Payday, Vehicle Title, and Certain High-Cost Installment Loans; Delay of Compliance Date |
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Kathleen L. Kraninger
Bureau of Consumer Financial Protection
14 February 2019
[Federal Register Volume 84, Number 31 (Thursday, February 14, 2019)]
[Proposed Rules]
[Pages 4298-4305]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-01905]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1041
[Docket No. CFPB-2019-0007]
RIN 3170-AA95
Payday, Vehicle Title, and Certain High-Cost Installment Loans;
Delay of Compliance Date
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
proposing to delay the August 19, 2019 compliance date for the
mandatory underwriting provisions of the regulation promulgated by the
Bureau in November 2017 governing Payday, Vehicle Title, and Certain
High-Cost Installment Loans (2017 Final Rule or Rule) by 15 months to
November 19, 2020. This proposal is related to another proposal,
published separately in this issue of the Federal Register, seeking
comment on whether the Bureau should rescind the mandatory underwriting
provisions of the 2017 Final Rule.
DATES: Comments must be received on or before March 18, 2019.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2019-
0007 or RIN 3170-AA95, by any of the following methods:
Electronic: https://www.regulations.gov. Follow the
instructions for submitting comments.
Email: 2019-NPRM-PaydayDelay@cfpb.gov. Include Docket No.
CFPB-2019-0007 or RIN 3170-AA95 in the subject line of the message.
Mail/Hand Delivery/Courier: Comment Intake, Bureau of
Consumer Financial Protection, 1700 G Street NW, Washington, DC 20552.
Instructions: The Bureau encourages the early submission of
comments. All submissions should include the agency name and docket
number or Regulatory Information Number (RIN) for this rulemaking.
Because paper mail in the Washington, DC area and at the Bureau is
subject to delay, commenters are encouraged to submit comments
electronically. In general, all comments received will be posted
without change to https://www.regulations.gov. In addition, comments
will be available for public inspection and copying at 1700 G Street
NW, Washington, DC 20552, on official business days between the hours
of 10 a.m. and 5 p.m. Eastern Time. You can make an appointment to
inspect the documents by telephoning 202-435-7275.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Proprietary information or sensitive personal information, such as
account numbers, Social Security numbers, or names of other
individuals, should not be included. Comments will not be edited to
remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Eliott C. Ponte, Attorney-Advisor; Amy
Durant, Lawrence Lee, or Adam Mayle, Counsels; or Kristine M.
Andreassen, Senior Counsel, Office of Regulations, at 202-435-7700. If
you require this document in an alternative electronic format, please
contact CFPB_Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
I. Summary of the Proposed Rule
On October 5, 2017, the Bureau issued the 2017 Final Rule
establishing consumer protection regulations for payday loans, vehicle
title loans, and certain high-cost installment loans, relying on
authorities under Title X of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act).\1\ The Rule was published in
the Federal Register on November 17, 2017.\2\ It became effective on
January 16, 2018, although most provisions[thinsp](12 CFR 1041.2
through 1041.10, 1041.12, and 1041.13) have a compliance date of August
19, 2019.\3\ On January 16, 2018, the Bureau issued a statement
announcing its intention to engage in rulemaking to reconsider the 2017
Final Rule.\4\ A legal challenge to the Rule was filed on April 9, 2018
and is pending in the United States District Court for the Western
District of Texas.\5\ On October 26, 2018, the Bureau issued a
subsequent statement announcing it expected to issue notices of
proposed rulemaking (NPRMs) to reconsider certain provisions of the
2017 Final Rule and to address the Rule's compliance date.\6\ This is
the proposal that addresses the compliance date; the other proposal
addressing reconsideration of certain provisions is published
separately in this issue of the Federal Register.
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\1\ Public Law 111-203, 124 Stat. 1376 (2010).
\2\ 82 FR 54472 (Nov. 17, 2017).
\3\ Id. at 54814.
\4\ Bureau of Consumer Fin. Prot., Statement on Payday Rule
(Jan. 16, 2018), https://www.consumerfinance.gov/about-us/newsroom/cfpb-statement-payday-rule/.
\5\ Cmty. Fin. Serv. Ass'n of Am. v. Consumer Fin. Prot. Bureau,
No. 1:18-cv-295 (W.D. Tex.). On November 6, 2018, the Court issued
an order staying the August 19, 2019 compliance date of the rule
pending further order of the Court. See id., ECF No. 53. The
litigation is currently stayed. See id., ECF No. 29.
\6\ Bureau of Consumer Fin. Prot., Public Statement Regarding
Payday Rule Reconsideration and Delay of Compliance Date (Oct. 26,
2018), https://www.consumerfinance.gov/about-us/newsroom/public-statement-regarding-payday-rule-reconsideration-and-delay-compliance-date/.
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The 2017 Final Rule addressed two discrete topics. First, the Rule
contained a set of provisions with respect to the underwriting of
covered short-term and longer-term balloon-payment loans, including
payday and vehicle title loans, and related reporting and recordkeeping
requirements.\7\ These provisions are referred to herein as the
``Mandatory Underwriting Provisions'' of the 2017 Final Rule. Second,
the Rule contained a set of provisions, applicable to the same set of
loans and also to certain high-cost installment loans, establishing
certain requirements and limitations with respect to attempts to
withdraw payments from consumers' checking or other accounts.\8\ These
are referred to herein as the ``Payment Provisions'' of the 2017 Final
Rule.
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\7\ 12 CFR 1041.4 through 1041.6, 1041.10, 1041.11, and portions
of 1041.12.
\8\ 12 CFR 1041.7 through 1041.9, and portions of 1041.12.
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The Bureau is proposing in this NPRM to delay the August 19, 2019
compliance date for the 2017 Final Rule's Mandatory Underwriting
Provisions--specifically, Sec. Sec. 1041.4 through 1041.6, 1041.10,
1041.11, and
[[Page 4299]]
1041.12(b)(1)(i) through (iii) and (b)(2) and (3)--to November 19,
2020, for several reasons, each of which is discussed in more detail
below. First, the Bureau is publishing separately in this issue of the
Federal Register an NPRM that sets forth strong reasons for seeking
comment on whether it should rescind the Mandatory Underwriting
Provisions of the Rule (Reconsideration NPRM). The Bureau is concerned
that if the August 19, 2019 compliance date for the Mandatory
Underwriting Provisions is not delayed, industry participants will
expend significant resources and incur significant costs in order to
comply with the 2017 Final Rule, and industry participants could
experience substantial revenue disruptions that could impact their
ability to stay in business once the compliance date has passed. The
Bureau is concerned about imposing such costs on industry participants
by mandating compliance by August 19, 2019 with portions of the Rule
that may ultimately be rescinded. Second, outreach to affected entities
since the finalization of the 2017 Final Rule has brought to light
certain potential obstacles to compliance that were not anticipated
when the original compliance date was set. For example, several State
laws applicable to payday or similar loans have been enacted subsequent
to the 2017 Final Rule that have more immediate compliance dates. Some
industry participants have indicated that, given time and resource
constraints, their need to comply with these intervening State laws may
impede their ability to comply with the 2017 Final Rule's Mandatory
Underwriting Provisions by the August 19, 2019 compliance date.
Similarly, industry participants have indicated that they need
additional time to finish building out, or otherwise making investments
in, technology and critical systems necessary to comply with the
Mandatory Underwriting Provisions of the 2017 Final Rule.
The Bureau is thus proposing to delay the August 19, 2019
compliance date for the Mandatory Underwriting Provisions of the 2017
Final Rule by 15 months, to November 19, 2020, in order to permit an
orderly conclusion to its separate rulemaking process to reconsider the
Mandatory Underwriting Provisions of the 2017 Final Rule, and to
account for potential implementation challenges that had not been
anticipated at the time of the 2017 Final Rule.
II. Background
In the 2017 Final Rule, the Bureau established consumer protection
regulations for payday loans, vehicle title loans, and certain high-
cost installment loans. The Rule was published in the Federal Register
on November 17, 2017. It became effective on January 16, 2018, although
most provisions[thinsp](Sec. Sec. 1041.2 through 1041.10, 1041.12, and
1041.13) have a compliance date of August 19, 2019.
As mentioned above, the 2017 Final Rule addressed two discrete
topics: The Mandatory Underwriting Provisions and the Payment
Provisions. The Mandatory Underwriting Provisions identified as an
unfair and abusive practice the making of certain short-term and
longer-term balloon-payment loans without reasonably determining that
consumers will have the ability to repay the loans according to their
terms. The Mandatory Underwriting Provisions include two methods for
compliance. Under one method, lenders making covered short-term and
longer-term balloon-payment loans are required to, among other things,
make a reasonable determination that the consumer would be able to make
the payments on the loan and be able to meet the consumer's basic
living expenses and other major financial obligations without needing
to re-borrow over the ensuing 30 days; the Rule sets forth a number of
specific requirements that a lender must satisfy in this regard.\9\
Under the other method, lenders are allowed to make certain covered
short-term loans without meeting all the specific underwriting criteria
as long as the loan satisfies certain prescribed terms, the lender
confirms that the consumer meets specified borrowing history
conditions, and the lender provides required disclosures to the
consumer.\10\
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\9\ 12 CFR 1041.5.
\10\ 12 CFR 1041.6.
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In general, under either approach, a lender must obtain and
consider a consumer report from an information system registered with
the Bureau before making a covered short-term or longer-term balloon-
payment loan.\11\ In addition, other portions of the Rule require
lenders to furnish to provisionally registered and registered
information systems \12\ certain information concerning covered short-
term and longer-term balloon-payment loans at loan consummation, during
the period that the loan is an outstanding loan, and when the loan
ceases to be an outstanding loan.\13\
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\11\ 12 CFR 1041.5(c)(2)(ii)(B) and (d)(1), and 1041.6(a).
\12\ The 2017 Final Rule bifurcated the process for registering
information systems: the first phase for entities seeking
preliminary registration prior to the August 19, 2019 compliance
date; and the second phase for entities seeking provisional
registration on or after the August 19, 2019 compliance date. An
entity seeking preliminary registration under the first phase was
required to submit to the Bureau an initial application for
preliminary approval for registration by April 16, 2018. After
receiving preliminary approval from the Bureau, the entity must
submit its application for registration within 120 days from the
date preliminary approval was granted. See 12 CFR 1041.11(c).
\13\ See 12 CFR 1041.10(c).
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The Payment Provisions of the Rule apply to a broader group of
covered loans, which include covered short-term and longer-term
balloon-payment loans as well as certain high-cost installment loans,
establishing certain requirements and limitations with respect to
attempts to withdraw payments from consumers' checking or other
accounts. The Rule identifies as an unfair and abusive practice
lenders' attempts to withdraw payment on these loans from consumers'
accounts after two consecutive payment attempts have failed, unless the
consumer provides a new and specific authorization to do so. The Rule
also prescribes notices lenders must provide to consumers before
attempting to withdraw payments from their accounts.
In addition, the Rule includes other generally applicable
provisions such as definitions, exemptions, and requirements for
compliance programs and record retention (with portions specific to the
Mandatory Underwriting Provisions and to the Payment Provisions).
As noted above, on January 16, 2018, the Bureau issued a statement
announcing its intention to engage in rulemaking to reconsider the 2017
Final Rule. In addition, the statement notified entities seeking to
become registered information systems that the Bureau would entertain
requests to waive entities' preliminary approval application
deadline.\14\ Since that time, the Bureau has issued several waivers
and published copies of those waivers on its website.\15\ As of January
30, 2019, there are no information systems registered with the
Bureau.\16\ On October 26, 2018, the Bureau issued a subsequent
statement announcing that it expected to issue NPRMs to reconsider
certain provisions of the 2017 Final Rule and to address the Rule's
compliance date.
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\14\ Bureau of Consumer Fin. Prot., Statement on Payday Rule
(Jan. 16, 2018), https://www.consumerfinance.gov/about-us/newsroom/cfpb-statement-payday-rule/.
\15\ See Bureau of Consumer Fin. Prot., Payday, Vehicle Title,
and Certain High-Cost Installment Loans Registered Information
Systems registration program--Waiver requests and Bureau
determinations, https://www.consumerfinance.gov/policy-compliance/guidance/payday-loans-registered-information-systems-registration-program/registered-information-systems/#waivers.
\16\ See id.
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On April 9, 2018, a legal challenge to the 2017 Final Rule was
filed in the
[[Page 4300]]
United States District Court for the Western District of Texas. On June
12, 2018, the court issued an order staying the litigation. On November
6, 2018, the court stayed the August 19, 2019 compliance date of the
2017 Final Rule until further order of the court.
III. Proposed Delay of Compliance Date for the Mandatory Underwriting
Provisions
The Bureau is proposing in this NPRM to delay the August 19, 2019
compliance date for the 2017 Final Rule's Mandatory Underwriting
Provisions--specifically, Sec. Sec. 1041.4 through 1041.6, 1041.10,
1041.11, and 1041.12(b)(1)(i) through (iii) and (b)(2) and (3)--to
November 19, 2020. The Bureau is proposing this compliance date delay
for several reasons, as discussed in turn below.
First, the Bureau is proposing this compliance date delay because,
as noted above, the Bureau is publishing separately in this issue of
the Federal Register an NPRM seeking comment on whether it should
rescind the Mandatory Underwriting Provisions of the 2017 Final Rule.
The Bureau preliminarily believes that a compliance date delay is
needed because, as described in more detail in the Reconsideration
NPRM, the Bureau preliminarily believes there are strong reasons for
rescinding the Mandatory Underwriting Provisions of the Rule. Delaying
the August 19, 2019 compliance date for the Mandatory Underwriting
Provisions would give the Bureau the opportunity to review comments on
the Reconsideration NPRM and to make any changes to those provisions
before affected entities bear additional costs to comply with and
implement the Mandatory Underwriting Provisions of the 2017 Final Rule.
In addition, the Bureau is aware that some small lenders believe that
the impacts of the Mandatory Underwriting Provisions of the 2017 Final
Rule would significantly reduce the amount of revenue generated from
their lending operations, and thereby cause some smaller industry
participants to either temporarily or permanently exit the marketplace
once compliance with the Mandatory Underwriting Provisions of the 2017
Final Rule is required. Other lenders have indicated that they will be
forced to consolidate their operations or to make other fundamental
changes to their business as a result of the Mandatory Underwriting
Provisions. The Bureau preliminarily believes that delaying the August
19, 2019 compliance date would allow industry participants to avoid
irreparable injury from the compliance and implementation costs and the
market effects associated with preparing for and complying with
portions of the Rule that the Bureau is proposing to rescind. The
Bureau also believes that temporary industry disruptions may have
negative impacts on consumers, including restricting consumer access to
credit, and therefore preliminarily believes that delaying the August
19, 2019 compliance date would allow consumers to avoid injury from any
such disruption.
Second, the Bureau has discussed implementation efforts with a
number of industry participants since publication of the 2017 Final
Rule, and through these conversations the Bureau has become aware of
various unanticipated potential obstacles to compliance with the
Mandatory Underwriting Provisions by the August 19, 2019 compliance
date. The Bureau is seeking to better understand these obstacles and
how they might bear on whether the Bureau should delay the August 19,
2019 compliance date for the Mandatory Underwriting Provisions while it
considers whether to rescind those portions of the 2017 Final Rule.
For example, the Bureau is aware that several States have recently
enacted laws applicable to loans subject to the 2017 Final Rule's
Mandatory Underwriting Provisions. Some industry participants have told
the Bureau that they are prioritizing developing compliance management
systems in response to these laws that have, or will, become effective
\17\ before the August 19, 2019 compliance date. Some smaller industry
participants have indicated to the Bureau that they do not have the
resources to update or conform their compliance management systems to
address both newly enacted State laws and the 2017 Final Rule at the
same time. These recently enacted State laws were not anticipated in
the 2017 Final Rule and therefore the effect these laws may have on
affected entities' ability to comply with the Mandatory Underwriting
Provisions of the 2017 Final Rule was not considered when the Bureau
set the August 19, 2019 compliance date.
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\17\ In Ohio (a state that permits payday lending), a bill
signed into law by the governor in 2018 will, among other things,
prohibit certain lenders from making loans of $5,000 or less secured
by a vehicle title or any other collateral. Ohio lenders must comply
with the law as of April 27, 2019. See Ohio Dep't of Commerce, House
Bill 123 Guidance (2018), https://www.com.ohio.gov/documents/fiin_HB123_Guidance.pdf; see also Ohio House Bill 123, An Act to
Modify the Short-Term Loan Act, https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA132-HB-123.
In Colorado, voters approved a ballot initiative on November 6,
2018 to cap annual percentage rates on payday loans at 36 percent.
This initiative takes effect February 1, 2019. See Colo. Legislative
Council Staff, Initiative #126 Initial Fiscal Impact Statement,
https://www.sos.state.co.us/pubs/elections/Initiatives/titleBoard/filings/2017-2018/126FiscalImpact.pdf; see also Colo. Sec'y of
State, Official Certified Results--State Offices & Questions,
https://results.enr.clarityelections.com/CO/91808/Web02-state.220747/#/c/C_2 (Proposition 111).
In Florida, on March 19, 2018, the governor signed the Deferred
Presentment Transactions Law (SB 920). This legislation will allow
deferred-presentment (payday) installment loans of up to $1,000 paid
back in installments of 60 to 90 days. Prior law allowed only
amounts up to $500 paid off in a lump sum of 31 days. The new law
will go into effect July 1, 2019. See Ch. 2018-26, Laws of Fla.
(2018), http://laws.flrules.org/files/Ch_2018_026.pdf.
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Similarly, industry participants have stated that the software
vendors they use to produce technology and other critical systems
necessary to comply with the Mandatory Underwriting Provisions
requiring lenders to verify certain consumer obligations \18\ will not
be fully operational or available to industry before the August 19,
2019 compliance date. The Bureau has heard more recently that there are
additional systems that would facilitate lenders' access to required
information that have not progressed to the point necessary to permit
lenders to meet the upcoming compliance date. For example, a storefront
lender operating in multiple jurisdictions informed the Bureau that the
process of overhauling its point-of-sale software has been delayed due
to third-party vendors not being able to produce critical software
components on schedule. Furthermore, it indicated that these third-
party vendors have not been able to commit to developing and deploying
this necessary software by the August 19, 2019 compliance date due to
the complexity of various components required to ensure compliance.
Even if these third-party vendors were able to develop this necessary
software by the August 19, 2019 compliance date, the storefront lender
explained that it would need at least several weeks to ensure the
software works with its point-of-sale software and that the third-party
vendor's software is in compliance with the 2017 Final Rule.
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\18\ For example, to verify a consumer's required payments under
debt obligations, the lender must obtain and review (1) a national
consumer report; (2) its own records and its affiliates' records;
and (3) a consumer report obtained from an entity that has been
registered with the Bureau as an information system under the Rule
for 180 days or more pursuant to Sec. 1041.11(c)(2) or (d)(1), or
that is registered pursuant to Sec. 1041.11(d)(2), if available.
See 12 CFR 1041.5(c)(2)(ii)(B).
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In light of the foregoing, the Bureau is proposing to delay the
August 19, 2019 compliance date for the Mandatory Underwriting
Provisions of the 2017 Final Rule to November 19, 2020. Specifically,
as discussed further in part
[[Page 4301]]
V below, the Bureau is proposing to delay the compliance date for
Sec. Sec. 1041.4 through 1041.6, 1041.10, 1041.11, and
1041.12(b)(1)(i) through (iii) and (b)(2) and (3) of the 2017 Final
Rule. The Bureau is concerned that if the August 19, 2019 compliance
date for the Mandatory Underwriting Provisions is not delayed, industry
participants will expend additional resources and incur additional
costs in order to comply with the 2017 Final Rule, and industry
participants could experience revenue disruptions that could impact
their ability to stay in business once the compliance date has passed.
The Bureau is concerned about imposing such costs on industry
participants by mandating compliance by August 19, 2019 with portions
of the Rule that may ultimately be rescinded. The Bureau preliminarily
believes, based on its experience writing the 2017 Final Rule and with
other similar rulemakings, that the proposed compliance date of
November 19, 2020 will allow the Bureau adequate opportunity to review
comments on its Reconsideration NPRM regarding the Mandatory
Underwriting Provisions of the 2017 Final Rule and to make any changes
to those provisions before affected entities bear additional costs
associated with implementing and complying with the 2017 Final Rule,
and related market effects.
The Bureau solicits comment on whether it should delay the August
19, 2019 compliance date for the Mandatory Underwriting Provisions of
the 2017 Final Rule, and, if so, whether the proposed November 19, 2020
compliance date is an appropriate length of time. In particular, the
Bureau asks commenters to provide specific detail and any available
data regarding implementation of the Mandatory Underwriting Provisions
of the 2017 Final Rule and the specific challenges they face in doing
so by the current compliance date of August 19, 2019, as well as
relevant knowledge and specific facts about any benefits, costs, or
other impacts of this proposal on industry, consumers, and other
stakeholders. The Bureau also requests comment on whether it has
identified the appropriate provisions of the 2017 Final Rule as
constituting the Mandatory Underwriting Provisions for purposes of the
proposed delay, and whether delaying the August 19, 2019 compliance
date for these provisions would have any crossover effects on
implementation of the Payment Provisions. In addition, the Bureau
solicits comment on the potential consequences of not delaying the
August 19, 2019 compliance date for the Mandatory Underwriting
Provisions, as well as whether delaying the compliance date for the
Mandatory Underwriting Provisions would better facilitate an orderly
implementation period for the Rule. Finally, the Bureau solicits
comment about the impact of the proposed delay on consumers who use
payday loans, vehicle title loans, and high-cost installment loans
covered by the 2017 Final Rule.
The purpose of this document is to seek comment on the Bureau's
proposal to delay the August 19, 2019 compliance date for the Mandatory
Underwriting Provisions. At this time, the Bureau is not proposing to
delay the compliance date for the other provisions of the 2017 Final
Rule, including the Payment Provisions. The Bureau notes that, through
its efforts to monitor and support industry implementation of the 2017
Final Rule, it has heard concerns from some stakeholders regarding the
Rule that are outside of the scope of this proposal. For example, the
Bureau has received a rulemaking petition to exempt debit card payments
from the Rule's Payment Provisions. The Bureau has also received
informal requests related to various aspects of the Payment Provisions
or the Rule as a whole, including requests to exempt certain types of
lenders or loan products from the Rule's coverage and to delay the
compliance date for the Payment Provisions. The Bureau intends to
examine these issues and if the Bureau determines that further action
is warranted, the Bureau will commence a separate rulemaking initiative
(such as by issuing a request for information or an advance notice of
proposed rulemaking).
IV. Legal Authority
The legal authority for the 2017 Final Rule is described in detail
in part IV of the Supplementary Information accompanying the 2017 Final
Rule.\19\ Commenters may refer to that discussion for more information
about the legal authority for this NPRM.
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\19\ 82 FR 54472, 54519-24.
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The Bureau adopted the Mandatory Underwriting Provisions of the
2017 Final Rule in principal reliance on the Bureau's authority under
section 1031(b) of the Dodd-Frank Act to identify and prohibit unfair
and abusive practices.\20\ Accordingly, in proposing this rule, the
Bureau is exercising its authority under Dodd-Frank Act section 1031(b)
to prescribe rules under Title X of the Dodd-Frank Act.
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\20\ 12 U.S.C. 5531(b).
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In addition to section 1031 of the Dodd-Frank Act, the Bureau
relied on other legal authorities for certain aspects of the Mandatory
Underwriting Provisions in the 2017 Final Rule.\21\ Section
1022(b)(3)(A) of the Dodd-Frank Act authorizes the Bureau, by rule, to
conditionally or unconditionally exempt any class of covered persons,
service providers, or consumer financial products or services from any
rule issued under Title X, which includes a rule issued under section
1031, as the Bureau determines is necessary or appropriate to carry out
the purposes and objectives of Title X.\22\ The Bureau also relied, in
adopting certain provisions, on its authority under section 1022(b)(1)
of the Dodd-Frank Act to prescribe rules as may be necessary or
appropriate to enable the Bureau to administer and carry out the
purposes and objectives of the Federal consumer financial laws.\23\ The
term Federal consumer financial law includes rules prescribed under
Title X of the Dodd-Frank Act, including those prescribed under section
1031.\24\ Additionally, in the 2017 Final Rule, the Bureau relied, for
certain provisions, on other authorities, including those in sections
1021(c)(3), 1022(c)(7), 1024(b)(7), and 1032 of the Dodd-Frank Act.\25\
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\21\ See 82 FR 54472, 54522.
\22\ 12 U.S.C. 5512(b)(3)(A).
\23\ 12 U.S.C. 5512(b)(1). The Bureau also interprets section
1022(b)(1) of the Dodd-Frank Act as authorizing it to rescind or
amend a previously issued rule if it determines such rule is not
necessary or appropriate to enable the Bureau to administer and
carry out the purposes and objectives of the Federal consumer
financial laws, including a rule issued to identify and prevent
unfair, deceptive, or abusive acts or practices.
\24\ 12 U.S.C. 5481(14).
\25\ 12 U.S.C. 5511(c)(3), 12 U.S.C. 5512(c)(7), 12 U.S.C.
5514(b)(7), and 12 U.S.C. 5532.
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Section 1031 of the Dodd-Frank Act and each of the other legal
authorities that the Bureau relied upon in the 2017 Final Rule provide
the Bureau with discretion to issue rules and therefore discretion in
setting compliance dates for those rules. In the 2017 Final Rule, the
Bureau stated that the Rule's compliance date was ``structured to
facilitate an orderly implementation process.'' \26\ In particular, the
Bureau sought ``to balance giving enough time for an orderly
implementation period against the interest of enacting protections for
consumers as soon as possible.'' \27\ As discussed above and in the
Reconsideration NPRM, the Bureau preliminarily believes that there are
strong reasons for rescinding the Mandatory Underwriting Provisions of
the Rule on the grounds, inter alia, that a more robust and reliable
evidentiary
[[Page 4302]]
record is needed to support a rule that would have such dramatic
impacts on the market, and that the findings of an unfair and abusive
practice as set out in Sec. 1041.4 of the 2017 Final Rule rested on
applications of the relevant standards that the Bureau should no longer
use. Accordingly, the Bureau preliminarily concludes that it should not
assign the weight that it did in the 2017 Final Rule to ``the interest
of enacting protections for consumers as soon as possible.'' As also
discussed above, the Bureau has requested comment regarding whether
delaying the August 19, 2019 compliance date would be consistent with
an ``orderly implementation period,'' given that the Bureau may
conclude that the Mandatory Underwriting Provisions should not be
implemented and should instead be rescinded and because of the
potential implementation issues discussed above. The Bureau is
proposing to exercise its discretion to revise the August 19, 2019
compliance date in the manner described in this NPRM, in light of the
considerations described above. The Bureau requests comment on those
considerations and how they should be weighed in potentially delaying
the August 19, 2019 compliance date for the Mandatory Underwriting
Provisions of the Rule.
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\26\ 82 FR 54472, 54474.
\27\ Id. at 54814.
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V. Provisions Affected by the Proposal
As discussed above, the 2017 Final Rule became effective on January
16, 2018, but has a compliance date of August 19, 2019 for Sec. Sec.
1041.2 through 1041.10, 1041.12, and 1041.13. The Bureau is proposing
to delay the August 19, 2019 compliance date to November 19, 2020 for
Sec. Sec. 1041.4 through 1041.6, 1041.10, 1041.11, and
1041.12(b)(1)(i) through (iii) and (b)(2) and (3). Sections 1041.4
through 1041.6 govern underwriting, with Sec. 1041.4 identifying an
unfair and abusive practice, Sec. 1041.5 governing the ability-to-
repay determination, and Sec. 1041.6 providing a conditional exemption
from Sec. Sec. 1041.4 and 1041.5 for certain covered short-term loans.
Section 1041.10 governs information furnishing requirements and Sec.
1041.11 addresses registered information systems. Section 1041.12 sets
forth compliance program and record retention requirements, with Sec.
1041.12(b)(1)(i) through (iii) and (b)(2) and (3) detailing record
retention requirements that are specific to the Rule's Mandatory
Underwriting Provisions.
To implement the proposed compliance date delay, the Bureau would
revise the few instances in the regulatory text and commentary where
the August 19, 2019 compliance date appears. These portions of the
regulatory text and commentary are generally related to the registered
information system requirements in Sec. 1041.11; namely, the Bureau
would revise the regulatory text and headings in Sec. 1041.11(c)
introductory text, (c)(1) and (2), (d) introductory text, and
(d)(1),\28\ and related commentary, to replace August 19, 2019, where
it appears, with the proposed compliance date of November 19, 2020. In
addition, the Bureau requests comment on whether it should amend the
Rule's regulatory text or commentary to expressly state the delayed
compliance date for the Mandatory Underwriting Provisions and/or the
unchanged date for the Payment Provisions.
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\28\ Section 1041.11(c)(1) allows the Bureau to preliminarily
approve an entity as an information system before the compliance
date of August 19, 2019. Section 1041.11(c)(2) allows the Bureau to
approve the application from a preliminarily approved entity to
become a registered information system prior to the compliance date
of August 19, 2019.
The Bureau is not, however, proposing to change the April 16,
2018 date in Sec. 1041.11(c)(3), which was the deadline to submit
an application for preliminary approval for registration. As noted
above, Sec. 1041.11(c)(3)(iii) permits the Bureau to waive the
application deadline on a case-by-case basis, and therefore the
Bureau does not need to modify the existing April 16, 2018
preliminary approval date.
Section 1041.11(d)(1) sets forth the Bureau's process for
approving and registering entities as information systems on or
after the August 19, 2019 compliance date.
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VI. Compliance and Effective Dates
The Bureau is proposing to delay the August 19, 2019 compliance
date for the Mandatory Underwriting Provisions of the 2017 Final Rule--
specifically, Sec. Sec. 1041.4 through 1041.6, 1041.10, 1041.11, and
1041.12(b)(1)(i) through (iii) and (b)(2) and (3)--to November 19,
2020. After considering comments received on this proposal, the Bureau
intends to publish a final rule with respect to the delayed compliance
date for the Mandatory Underwriting Provisions of the 2017 Final Rule,
if warranted. Any final rule to delay the Rule's compliance date for
the Mandatory Underwriting Provisions would be published and become
effective prior to August 19, 2019. The Bureau seeks comment on this
aspect of the proposal.
VII. Dodd-Frank Act Section 1022(b)(2) Analysis
A. Overview
As discussed above, this proposal would delay the August 19, 2019
compliance date for the Mandatory Underwriting Provisions of the 2017
Final Rule to November 19, 2020. Published separately in this issue of
the Federal Register is the Reconsideration NPRM, in which the Bureau
considers the impacts of rescinding the Mandatory Underwriting
Provisions of the 2017 Final Rule. The analysis of the benefits and
costs to consumers and covered persons required by section
1022(b)(2)(A) of the Dodd-Frank Act (also referred to as the ``section
1022(b)(2) analysis'') in part VIII of the Reconsideration NPRM
outlines the one-time and ongoing benefits and costs of rescinding the
2017 Final Rule's Mandatory Underwriting Provisions. As this proposal
to delay the August 19, 2019 compliance date would constitute a 15-
month delay of the 2017 Final Rule's compliance date for the Mandatory
Underwriting Provisions, its impacts if the Bureau were to issue a
final rule with such a delay would be effectively 1.25 years of the
annualized, ongoing impacts described in the Reconsideration NPRM. As
described in the Reconsideration NPRM's section 1022(b)(2) analysis,
these impacts are based on the analysis and conclusions reached in the
2017 Final Rule, and include increased loan volumes and revenues for
lenders, increased access to credit for consumers, and a negative
average welfare effect on consumers from exposure to unanticipated long
sequences, all relative to the baseline if compliance becomes mandatory
on August 19, 2019. This proposal's impacts on the one-time costs
described in the 2017 Final Rule primarily include a delay before
covered entities must bear these costs, until no later than the new
compliance date. As some covered entities may have already started to
incur some of these one-time costs and others may incur the costs in
advance of the delayed compliance date, the Bureau believes the
monetary impact of a delay of the Mandatory Underwriting Provisions
would have minimal impacts on the eventual costs incurred by lenders if
the Bureau decides to retain the Mandatory Underwriting Provisions.
In developing this proposal, the Bureau has considered the
potential benefits, costs, and impacts as required by section
1022(b)(2)(A) of the Dodd-Frank Act.\29\ Specifically, section
1022(b)(2)(A) of the Dodd-Frank Act calls for the Bureau to consider
the potential benefits and costs of a regulation to consumers and
covered persons, including the potential reduction of access by
consumers to consumer financial products or services, the impact on
depository institutions and credit unions with $10 billion or less in
total assets as described in
[[Page 4303]]
section 1026 of the Dodd-Frank Act, and the impact on consumers in
rural areas.
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\29\ 12 U.S.C. 5512(b)(2)(A).
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In advance of issuing this proposal, the Bureau has consulted with
the prudential regulators and the Federal Trade Commission, including
consultation regarding consistency with any prudential, market, or
systemic objectives administered by such agencies.
The Bureau requests comment on the section 1022(b)(2) analysis that
follows as well as submission of additional information that could
inform the Bureau's consideration of the potential benefits, costs, and
impacts of this proposal to delay the August 19, 2019 compliance date
of the Mandatory Underwriting Provisions of the Rule. Comments on the
Bureau's section 1022(b)(2) analysis related to this NPRM's proposed
compliance date delay should be filed on the docket associated with
this NPRM, while comments on the Reconsideration NPRM's section
1022(b)(2) analysis should be filed on the Reconsideration NPRM docket.
1. Description of the Baseline
In considering the potential benefits, costs, and impacts of this
proposed rule the Bureau takes the 2017 Final Rule as the baseline, and
considers economic attributes of the relevant markets as they are
projected to exist under the 2017 Final Rule with its current August
19, 2019 compliance date and the existing legal and regulatory
structures (i.e., those that have been adopted or enacted, even if
compliance is not currently required) applicable to providers. This is
the same baseline used in the Reconsideration NPRM. See part VIII.A.4
of the Reconsideration NPRM for a more complete description of the
baseline.
2. Need for Federal Regulation
The need for regulation here--i.e., for a delay of the compliance
date--is discussed in more detail above. In summary, first, the
Bureau's Reconsideration NPRM, published separately in this issue of
the Federal Register, sets forth the Bureau's reasons for preliminarily
concluding that the Mandatory Underwriting Provisions of the 2017 Final
Rule should be rescinded. The Bureau is concerned that if the August
19, 2019 compliance date for the Mandatory Underwriting Provisions is
not delayed, firms will expend significant resources and incur
significant costs to comply with portions of the 2017 Final Rule that
ultimately may be--and which the Bureau preliminarily believes should
be--rescinded. The Bureau is likewise concerned that once the August
19, 2019 compliance date has passed, firms could experience substantial
revenue disruptions that could impact their ability to stay in business
while the Bureau is deciding whether to issue a final rule rescinding
the Mandatory Underwriting Provisions of the 2017 Final Rule. Second,
as discussed above, outreach to firms since the finalization of the
2017 Final Rule has brought to light certain potential obstacles to
compliance that were not anticipated when the original compliance date
was set. For example, as discussed above, some firms have indicated
that they need additional time to finish building out, or otherwise
make investments in, technology and critical systems necessary to
comply with the Mandatory Underwriting Provisions of the 2017 Final
Rule.
B. Potential Benefits and Costs to Covered Persons and Consumers
The annualized quantifiable benefits and costs of rescinding the
Mandatory Underwriting Provisions of the 2017 Final Rule are detailed
in the section 1022(b)(2) analysis in part VIII.B through D of the
Reconsideration NPRM. Under this proposal to delay the August 19, 2019
compliance date for the Mandatory Underwriting Provisions, these
annualized benefits and costs would be realized for a period of 15
months (1.25 years). Additional, unquantified benefits and costs are
also described in the Reconsideration NPRM's section 1022(b)(2)
analysis. Under this proposal these costs and benefits would also be
realized for 15 months (1.25 years).
1. Benefits to Covered Persons and Consumers
This proposal to delay the August 19, 2019 compliance date for the
Mandatory Underwriting Provisions would delay by 15 months the
restrictions on consumers' ability to choose to take out covered loans
(including payday and vehicle title loans) that would be prohibited in
the baseline. This proposal would also delay the decrease in the
revenues of payday lenders anticipated in the 2017 Final Rule (62 to 68
percent) by 15 months, resulting in an estimated increase in revenues
of between $4.25 billion and $4.5 billion (based on the annual rate of
$3.4 billion and $3.6 billion) relative to the baseline. A similar
delay in the reduction in the revenues of vehicle title lenders would
result in an estimated increase in revenues relative to the baseline of
between $4.9 billion and $5.1 billion (based on the annual rate of $3.9
billion to $4.1 billion).\30\ The proposal would also cause a small but
potentially quantifiable delay in the additional transportation costs
borrowers would incur to get to lenders after the storefront closures
expected in response to the 2017 Final Rule.
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\30\ These values are not discounted, as they would begin being
realized immediately, and annualized discounting over such a small
horizon would have a minimal impact.
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2. Costs to Covered Persons and Consumers
The Reconsideration NPRM's section 1022(b)(2) analysis also
discusses the ongoing costs facing consumers that result from extended
payday loan sequences at part VIII.B through D. The available evidence
suggests that the Reconsideration NPRM would impose potential costs on
consumers by increasing the risks of: Experiencing costs associated
with extended sequences of payday loans and single-payment vehicle
title loans; experiencing the costs (pecuniary and non-pecuniary) of
delinquency and default on these loans; defaulting on other major
financial obligations; and/or being unable to cover basic living
expenses in order to pay off covered short-term and longer-term
balloon-payment loans.\31\ Relative to the baseline where the 2017
Final Rule's compliance date is unaltered, these costs would be
maintained for 15 additional months under this proposal.
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\31\ As mentioned in the Reconsideration NPRM's section
1022(b)(2) analysis, the effects associated with longer-term
balloon-payment loans are likely to be small relative to the effects
associated with short-term payday and vehicle title loans. This is
because longer-term balloon-payment loans are uncommon in the
baseline against which costs are measured.
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3. Other Benefits and Costs
Other benefits and costs that the Bureau did not quantify are
discussed in the Reconsideration NPRM's section 1022(b)(2) analysis in
part VIII.E. These include (but are not limited to): The consumer
welfare impacts associated with increased access to vehicle title
loans; intrinsic utility (``warm glow'') from access to loans that are
not used (and that would not be available under the 2017 Final Rule);
innovative regulatory approaches by States that would have been
discouraged by the 2017 Final Rule; public and private health costs
that may (or may not) result from payday loan use; changes to the
profitability and industry structure that would have occurred in
response to the 2017 Final Rule (e.g., industry consolidation that may
create scale efficiencies, movement to installment product offerings);
concerns about
[[Page 4304]]
regulatory uncertainty and/or inconsistent regulatory regimes across
markets; benefits or costs to outside parties associated with the
change in access to payday loans; indirect costs arising from increased
repossessions of vehicles in response to non-payment of vehicle title
loans; non-pecuniary costs associated with financial stress that may be
alleviated or exacerbated by increased access to/use of payday loans;
and any impacts of fraud perpetrated on lenders and opacity as to
borrower behavior and history related to a lack of industry-wide
registered information systems (e.g., borrowers circumventing lender
policies against taking multiple concurrent payday loans, lenders
having more difficulty identifying chronic defaulters, etc.). Each of
these impacts, discussed in the section 1022(b)(2) analysis for the
2017 Final Rule and the section 1022(b)(2) analysis of the
Reconsideration NPRM, are expected to result from this proposal for the
15-month delay of the compliance date for the 2017 Final Rule's
Mandatory Underwriting Provisions.
The Bureau does not believe the one-time benefits and costs
described in the Reconsideration NPRM will be substantially affected by
this proposal to delay the August 19, 2019 compliance date for the
Mandatory Underwriting Provisions. In effect, this proposal would
provide institutions greater flexibility in when and how to deal with
the burdens of the 2017 Final Rule's Mandatory Underwriting Provisions
if the Bureau retains those provisions in the Reconsideration
rulemaking. Some firms may have already undertaken some of the
compliance costs, meaning this proposal would have minimal impact on
their benefits or costs. If the Bureau ultimately decides to finalize
this proposed compliance date delay for the Mandatory Underwriting
Provisions, others may use the additional time to install the necessary
systems and processes to comply with the 2017 Final Rule in a more
efficient manner. Quantifying the value of this more flexible timeline
is impossible, as it depends on, among other things, each firm's
idiosyncratic capacities and opportunity costs. However, it is likely
that this flexibility will be of relatively greater benefit to smaller
entities with more limited resources.
The Bureau expects, however, that, if the proposed compliance date
delay for the Mandatory Underwriting Provisions is finalized, most
firms will simply delay incurring some or all of the costs of coming
into compliance. This period of time could vary depending on the length
of the delay eventually finalized, if any. A delay of 15 months, as
proposed, would effectively reduce the one-time benefits and costs by
1.25 years of their discount rate.\32\ While these firms would
experience potentially quantifiable benefits, the Bureau cannot know
what proportion of the firms would adopt any of the strategies
described above, let alone the discounting values or strategies unique
to each firm. For a 15-month delay, the discounting of the one-time
benefits and costs would be likely to be less than 3 percent of the
value of those benefits and costs.\33\ As such, the Bureau believes the
one-time benefits and costs of this proposal are minimal, relative to
the other benefits and costs described above.
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\32\ Over and above this inflationary discounting, it is also
possible that the proposed delay would result in a decrease in the
nominal technology costs associated with compliance, as technology
costs are generally declining. However, given the relatively short
horizon and relatively mature technology required for compliance
(e.g., electronic storage, database management software, etc.), this
decrease in nominal costs is expected to be minimal.
\33\ The 3 percent value assumes a discounting of 2.40 percent
(the Effective Federal Funds rate as of January 30, 2019) for 1.25
years. This implicitly assumes all firms would undertake the
necessary actions immediately in the absence of this proposal, and
would delay those actions for the full 15 months if the proposal
were to be adopted. The true value will likely be substantially less
than this, as many firms will not delay by the full duration, and/or
have already undertaken the actions that will result in the benefits
or costs.
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C. Potential Impact on Depository Creditors With $10 Billion or Less in
Total Assets
The Bureau believes that depository institutions and credit unions
with less than $10 billion in assets were minimally constrained by the
2017 Final Rule's Mandatory Underwriting Provisions. To the limited
extent depository institutions and credit unions do make loans in this
market, many of those loans are conditionally exempt from the 2017
Final Rule under Sec. 1041.3(e) or (f) as alternative or accommodation
loans. As such, this proposal would likewise have minimal impact on
these institutions.
The Reconsideration NPRM notes that it is possible that a
revocation of the 2017 Final Rule's Mandatory Underwriting Provisions
would allow depository institutions and credit unions with less than
$10 billion in assets to develop products that would not be viable
under the 2017 Final Rule (subject to applicable Federal and State laws
and under the supervision of their prudential regulators). Given that
development of these products has been underway, and takes a
significant amount of time, and that this proposal's delay does not
affect such products' longer-term viability, this proposal would have
minimal effect on these products and institutions.
D. Potential Impact on Consumers in Rural Areas
The Bureau does not believe that the proposed compliance date delay
would reduce consumer access to consumer financial products and
services, and it may increase consumer access by delaying the point at
which covered firms implement changes to comply with the 2017 Final
Rule's Mandatory Underwriting Provisions. Under the proposal, consumers
in rural areas would have a greater increase in the availability of
covered short-term and longer-term balloon-payment loans originated
through storefronts relative to consumers living in non-rural areas. As
described in more detail in the Reconsideration NPRM's section
1022(b)(2) analysis, the Bureau estimates that removing the
restrictions in the 2017 Final Rule on making these loans would likely
lead to a substantial increase in the markets for storefront payday
lenders and storefront single-payment vehicle title loans. By delaying
the August 19, 2019 compliance date for the Mandatory Underwriting
Provisions, the Bureau similarly anticipates a substantial increase in
those markets relative to the baseline for the duration of the delay.
VIII. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act \34\ as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996 \35\ (RFA)
requires each agency to consider the potential impact of its
regulations on small entities, including small businesses, small
governmental units, and small not-for-profit organizations.\36\ The RFA
defines a ``small business'' as a business that meets the size standard
developed by the Small Business Administration (SBA) pursuant to the
Small Business Act.\37\
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\34\ Public Law 96-354, 94 Stat. 1164 (1980).
\35\ Public Law 104-21, section 241, 110 Stat. 847, 864-65
(1996).
\36\ 5 U.S.C. 601 through 612. The term `` `small organization'
means any not-for-profit enterprise which is independently owned and
operated and is not dominant in its field, unless an agency
establishes [an alternative definition under notice and comment].''
5 U.S.C. 601(4). The term `` `small governmental jurisdiction' means
governments of cities, counties, towns, townships, villages, school
districts, or special districts, with a population of less than
fifty thousand, unless an agency establishes [an alternative
definition after notice and comment].'' 5 U.S.C. 601(5).
\37\ 5 U.S.C. 601(3). The Bureau may establish an alternative
definition after consulting with the SBA and providing an
opportunity for public comment. Id.
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[[Page 4305]]
The RFA generally requires an agency to conduct an initial
regulatory flexibility analysis (IRFA) and a final regulatory
flexibility analysis (FRFA) of any rule subject to notice-and-comment
rulemaking requirements, unless the agency certifies that the rule
would not have a significant economic impact on a substantial number of
small entities.\38\ The Bureau also is subject to certain additional
procedures under the RFA involving the convening of a panel to consult
with small entity representatives prior to proposing a rule for which
an IRFA is required.\39\
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\38\ 5 U.S.C. 601 through 612.
\39\ 5 U.S.C. 609.
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As discussed above, the proposal would delay the August 19, 2019
compliance date for Sec. Sec. 1041.4 through 1041.6, 1041.10, 1041.11,
and 1041.12(b)(1)(i) through (iii) and (b)(2) and (3) of the 2017 Final
Rule to November 19, 2020. The proposed delay in the compliance date
would benefit small entities by providing additional flexibility with
respect to the timing of the 2017 Final Rule's Mandatory Underwriting
Provisions' implementation. In addition to generally providing
increased flexibility, the delay in the compliance date would permit
small entities to delay the commencement of any ongoing costs that
result from complying with the Mandatory Underwriting Provisions of the
2017 Final Rule. Because small entities would retain the option of
coming into compliance with the Mandatory Underwriting Provisions on
the original August 19, 2019 compliance date, the proposed delay of the
compliance date would not increase costs incurred by small entities
relative to the baseline established by the 2017 Final Rule. Based on
these considerations, the proposed rule would not have a significant
economic impact on any small entities.
Accordingly, the undersigned hereby certifies that this proposed
rule, if adopted, would not have a significant economic impact on a
substantial number of small entities. Thus, neither an IRFA nor a small
business review panel is required for this proposal. The Bureau
requests comments on this analysis and any relevant data.
IX. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA),\40\ Federal
agencies are generally required to seek Office of Management and Budget
(OMB) approval for information collection requirements prior to
implementation. Under the PRA, the Bureau may not conduct or sponsor
and, notwithstanding any other provision of law, a person is not
required to respond to an information collection unless the information
collection displays a valid control number assigned by OMB. The
collections of information related to the 2017 Final Rule were
previously submitted to OMB in accordance with the PRA and assigned OMB
Control Number 3170-0065 for tracking purposes, however, this control
number is not yet active as OMB has not approved these information
collection requests.
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\40\ 44 U.S.C. 3501 et seq.
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The Bureau has determined that the proposed rule would not impose
any new recordkeeping, reporting, or disclosure requirements on members
of the public that would constitute collections of information
requiring approval under the PRA.
Dated: February 6, 2019.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2019-01905 Filed 2-11-19; 4:15 pm]
BILLING CODE 4810-AM-P