions limiting attempts to withdraw payment from borrowers’ accounts. However, there is an exemption available to banks that hold the consumer’s account from which the debit is attempted, if the bank does not charge the borrower an NSF or overdraft fee.

In response to the final rule, the OCC withdrew its 2013 guidance on deposit advances, effective immediately. The agency said maintaining the guidance would have subjected banks to “potentially inconsistent regulatory direction” as they implement the CFPB’s final rule, which takes effect 21 months after it is published in the Federal Register.

“We also recognize and appreciate the step taken by the OCC today to repeal its previous guidance that had inhibited some forms of small-dollar lending by national banks — a recognition that banks can be an important source for providing this type of fair, convenient and sustainable loan to their customers,” O’Neill added. For more information, contact ABA’s Jonathan Thessin.