ABA to CFPB: Protect Accommodation Loan Exemption in Small-Dollar Loan Rule

The American Bankers Association today urged the Consumer Financial Protection Bureau to protect small-dollar “accommodation loans” that many banks make for their customers. The letter came after the bureau announced last week it would begin a rulemaking under which it “may reconsider” its rule regarding small-dollar loans. ABA also expressed support for the bureau’s review of other parts of the rule to determine whether it leaves room for financial institutions to assess their market and design sustainable small-dollar loan products that meet the needs of existing and potential customers.

Finalized in October 2017, the rule imposes an ability-to-pay test on 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. The rule also includes provisions limiting attempts to withdraw payment from borrowers’ accounts, but includes an exception for banks that hold the borrower’s account and attempt to withdraw payment without assessing an NSF or overdraft fee.

As ABA had advocated, the bureau exempted entirely small-dollar loans from lenders that made 2,500 or fewer of these accommodation loans in each of the current and previous years and for which these loans account for less than 10 percent of revenues. The bureau also exempted from the rule’s ability-to-repay test installment loans of more than 45 days, signaling its interest in encouraging bank participation in this market. ABA encouraged the bureau to analyze further these elements of its regulatory framework to ensure banks are able to design sustainable small-dollar loan products. For more information, contact ABA’s Jonathan Thessin.