CFPB Proposes to Eliminate Small-Dollar Lending Rule’s Ability-to-Repay Test

The Consumer Financial Protection Bureau today proposed to remove the prescriptive underwriting provisions from the small-dollar lending rule it issued 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 and bank-provided loans with balloon payments.

The CFPB’s proposal maintains the complete exemption in the rule for banks and other depository institutions that made 2,500 or fewer small-dollar loans in each of the current and previous years and for which these loans account for less than 10 percent of revenues. The American Bankers Association advocated for this provision to protect banks’ flexibility to serve their customers.

“Many consumers rely on small-dollar loans, and regulators and others widely agree that banks are an important source of fair and convenient small-dollar credit,” said ABA SVP Virginia O’Neill. “We are encouraged that the proposal eliminates burdensome and prescriptive underwriting requirements, and that it maintains the exemption for depository institutions that make small-dollar ‘accommodation loans’ to meet the short-term credit needs of their customers.”

The CFPB also proposed to extend the compliance date for the rule’s underwriting provisions by 15 months to Nov. 19, 2020. This extension is intended help lenders avoid expending unnecessary resources to comply with provisions that the CFPB has proposed to rescind.