Payday, Vehicle Title, and Certain High-Cost Installment Loans; Delay of Compliance Date; Correcting Amendments |
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Kathleen L. Kraninger
Bureau of Consumer Financial Protection
17 June 2019
[Federal Register Volume 84, Number 116 (Monday, June 17, 2019)]
[Rules and Regulations]
[Pages 27907-27930]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-12307]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 84, No. 116 / Monday, June 17, 2019 / Rules
and Regulations
[[Page 27907]]
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; Correcting Amendments
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Final rule; delay of compliance date; correcting amendments.
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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is
issuing this final rule 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).
Compliance with these provisions of the Rule is delayed by 15 months,
to November 19, 2020. The Bureau is also making certain conforming
changes and corrections to address several clerical and non-substantive
errors it has identified in the Rule.
DATES:
Effective date: The amendments in this final rule are effective on
August 16, 2019.
Compliance dates: The compliance date for Sec. Sec. 1041.4 through
1041.6, 1041.10, and 1041.12(b)(1) through (3) in the final rule
published on November 17, 2017 (82 FR 54472), as amended by this final
rule, is delayed from August 19, 2019 to November 19, 2020. The
compliance date for Sec. Sec. 1041.2, 1041.3, 1041.7 through 1041.9,
1041.12(a), (b) introductory text, and (b)(4) and (5), and 1041.13
remains August 19, 2019.
FOR FURTHER INFORMATION CONTACT: 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 Final Rule
On October 5, 2017, the Bureau issued the 2017 Final Rule
establishing 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\ 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 loans and longer-term balloon-
payment loans, including payday and vehicle title loans, and related
reporting and recordkeeping requirements.\3\ 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, and related recordkeeping requirements.\4\ These are
referred to herein as the ``Payment Provisions'' of the 2017 Final
Rule.
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\1\ Public Law 111-203, 124 Stat. 1376 (2010).
\2\ 82 FR 54472 (Nov. 17, 2017). The Bureau released its
proposal regarding payday, vehicle title, and certain high-cost
installment loans for public comment on June 2, 2016 (2016
Proposal). 81 FR 47864 (July 22, 2016).
\3\ 12 CFR 1041.4 through 1041.6, 1041.10, 1041.11, and portions
of 1041.12.
\4\ 12 CFR 1041.7 through 1041.9, and portions of 1041.12.
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The 2017 Final Rule became effective on January 16, 2018, although
most provisions[thinsp](12 CFR 1041.2 through 1041.10, 1041.12, and
1041.13) had a compliance date of August 19, 2019.\5\
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\5\ 82 FR 54472, 54814. On January 16, 2018, the Bureau issued a
statement announcing its intention to engage in rulemaking to
reconsider the 2017 Final Rule. Bureau of Consumer Fin. Prot.,
Statement on Payday Rule (Jan. 16, 2018), https://www.consumerfinance.gov/about-us/newsroom/cfpb-statement-payday-rule/. 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. 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/. 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. 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.
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On February 6, 2019, the Bureau issued proposals seeking comment on
whether the Bureau should rescind the Mandatory Underwriting Provisions
of the 2017 Final Rule (Reconsideration NPRM) \6\ and on whether it
should delay the compliance date for those provisions (Delay NPRM).\7\
In the Delay NPRM, the Bureau proposed 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.\8\ These proposals did not include reconsideration
or delay of the Payment Provisions.
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\6\ 84 FR 4252 (Feb. 14, 2019).
\7\ 84 FR 4298 (Feb. 14, 2019).
\8\ The list of provisions for which the Bureau proposed to
delay the August 19, 2019 compliance date in the Delay NPRM
corresponded to the list of provisions that the Bureau proposed to
rescind in the Reconsideration NPRM. As discussed below, although
Sec. 1041.11 is part of the Mandatory Underwriting Provisions of
the Rule, its operative date was January 16, 2018, which the Bureau
is not changing. In the Reconsideration NPRM, the Bureau proposed to
modify the introductory text of Sec. 1041.12(b)(1) for clarity as
to its application to loan agreements for all covered loans, and
thus it was not listed with the provisions that the Bureau proposed
to rescind. Since the Bureau is not modifying the introductory text
of Sec. 1041.12(b)(1) in this final rule, it is included in the
list of provisions for which the compliance date is delayed.
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For the reasons discussed below and based on comments received, the
Bureau is issuing this final rule to delay the August 19, 2019
compliance date for the Mandatory Underwriting Provisions, to November
19, 2020, in order to permit an orderly conclusion to its separate
rulemaking process to reconsider the Mandatory Underwriting Provisions.
In short, after reviewing the comments received on the Delay NPRM, the
Bureau concludes that (1) it has strong reasons to revisit the
Mandatory Underwriting Provisions on the grounds set out in the
Reconsideration NPRM; and (2) if the Mandatory Underwriting
[[Page 27908]]
Provisions went into effect while the Bureau was in the process of
reconsidering these provisions, as described below, consequences would
likely follow--some of which may be irreversible even if the Mandatory
Underwriting Provisions were later rescinded--that the Bureau believes
may prove unwarranted and may undermine effective reconsideration of
the 2017 Final Rule. In light of these considerations, the Bureau
concludes that it is appropriate to delay compliance with the Mandatory
Underwriting Provisions for 15 months to allow time for the
Reconsideration NPRM rulemaking process to be completed.
The Bureau is also making conforming amendments to certain
regulatory text and commentary adopted in the 2017 Final Rule to
reflect the compliance date delay as well as including an additional
section to the Rule setting forth the compliance dates in detail.
The Bureau is also making certain corrections to address several
clerical and non-substantive errors it has identified in the 2017 Final
Rule. No substantive change is intended by these corrections.
II. Background
A. The 2017 Final Rule
In the 2017 Final Rule, the Bureau established 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
(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.\9\ 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 that
permit providers to offer covered short-term and longer-term balloon-
payment loans. 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.\10\
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.\11\
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\9\ The Payment Provisions 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).
\10\ 12 CFR 1041.5.
\11\ 12 CFR 1041.6.
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In general, under either method, a lender is to obtain and consider
a consumer report from an information system registered or
provisionally registered with the Bureau (referred to herein a as a
``registered information system'' or an RIS) before making a covered
short-term or longer-term balloon-payment loan.\12\ In addition, other
portions of the Rule require lenders to furnish to RISes \13\ 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.\14\
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\12\ 12 CFR 1041.5(c)(2)(ii)(B) and (d)(1), and 1041.6(a). Only
the latter approach, however, requires the consumer report from an
information system that has been registered with the Bureau for 180
days or more pursuant to Sec. 1041.11(c)(2) or is registered with
the Bureau pursuant to Sec. 1041.11(d)(2). See Sec. 1041.6(a).
Under Sec. 1041.5, a national consumer report (as defined in Sec.
1041.5(a)(4)) is required, subject to limited exceptions, as is a
consumer report from an RIS if available.
\13\ 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).
\14\ See 12 CFR 1041.10(c).
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B. Subsequent Actions
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 RISes that the Bureau would entertain requests to waive
entities' preliminary approval application deadline.\15\ Since that
time, the Bureau has issued several waivers and published copies of
those waivers on its website.\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.\17\
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\15\ Bureau of Consumer Fin. Prot., Statement on Payday Rule
(Jan. 16, 2018), https://www.consumerfinance.gov/about-us/newsroom/cfpb-statement-payday-rule/.
\16\ 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. As of June 5, 2019,
there are no information systems registered with the Bureau.
\17\ 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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On April 9, 2018, a legal challenge to the 2017 Final Rule was
filed in the United States District Court for the Western District of
Texas.\18\ On June 12, 2018, the court issued an order staying the
litigation.\19\ On November 6, 2018, the court stayed the August 19,
2019 compliance date of the 2017 Final Rule until further order of the
court.\20\
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\18\ Cmty. Fin. Serv. Ass'n of Am. v. Consumer Fin. Prot.
Bureau, No. 1:18-cv-295 (W.D. Tex.).
\19\ See id., ECF No. 29.
\20\ See id., ECF No. 53.
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C. Compliance Date Delay Proposal
As noted above, on February 6, 2019, the Bureau issued the
Reconsideration NPRM seeking comment on the Bureau's proposal to
rescind the Mandatory Underwriting Provisions of the 2017 Final Rule
and the Delay NPRM seeking comment on the Bureau's proposal to delay
the compliance date for those provisions. The Bureau stated in its
Delay NPRM that it preliminarily believed it had set forth strong
reasons for proposing to rescind the Mandatory Underwriting Provisions
of the Rule, as detailed in the
[[Page 27909]]
Reconsideration NPRM. The Bureau was concerned that mandating
compliance by August 19, 2019 with portions of the Rule that the Bureau
had good reasons to believe should be rescinded would impose
significant and potentially unwarranted costs on industry participants,
create substantial revenue disruptions that could impact the ability of
some market participants to stay in business, and restrict access to
consumer credit. The Bureau preliminarily believed, based on its
experience developing the 2017 Final Rule and other similar
rulemakings, that a compliance date of November 19, 2020 would allow
the Bureau adequate opportunity to review comments on its
Reconsideration NPRM regarding the Mandatory Underwriting Provisions
and to make any changes to those provisions before affected entities
incurred significant costs that would impair their ability to remain in
business and before consumers experienced a restriction in their
ability to choose the credit they prefer.
D. Compliance Date Delay Final Rule
For the reasons set forth herein and based on comments received,
the Bureau is issuing this final rule 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,
and 1041.12(b)(1) through (3) \21\--to November 19, 2020, to permit an
orderly conclusion to its separate rulemaking process to reconsider the
Mandatory Underwriting Provisions of the 2017 Final Rule.\22\ The
Bureau is making conforming amendments to certain regulatory text and
commentary adopted in the 2017 Final Rule to reflect the compliance
date delay as well as supplementing the Rule with an additional section
(Sec. 1041.15) setting forth in detail its effective and compliance
dates.
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\21\ As discussed below, although Sec. 1041.11 is part of the
Mandatory Underwriting Provisions of the Rule, its operative date
was January 16, 2018, which the Bureau is not changing.
\22\ In addition, as described in the Delay NPRM, outreach to
affected entities since the finalization of the 2017 Final Rule had
brought to light certain potential obstacles to compliance that were
not anticipated when the original compliance date was set; these
concerns were echoed by some commenters on the Delay NPRM. However,
as discussed in more detail below, the Bureau is not finalizing this
compliance date delay on those grounds.
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The Bureau is also making certain corrections to address several
clerical and non-substantive errors it has identified in the 2017 Final
Rule in Sec. Sec. 1041.2(a)(9), 1041.3(e)(2), 1041.9(c)(3)(viii), and
appendix A. No substantive change is intended by these corrections.
III. Summary of the Rulemaking Process, Comments Received, and the
Final Rule
As noted above, the Bureau proposed to delay the compliance date
for the 2017 Final Rule's Mandatory Underwriting Provisions for several
reasons. As explained in more detail below, the Bureau now concludes
that it is appropriate 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, and
1041.12(b)(1) through (3)--to November 19, 2020.
In short, after reviewing all comments received on the Delay NPRM,
the Bureau has determined that finalizing the proposed delay is
appropriate because there are strong reasons for rescinding the
Mandatory Underwriting Provisions of the 2017 Final Rule and because
significant and potentially unwarranted consequences to covered
entities, consumers, and the market would occur if compliance with
those aspects of the Rule was required by August 19, 2019. In addition,
the Bureau has concluded that 15 months is an adequate amount of time
to allow the Bureau to complete its reconsideration rulemaking. First,
there are strong reasons to reconsider the evidentiary and legal bases
for the unfairness and abusiveness findings underlying the Mandatory
Underwriting Provisions of the 2017 Final Rule. The Bureau has
initiated the process for reconsidering those provisions by issuing the
Reconsideration NPRM, which sets forth in detail the Bureau's reasons
for proposing to rescind the Mandatory Underwriting Provisions. After
considering all the comments received on the Delay NPRM and with an
open mind on all issues to be decided in the Reconsideration NPRM, the
Bureau concludes that for purposes of this final rule there are strong
reasons to rescind the Mandatory Underwriting Provisions.
Second, the Bureau concludes that if compliance were to become
mandatory while the reconsideration rulemaking is ongoing, several
significant and potentially unwarranted consequences would likely
result, including significant compliance costs, the potential exit of
some smaller providers, and restricted access to consumer credit. Those
consequences would risk undermining effective reconsideration of the
Rule by imposing potentially market-altering effects, some of which may
be irreversible if the Bureau required compliance with the Mandatory
Underwriting Provisions and then later rescinded them. The Bureau is
particularly concerned that some smaller providers may permanently exit
the market if they are required to comply with the Mandatory
Underwriting Provisions while reconsideration is ongoing.
In light of these considerations, the Bureau concludes that it is
appropriate to delay the compliance date for 15 months to allow time
for the Reconsideration NPRM rulemaking process that the Bureau has
initiated--and through which the Bureau has received approximately
190,000 comments--to be completed.
A. Comments Received, Generally
The comment period on the Delay NPRM closed on March 18, 2019. The
Bureau received approximately 150 comment letters from individuals,
consumer advocacy groups, a group of State attorneys general,
depository and non-depository lenders, tribal governments, national and
regional trade associations, service providers, the Small Business
Administration's Office of Advocacy (SBA OA), legislative and executive
branch State government officials, and others.\23\
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\23\ These comment letters, as well as summaries of any ex parte
presentations regarding this rulemaking, are available on the public
docket for the rulemaking at https://www.regulations.gov/docket?D=CFPB-2019-0007.
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Commenters writing in support of the proposed delay included
lenders, trade associations, tribal governments, the SBA OA, individual
commenters, and others. Some of these commenters also expressed their
support for rescission of the Mandatory Underwriting Provisions as
proposed in the Reconsideration NPRM. Commenters writing in opposition
to the proposed delay included a number of consumer advocacy groups, a
group of State attorneys general, legislative and executive branch
State government officials, individual commenters, and others. Some of
these commenters also expressed their opposition to the rescission of
the Mandatory Underwriting Provisions as proposed in the
Reconsideration NPRM.
These comments are discussed in more detail below. At a high level,
comments in support of the proposed delay generally spoke to harms to
industry and to consumers that the commenters asserted would occur if
the August 19, 2019 compliance date for the Mandatory Underwriting
Provisions stayed in place and that would be postponed if those
provisions were delayed. These comments also argued that a delay was
appropriate to give the
[[Page 27910]]
Bureau time to complete its process of reconsidering the Mandatory
Underwriting Provisions. Comments focusing on the merits of the
Mandatory Underwriting Provisions themselves more generally also
claimed that there were flaws in the Rule, the data underlying the
Rule, or the rulemaking process. Some comments also discussed
individual consumers' positive experiences with payday or vehicle title
loans.
Commenters opposing the proposed delay generally spoke to the
consumer harms that they asserted occur with loans covered by those
provisions. These commenters also focused on the bad practices in which
they alleged lenders engage. Commenters in addition raised issues such
as requirements under the Administrative Procedure Act for compliance
date delays and the Bureau's authority to delay the compliance date of
the Rule. Commenters focusing on the merits of the Mandatory
Underwriting Provisions also more generally referenced, for example,
the Bureau's prior research and evidence in this area, and discussed
the interaction of Federal protections with those offered by the
States.
Commenters, both supporting and opposing the delay, addressed the
Bureau's proposed rationales for delaying the compliance date of the
Mandatory Underwriting Provisions. Specifically, the comments offered
views on the Bureau's preliminary conclusion that there are strong
reasons for rescinding the Mandatory Underwriting Provisions. They also
offered views on the unanticipated obstacles to compliance that came to
light after publication of the 2017 Final Rule, as discussed in the
Delay NPRM. Commenters also responded to the Bureau's specific
solicitations for comment, which included seeking comment on: (1) What
challenges industry would face in complying with the Mandatory
Underwriting Provisions by August 19, 2019; (2) whether delaying the
Mandatory Underwriting Provisions would have any crossover effects on
implementation of the Payment Provisions; (3) whether delaying the
compliance date for the Mandatory Underwriting Provisions would be
better than not delaying the date for purposes of facilitating an
orderly implementation period for the Rule; (4) the consequences of not
delaying the Mandatory Underwriting Provisions; and (5) 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.
Commenters also raised a number of issues that were outside the
scope of the Delay NPRM. These comments are summarized in part III.D.6
below.
B. Grounds for Finalizing the Compliance Date Delay
1. Strong Reasons Support Reconsideration of the Mandatory Underwriting
Provisions
A key predicate for the proposed compliance date delay was, as
noted above, that the Bureau preliminarily believed that the Mandatory
Underwriting Provisions of the 2017 Final Rule should be rescinded and
had separately issued the Reconsideration NPRM seeking comment on
whether it should rescind those provisions. As explained in the Delay
NPRM, delaying the August 19, 2019 compliance date for the Mandatory
Underwriting Provisions will give the Bureau the opportunity to review
comments on the Reconsideration NPRM and to make any changes to those
provisions before compliance with the Mandatory Underwriting Provisions
causes a series of potentially market-altering effects, some of which
may be irreversible for the smaller storefront lenders that permanently
exit the market, that the Bureau has strong reasons to believe may
prove unwarranted.
After reviewing the comments received, the Bureau concludes that
there are strong reasons, on multiple grounds, to revisit the
unfairness and abusiveness findings set out in the Mandatory
Underwriting Provisions in the 2017 Final Rule. The Bureau initiated
the process for reconsidering these specific unfairness and abusiveness
findings by issuing the Reconsideration NPRM, which set forth in detail
the Bureau's reasons for proposing to rescind the Mandatory
Underwriting Provisions.
The Reconsideration NPRM proposed multiple independent grounds for
rescinding the Mandatory Underwriting Provisions. First, the
Reconsideration NPRM identified specific concerns with the adequacy of
the evidence underpinning the reasonable avoidability element of the
unfairness finding, and the lack of understanding and inability to
protect elements of the abusiveness finding of the Mandatory
Underwriting Provisions.\24\ The Reconsideration NPRM identified
limitations to certain pieces of evidence, especially a key study by
Professor Ronald Mann, that the 2017 Final Rule relied upon in
determining that injury associated with short-term and longer-term
balloon-payment loans issued without the lenders having reasonably
determined a borrower's ability to repay was not reasonably avoidable
and evinced a lack of consumer understanding.\25\ The Reconsideration
NPRM also identified a number of concerns with the weight the 2017
Final Rule placed on a key study by the Pew Charitable Trusts in
finding an inability of consumers to protect themselves from covered
short-term and longer-term balloon-payment loans issued without the
lenders having reasonably determined a borrower's ability to repay.\26\
The Bureau noted in the Reconsideration NPRM that it is prudent as a
policy matter to require a more robust and reliable evidentiary basis
to support key findings in a rule that would significantly diminish the
market for covered short-term and longer-term balloon-payment loans and
that would likely cause some smaller providers to exit the marketplace,
resulting in a decrease in consumers' ability to choose the credit they
prefer.\27\
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\24\ 84 FR 4252, 4264-68.
\25\ Id. at 4265-66.
\26\ Id. at 4267-68.
\27\ Id. at 4264.
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Second, the Reconsideration NPRM identified concerns with the legal
analysis in the Mandatory Underwriting Provisions of the 2017 Final
Rule, specifically the application of statutory standards regarding two
elements of unfairness, reasonable avoidability and countervailing
benefits, and two elements of abusiveness, lack of understanding and
unreasonable advantage-taking.\28\ The Reconsideration NPRM
preliminarily found that, even assuming that the factual findings in
the 2017 Final Rule were correct and sufficiently supported, those
findings did not establish that consumers could not reasonably avoid
harm under a better interpretation of the unfairness standard in
section 1031(c)(1) of the Dodd-Frank Act, informed by relevant
longstanding precedent on reasonable avoidability under section 5 of
the Federal Trade Commission Act. In particular, the Reconsideration
NPRM preliminarily concluded that the 2017 Final Rule imposed what the
Bureau now preliminarily believes was a problematic standard that
required consumers to have a specific understanding of their
individualized risk as determined by their ability to predict how long
they will be in debt after taking out a covered short-term or longer-
term balloon-payment loan. The Reconsideration NPRM also made similar
preliminary conclusions as to
[[Page 27911]]
the way the 2017 Final Rule interpreted lack of understanding under
section 1031(d)(2)(A) of the Dodd-Frank Act.\29\ The Reconsideration
NPRM further preliminarily concluded that the 2017 Final Rule's
application of the countervailing benefits element of the unfairness
standard in section 1031(c)(1) of the Dodd-Frank Act did not consider
the full countervailing benefits of the practice at issue; rather, the
2017 Final Rule discounted those benefits by taking into account the
additional credit that would be available under the 2017 Final Rule's
principle step-down exemption. The Bureau preliminarily found that,
when fully accounted for, the countervailing benefits of the identified
practice outweighed any relevant injury to consumers.\30\ Finally, the
Reconsideration NPRM preliminarily concluded that the 2017 Final Rule
did not have a sufficient basis to conclude that by making covered
short-term or longer-term balloon-payment loans without assessing
consumers' ability to repay lenders take unreasonable advantage of
consumers under the abusiveness provision of the Dodd-Frank Act.\31\
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\28\ Id. at 4268-76.
\29\ Id. at 4274-75.
\30\ Id. at 4272-74.
\31\ Id. at 4275-76.
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Commenters, as set out in detail below, took issue with some of the
proposed grounds for rescinding the Mandatory Underwriting Provision of
the 2017 Final Rule, or generally praised or criticized the approach
the Bureau took in making unfairness and abusiveness findings in the
2017 Final Rule. Commenters opposed to the compliance date delay
offered some generalized criticisms of the Bureau's proposed legal
conclusions, asserting that they were problematic, without offering
detailed explanations of statutory text or specific issues with the
approach to interpreting unfairness and abusiveness in the
Reconsideration NPRM. These commenters offered more details in their
criticism of the Reconsideration NPRM's reassessment of the evidentiary
support for the 2017 Final Rule's factual findings, although still not
with great specificity.
Some commenters asserted generally that the Bureau did not offer a
compelling basis for repealing the Mandatory Underwriting Provisions.
Consumer advocacy groups and a group of State attorneys general
asserted that the compliance date should remain unchanged because the
2017 Final Rule came to the correct legal and factual conclusions
regarding the Mandatory Underwriting Provisions, which should be
implemented without further delay. These State attorneys general and
consumer advocacy groups also commented that the Bureau did not offer
strong reasons in the Reconsideration NPRM or the Delay NPRM for
proposing to rescind those provisions.
Consumer advocacy groups asserted that the Bureau failed to provide
a reasoned explanation for its new position in the Reconsideration NPRM
by neglecting large amounts of evidence concerning the serious impact
on vulnerable consumers that underlay the 2017 Final Rule. Another
consumer advocacy group claimed that the Bureau's rationale for
reconsidering the Mandatory Underwriting Provisions contradicted years
of original Bureau research, data, consumer complaints, secondary
research, and other sources of evidence demonstrating consumer harm and
impacts, and that the Bureau failed to provide a reasoned explanation
for dismissing such evidence. A consumer advocacy group argued that the
Reconsideration NPRM downplays much of this information to focus on
critiquing two studies, and that in doing so the Bureau was attempting
to rationalize a policy result that it had already chosen.
Trade associations, lenders, and service providers commented that
the Mandatory Underwriting Provisions were based on flawed data and
one-sided studies, which resulted in faulty conclusions. A service
provider agreed with the concerns set out in the Bureau's
Reconsideration NPRM as to the flaws in the rulemaking process for the
2017 Final Rule. A trade association and a tribal government agreed
with the Bureau that the 2017 Final Rule was not supported by
sufficiently robust and reliable evidence.
One consumer advocacy group commented that the Delay NPRM does not
provide compelling factual reasons to cast serious doubt on the
Mandatory Underwriting Provisions of the 2017 Final Rule, which, it
claimed, were thoroughly vetted when finalized. Specifically, the
consumer advocacy group asserted that the Bureau in the Reconsideration
NPRM questioned the validity of just two studies, taken from a vast
body of material underlying the 2017 Final Rule, offered a new
interpretation of this existing evidence, and conceded that new,
additional evidence could support the older findings from the 2017
Final Rule. The commenter argued that it was arbitrary and capricious
for the Bureau to assert that the 2017 Final Rule must be rescinded, as
it did in the Reconsideration NPRM, when it could conduct further
research and analysis to resolve evidentiary gaps.
A group of State attorneys general and consumer advocacy groups
generally commented that the Bureau correctly analyzed and applied the
unfairness and abusiveness standards in promulgating the Mandatory
Underwriting Provisions of the 2017 Final Rule. These groups emphasized
the extensive rulemaking record of the 2017 Final Rule, spanning many
years, 1.4 million comments, and input from many stakeholders. These
groups further asserted that the rulemaking record in the 2017 Final
Rule detailed serious harm to consumers that would occur absent the
Mandatory Underwriting Provisions. A consumer advocacy group asserted
that the Mandatory Underwriting Provisions were precisely the type of
measure that Congress designed the Bureau to create, and that in the
Dodd-Frank Act, Congress identified protecting consumers from unfair,
deceptive, and abusive acts and practices as a core objective of the
Bureau. Further, the commenter noted that Congress singled out payday
loans for special attention, providing the Bureau exclusive authority
to conduct supervisory examinations of any provider that ``offers or
provides to a consumer a payday loan.'' \32\ Other consumer advocacy
groups asserted in general terms that the Reconsideration NPRM
mischaracterized the legal analysis of unfairness and abusiveness in
the 2017 Final Rule, and that the legal analysis in the Reconsideration
NPRM of unfairness and abusiveness was inconsistent with Federal Trade
Commission precedent, Federal Reserve Board precedent, and
Congressional intent.
---------------------------------------------------------------------------
\32\ Section 1024(a)(1)(E) of the Dodd-Frank Act.
---------------------------------------------------------------------------
Consumer advocacy groups and the group of State attorneys general
emphasized the previous findings of consumer harm set out in the
analyses of the 2017 Final Rule, quoting from the 2017 Final Rule and
other contemporaneous research. One consumer advocacy group provided
case studies of individuals and families whom payday and title loans
had affected.
Lenders, trade associations, and an attorney to lenders commented
that in the 2017 Final Rule, the Bureau misapplied its unfairness and
abusiveness authority. These commenters asserted that, rather than
identifying and prohibiting specific practices that the Bureau found to
be unfair and abusive, the Bureau in the 2017 Final Rule had instead
prescribed a single set of mandatory practices under the theory that
any other
[[Page 27912]]
approach was unfair and abusive. Further, a number of trade
associations noted that the requirements of the Mandatory Underwriting
Provisions are overly burdensome, adding manual processes and
verification of data that consumer loans do not ordinarily require. One
trade association claimed that the Bureau exceeded its unfairness and
abusiveness authority in the 2017 Final Rule because it offered no
evidence to support the sweeping legal conclusion that all alternative
underwriting approaches other than the one set out in Sec. 1041.5
would be unfair or abusive. Lenders and trade associations commented
that the Bureau, in developing the Mandatory Underwriting Provisions,
failed to consider alternative and less burdensome State law approaches
to regulating short-term and longer-term balloon-payment loans.
Overall, the Bureau does not agree with the comments that the
Bureau did not offer strong reasons, or reasoned explanations, for
proposing to rescind the Mandatory Underwriting Provisions. The Bureau
identified multiple, independent, and specific evidentiary and legal
grounds addressing specific elements of unfairness and abusiveness that
would, if finalized, result in the rescission of the unfairness and
abusiveness findings in Sec. 1041.4 of the 2017 Final Rule and, as a
result, would also require the rescission of the Mandatory Underwriting
Provisions predicated on Sec. 1041.4.
The Bureau further disagrees with the commenters who asserted that
the Delay NPRM or the Reconsideration NPRM ignored a large body of
evidence considered in conjunction with the 2017 Final Rule. The
Reconsideration NPRM challenged the sufficiency and weight given to
certain linchpin pieces of evidence, without which the Bureau
preliminarily believes that the factual findings on which the Mandatory
Underwriting Provisions are based cannot stand. The Delay NPRM, in
turn, relied on the strong reasons for rescinding the 2017 Final Rule
set out in the Reconsideration NPRM. The Bureau's preliminary
conclusions in the Reconsideration NPRM and its assessment of the
Reconsideration NPRM here for purposes of this delay final rule are
based on both the existence of the complete body of evidence included
in the 2017 Final Rule and its preliminary belief that certain linchpin
evidence is not sufficiently robust and representative.
The Bureau recognizes that the comments of the consumer advocacy
groups reflect strong disagreement with the substance of the
Reconsideration NPRM, but the Bureau believes that, whatever the
ultimate merit of those arguments is found to be, those arguments do
not negate the fact that the Bureau has articulated strong reasons for
revisiting the Mandatory Underwriting Provisions. Commenters did not
offer specific reasons why the analyses of the limitations of a study
by Professor Ronald Mann (Mann Study) \33\ and a survey of payday
borrowers conducted by the Pew Charitable Trusts (Pew Study),\34\ as
set out in the Reconsideration NPRM, were flawed, nor did they
otherwise present concrete arguments that change the Bureau's
assessment of the strength of the concerns expressed in the
Reconsideration NPRM regarding that evidence. The Bureau does not agree
with the comment that it was arbitrary and capricious of the Bureau not
to conduct further research and analysis to resolve any evidentiary
gaps. The Bureau noted in the Reconsideration NPRM that resolving the
issues raised in that proposal pertaining to reasonable avoidability
and to the inability of consumers to protect their interests would take
significant resources and could not be accomplished in a timely and
cost-effective manner. The Bureau does not foreclose the possibility of
conducting additional research farther in the future.
---------------------------------------------------------------------------
\33\ Ronald Mann, Assessing the Optimism of Payday Loan
Borrowers, 21 Supreme Court Econ. Rev. 105 (2013).
\34\ Pew Charitable Trusts, How Borrowers Choose and Repay
Payday Loans (2013), https://www.pewtrusts.org/-/media/assets/2013/02/20/pew_choosing_borrowing_payday_feb2013-(1).pdf.
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The Bureau notes that the comments that defended the reasoning of
the 2017 Final Rule did not call into question the precise grounds on
which the Bureau based its Delay NPRM--that is, its preliminary
determination that it had strong reasons for believing that the
evidence underlying the identification of the unfair and abusive
practice in the Mandatory Underwriting Provisions of the 2017 Final
Rule was not sufficiently robust and reliable, and that its approach to
unfairness and abusiveness should be revisited. Commenters did not
identify new or other research not previously considered by the Bureau
that undermine the preliminary determinations the Bureau made in the
Reconsideration NPRM that, in turn, were the basis for the Bureau's
Delay NPRM. Nor did commenters challenge the Bureau's preliminary
policy decision, whatever the merits of the linchpin evidence, to
require more robust and reliable evidence in the face of a regulation
likely to cause widespread disruption in the payday market, including
the exit of some lenders and a reduction in consumers' ability to
choose the credit they prefer. The Bureau also notes that, contrary to
the views of some commenters, it did, in fact, consider alternative
State law approaches in its 2017 Final Rule, and the Bureau does not
agree that the Final Rule was devoid of evidence to support the
Mandatory Underwriting Provisions; but, as explained above, the Bureau
is reconsidering those provisions because it is concerned that the
evidence was not sufficiently robust and reliable in light of the
significant effects that would be caused by the Mandatory Underwriting
Provisions.
The commenters' criticisms of the legal grounds the Bureau set out
in the Reconsideration NPRM for proposing to rescind the Mandatory
Underwriting Provisions have not convinced the Bureau that it was
mistaken in its preliminary view that the grounds for rescinding the
Mandatory Underwriting Provisions are strong. The State attorneys
general and consumer advocacy groups did not present detailed comments
on the specific legal analyses of the elements of unfairness and
abusiveness that the Reconsideration NPRM addressed--reasonable
avoidability and countervailing benefits in analyzing unfairness, and
lack of understanding and unreasonable advantage-taking in analyzing
abusiveness--and the general criticisms offered have not changed the
Bureau's preliminary assessment of the strength of its Reconsideration
NPRM for purposes of delay.
To finalize the Delay NPRM the Bureau does not, and need not,
finalize its determination as to its proposed reconsideration of the
unfairness and abusiveness conclusions set out in the 2017 Final Rule.
The Bureau here concludes only that, in light of the consequences that
would result if the compliance date became mandatory as discussed
below, the Reconsideration NPRM raised sufficiently strong reasons to
justify finalizing the Bureau's proposal to delay the compliance date
for the Mandatory Underwriting provisions--enough time to consider the
approximately 190,000 comments that have been received in that
proceeding and decide how to respond to them. The Bureau remains open
to the possibility that those comments may reveal other data, research,
or arguments to confirm or refute the Bureau's proposed reconsideration
of the unfairness and abusiveness findings of the Mandatory
Underwriting Provisions in the 2017 Final Rule. The Bureau, however,
will make that determination in the context of the Reconsideration
NPRM.
[[Page 27913]]
2. Disruption to Short-Term and Longer-Term Balloon-Payment Lending
In the 2017 Final Rule, the Bureau had estimated that the Mandatory
Underwriting Provisions would result in an annual loss of revenue for
payday lenders of between $3.4 billion and $3.6 billion and an annual
loss of between $3.9 billion and $4.1 billion for vehicle title
lenders.\35\ This represents between 62 percent and 68 percent of
payday loan revenue during this period and virtually all of the revenue
of short-term vehicle title lenders. Based on this finding, the Delay
NPRM estimated that a 15-month delay of the compliance date for the
Mandatory Underwriting Provisions would avert losses in revenues for
the payday industry of between $4.25 billion and $4.5 billion, and
losses in revenues for the title lending industry of $4.9 billion and
$5.1 billion, compared to the baseline of the provisions going into
effect in August 2019.\36\
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\35\ See 84 FR 4252, 4287.
\36\ 84 FR 4298, 4303. As explained in the analysis of costs and
benefits in part VII below, the estimate of revenue loss for payday
lenders assumes that lenders would be able to make loans under the
principal step-down exception set forth in Sec. 1041.6. If that was
not true during the 15 months at issue here, the revenue impacts
would be even greater.
---------------------------------------------------------------------------
The Delay NPRM stated that revenue losses of this magnitude could
cause some smaller providers to exit the market and lead larger
participants to consolidate their operations or make other fundamental
changes to their businesses. The Delay NPRM further stated that these
disruptions could have negative impacts on consumers, including
restricting consumers' ability to choose the credit they prefer. The
Bureau explained that it preliminarily believed that it was appropriate
to avoid these potentially market-altering effects that would be
associated with preparing for and complying with the Mandatory
Underwriting Provisions in light of what the Bureau believed were
strong reasons for revisiting the unfairness and abusiveness
determinations underlying those provisions.\37\
---------------------------------------------------------------------------
\37\ Id. at 4300.
---------------------------------------------------------------------------
Commenters for the most part did not dispute that the Mandatory
Underwriting Provisions, once in force, would have the effects on
lenders described in the 2017 Final Rule. Some commenters, as set out
below, suggested that the Bureau's 2017 Final Rule understated the
impact on industry of the Mandatory Underwriting Provisions.
Lenders and trade associations expressed their agreement with the
rationale for the proposed delay in the Delay NPRM. Lenders, a trade
association, a business advocacy group, and an attorney for lenders
stated that if compliance with the Mandatory Underwriting Provisions
was required in August 2019, many lenders would go out of business and
would likely not return to operating even if those provisions were
later rescinded. Lenders, a trade association, and a credit reporting
agency indicated that lenders would suffer unrecoverable losses and
long-term consequences even if compliance with the Mandatory
Underwriting Provisions were only required from August 2019 until the
provisions were rescinded. A trade association asserted that it would
be arbitrary and capricious to require temporary compliance with the
Mandatory Underwriting Provisions if the provisions were fundamentally
flawed at the outset.
A trade association and a law firm commented that lenders should
not be required to comply with a rule that is likely to be rescinded. A
lender and trade association further noted that if lenders were forced
to switch underwriting practices back and forth over a short period of
time because compliance with the Mandatory Underwriting Provisions was
required and then those provisions were rescinded, lenders would face
unnecessary costs and that consumers would be significantly confused
regarding whether they and the lenders are able to enter into
transactions that both think are in their interest. The trade
association also noted that the Mandatory Underwriting Provisions would
have a negative impact on competition among payday lenders.
Lenders, trade associations, and a tribal government commented that
to the extent that lenders did not go out of business, the Mandatory
Underwriting Provisions would significantly reduce revenues from
lending operations, and that the proposed delay would protect
businesses from revenue disruption. Lenders stated that to the extent
that they did not go out of business, many of them would be forced to
consolidate their operations or make other fundamental changes as a
result of the Mandatory Underwriting Provisions. A credit reporting
agency noted that any increase in costs to lenders as a result of
efforts to comply with the Mandatory Underwriting Provisions would
simply be passed on to consumers.
Lenders and trade associations noted that if finalized, the Delay
NPRM would help lenders avoid injuries from any temporary disruptions
as the Bureau contemplates revising the 2017 Final Rule. Lenders
asserted that significant costs and work hours would go into complying
with the Mandatory Underwriting Provisions by August 19, 2019, but that
these costs and hours would not be recouped if the Bureau later
rescinded these provisions. Lenders stated that the Delay NPRM was a
reasonable and practical approach to avoid requiring small businesses
to incur large and potentially unnecessary costs while the Bureau
reconsiders the Mandatory Underwriting Provisions.
A tribal government noted that the Mandatory Underwriting
Provisions would cause providers to close, resulting in unemployment,
lost payroll, and property taxes.
Industry commenters, trade associations, a business advocacy group,
a consumer advocacy group, and an attorney for lenders also asserted
that if compliance with the Mandatory Underwriting Provisions of the
2017 Final Rule was required, millions of consumers would be harmed
because they would be denied access to credit and would be forced into
inferior and more costly alternatives, including defaulting on other
debts and turning to less responsible lenders on less favorable terms.
One business advocacy group and a trade association commented that
access to small-dollar credit critically supports consumers facing
immediate and pressing financial challenges. One trade association
noted that in some areas, in particular rural communities, consumers
are not served by traditional banks and access to short-term and
longer-term balloon-payment products is vital and would be cut off if
the compliance date for the 2017 Final Rule were not delayed. One
lender claimed that consumers would be forced to turn to expensive,
credit-damaging alternatives absent access to short-term and longer-
term balloon-payment loans. One trade association asserted that the
Bureau should not assign the weight that the 2017 Final Rule did to the
interest of protecting consumers as soon as possible.
Consumer advocacy groups, on the other hand, generally commented
that injury to industry from not delaying the Mandatory Underwriting
Provisions did not outweigh injury to consumers from delaying these
provisions. One consumer advocacy group claimed that in the Delay NPRM
the Bureau prioritized industry profits over consumer protection and
that the protection of industry is not one of the factors the Dodd-
Frank Act requires the Bureau to consider in its rulemakings. The same
group claimed that the Bureau could not frame its concern over industry
profits at the expense of consumers as an attempt to preserve
competition because the 2017 Final Rule explained how the Mandatory
[[Page 27914]]
Underwriting Provisions were consistent with preserving competition.
One consumer advocacy group asserted that the Delay NPRM was based on
purely anecdotal input on vaguely defined compliance costs and revenue
losses. Another consumer advocacy group argued that maintaining the
original compliance date for the Mandatory Underwriting Provisions was
consistent with maintaining an orderly implementation period.
A coalition of consumer advocacy groups, civil rights groups,
religious groups, and community reinvestment groups commented that the
Delay NPRM would prolong for 15 months the various harms suffered by
consumers receiving loans that would not comply with the Mandatory
Underwriting Provisions. These groups asserted that delay would cause a
variety of impacts on consumers, including foregoing basic living
expenses, vehicle repossession, aggressive debt collection by lenders,
health effects (including the physical consequences of emotional
distress), and reborrowing costing billions of dollars a year. In
asserting the frequency of some of these harms, these commenters cited
the Bureau's findings in the 2017 Final Rule. Consumer advocacy groups
claimed that the delay of the compliance date for the Mandatory
Underwriting Provisions would inflict the above harms particularly on
communities of color, older Americans, and those on fixed incomes.
Consumer advocacy groups commented that payday and vehicle title loans
are debt traps by design, and that the business model for these
products is not about providing access to productive credit or bridging
short-term financial shortfalls. Consumer advocacy groups commented
that the data show that the economic benefits from unaffordable loans
are outweighed by the harms caused by the cycle of debt.
A consumer advocacy group commented that, according to the findings
in the 2017 Final Rule, the Mandatory Underwriting Provisions would
provide substantial benefits to consumers, reducing the harms,
identified above, that consumers would otherwise suffer. An individual
commenter argued that the Delay NPRM was arbitrary and capricious
because it only took into account the costs to industry of complying
with the 2017 Final Rule and completely ignored the benefits to
consumers that would result from compliance.
Consumer advocacy groups asserted that delay of the Mandatory
Underwriting Provisions would cause severe, irreparable harm to
consumers, and that consumers cannot afford to wait an additional 15
months for the relief that the Mandatory Underwriting Provisions would
provide. These harms, according to the commenters, would be
significantly curbed by the Mandatory Underwriting Provisions, but
would continue during the 15 months of the proposed delay, causing many
individuals and families to experience long-lasting and spiraling
harms.
Consumer advocacy groups noted the Delay NPRM illustrates the
magnitude of harm to consumers through its estimate of the benefits of
delay to lenders. According to these groups, the Delay NPRM never
acknowledges that its estimate of impact on industry is the inverse of
its impact on consumers--that is, revenue that the delay would preserve
for lenders is an additional expense to consumers. The commenters
asserted that a corresponding increase in expenses to consumers is just
a single component of the harms caused by unaffordable payday and
vehicle title loans, including the risk of falling into debt traps,
delinquency and default of loans, bank account closures, repossession
of vehicles, and other long-term injuries suffered by consumers. One
consumer advocacy group commented that, during the 15 month delay,
title lenders would repossess an estimated 425,000 vehicles.
A consumer advocacy group commented that the Bureau's estimates in
the Reconsideration NPRM that the Mandatory Underwriting Provisions of
the 2017 Final Rule would reduce access to credit were unsubstantiated,
and that the Bureau's analysis in the Delay NPRM did not recognize that
the majority of consumers would still have access to loans with terms
longer than 45 days because of the availability of small installment
loans or lines of credit with terms longer than 45 days. Another
consumer advocacy group asserted that access to short-term or longer-
term balloon-payment loans was not really access to new credit to the
borrower or the broader economy, but was really one original
unaffordable loan churned over and over again.
The Bureau concludes that delaying the August 19, 2019 compliance
date for the Mandatory Underwriting Provisions would prevent industry
participants from incurring substantial compliance and implementation
costs and would avoid the Mandatory Underwriting Provisions'
potentially market-altering effects, some of which may be irreversible,
while the Bureau conducts its reconsideration rulemaking. In
particular, the Bureau is concerned that some smaller storefront
lenders may permanently exit the market if they are required to comply
with the 2017 Final Rule, even if the Rule is later rescinded after the
compliance date.\38\ The Bureau agrees that if compliance with the
Mandatory Underwriting Provisions was required in August 2019 lenders
would suffer a large and potentially unrecoverable loss of revenue. The
cost to industry, according to the estimates set forth in the 2017
Final Rule, would be billions of dollars in lost revenues. If
compliance with the Mandatory Underwriting Provisions is required, some
smaller lenders would go out of business, to the extent they cannot
earn sufficient revenues and profits from other products or could not
otherwise timely adapt, which would result in fewer payday storefronts
as a result. The 2017 Final Rule itself acknowledges that one
anticipated impact of Mandatory Underwriting Provisions would be a
large contraction in the number of payday storefronts consistent with
the predicted 62 to 68 percent decline in loan revenue.\39\ These
disruptions would likely result at least in the short-term in a
significant contraction of the market for payday loans and the near
elimination of the market for vehicle title loans before the Bureau had
an opportunity to complete its reconsideration of the 2017 Final Rule.
Further, given high fixed costs in the vehicle title lending market,
some participants may not return to offering vehicle title loans if the
Mandatory Underwriting Provisions were rescinded. If the Bureau does
not delay the August 2019 compliance date and ultimately rescinds the
Mandatory Underwriting Provisions after that date, there is a risk that
the affected markets would not return to the status quo. There may be
fewer competitors and less competition in the affected markets after a
short period of required
[[Page 27915]]
compliance with the Mandatory Underwriting Provisions.
---------------------------------------------------------------------------
\38\ The Bureau acknowledges that storefront lenders are already
experiencing competitive pressures from online lending and multi-pay
products. See, e.g., John Hecht, State of the Industry: Innovating
and Adapting Amongst a Complex Backdrop (Jefferies Group LLC slide
presentation, Mar. 20, 2019) (on file); Press Release, TransUnion,
Lenders Extending More Loans to Subprime Consumers as Credit Market
Continues to Exhibit Signs of Strength: Q3 2018 TransUnion Industry
Insights Report features latest consumer credit trends (Nov. 15,
2018), https://newsroom.transunion.com/lenders-extending-more-loans-to-subprime-consumers--as-credit-market-continues-to-exhibit-signs-of-strength/.
\39\ 82 FR 54472, 54835 (``To the extent that lenders cannot
replace reductions in revenue by adapting their products and
practices, Bureau research suggests that the ultimate net reduction
in revenue will likely lead to contractions of storefronts of a
similar magnitude, at least for stores that do not have substantial
revenue from other lines of business, such as check cashing and
selling money orders.''); id. at 54827.
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Lenders that survived the impact of the Mandatory Underwriting
Provisions of the 2017 Final Rule would incur, as predicted by the Rule
itself, a number of operational costs from the large number of specific
requirements set out by the provisions of Sec. 1041.5, including
building systems to verify income, estimate a borrower's living
expenses, and project a potential borrower's residual income or debt-
to-income ratio. If lenders had the option instead to make loans under
Sec. 1041.6, they still would need to establish systems for obtaining
reports from a national consumer reporting agency and systems for
furnishing to, and obtaining reports from, an RIS.\40\
---------------------------------------------------------------------------
\40\ See 84 FR 4252, 4286.
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The immediate contraction of the market that would likely result if
compliance with the Rule became mandatory would, in turn, result in a
reduction in access to credit for consumers. The Bureau notes, for
example, that the 2017 Final Rule found that the Mandatory Underwriting
Provisions would prevent some consumers from obtaining a payday loan
(i.e., those consumers who exhausted their ability to obtain principal
step-down loans and could not qualify for an ability-to-repay loan) and
would prevent substantially all consumers from obtaining vehicle title
loans, which are typically for larger amounts than payday loans and
available to consumers who do not have a checking account. At a
minimum, those consumers would be forced to choose a different form of
credit regardless of their preference.\41\ The 2017 Final Rule further
found that the Mandatory Underwriting Provisions would disrupt to some
extent access to payday loans in certain geographical areas, especially
in rural areas. The Rule also found that the Mandatory Underwriting
Provisions would impact consumers who prefer to repay a payday loan
over more than three pay periods from making that choice. Delaying the
compliance date will delay all of the consequences described above
until the Bureau is able to resolve the question of whether there are
evidentiary or legal grounds for rescinding the Mandatory Underwriting
Provisions.
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\41\ Contrary to the assertion of one commenter, the
Reconsideration NPRM noted that information from the 2017 Final Rule
did acknowledge the possibility that other lender offerings existed
and could evolve further in response to the Mandatory Underwriting
Provisions. Id. at 4285 & n.329.
---------------------------------------------------------------------------
The Bureau disagrees with commenters who argued that the Delay
NPRM's predictions regarding access to credit were ``unsubstantiated.''
As established above, the Delay NPRM's estimates of changes in access
to credit attributable to the proposed delay were based on information
from the 2017 Final Rule as analyzed by the Reconsideration NPRM.\42\
---------------------------------------------------------------------------
\42\ 84 FR 4298, 4302-03.
---------------------------------------------------------------------------
At the same time, the Bureau acknowledges that for some consumers
there could be adverse and potentially long-lasting consequences from
delaying the compliance date for the Mandatory Underwriting Provisions.
Specifically, the 2017 Final Rule found that the act or practice of
making covered short-term and balloon-payment loans without assessing
the consumers' ability to repay causes or is likely to cause
substantial injury to consumers--principally in the form of
unanticipated and repeated reborrowing--and that the Mandatory
Underwriting Provisions would have the effect of preventing that
injury.\43\ The Reconsideration and Delay NPRMs accepted that finding,
but emphasized that the finding does not reflect the Bureau's concerns
that such injury may not constitute an unfair or abusive practice under
applicable law because consumers could reasonably avoid it and
understood the material risks of such harm.\44\ The Reconsideration and
Delay NPRMs likewise took as a given that the 2017 Final Rule had
concluded that ``the overall impacts of the decreased loan volume
resulting from the 2017 Final Rule's Mandatory Underwriting Provisions
on consumers would be positive,'' and therefore it follows that
``inverse effects would ensue, relative to the chosen baseline, from
this proposal to rescind the 2017 Final Rule.'' \45\ The Bureau,
however, also specifically emphasized that ``the 2017 Final Rule's
conclusion as to these effects was dependent upon the evidence that
consumers who experienced long durations of indebtedness generally did
not anticipate these outcomes and . . . the agency now believes that
this evidence is not sufficiently robust and representative to support
the findings necessary to determine that the identified practice is
unfair and abusive.'' \46\ Contrary to the suggestion of commenters,
the Bureau is not ignoring the referenced findings of the 2017 Final
Rule.
---------------------------------------------------------------------------
\43\ Lenders and trade associations commented that the 2017
Final Rule failed to provide evidence of consumer harm or
substantial injury based on existing offerings of short-term and
longer-term balloon-payment loans. A trade association noted that,
contrary to the assumptions advanced in the 2017 Final Rule, payday
loans and loan sequences benefit consumers; the trade association
also noted that the high costs of such loans, without more, do not
speak to consumer harm. The trade association further commented that
the Bureau had failed to attempt to perform a consumer-focused
analysis to determine what value borrowers receive from payday loan
sequences. The Bureau is not reconsidering the finding of the 2017
Final Rule with respect to substantial injury for purposes of this
rulemaking, but rather is questioning whether that injury is the
result of unfair or abusive practices that justify Bureau
intervention that would disrupt the market and displace consumer
choice.
\44\ 84 FR 4252, 4269-71, 4275.
\45\ Id. at 4285.
\46\ Id.
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However, for the reasons explained above, the Bureau has concluded
that it has strong reasons to believe that those consequences are not
the result of unfair or abusive practices that justify Bureau
intervention that would disrupt the market and displace consumer
choice. Regardless of whether the Bureau ultimately decides to rescind
the Mandatory Underwriting Provisions, the Bureau now concludes that
the proposed delay is appropriate based on the Bureau's present
assessment of the strength of the Reconsideration NPRM and the nature
and magnitude of the consequences that would follow if compliance
became mandatory before the Bureau had an opportunity to conclude the
reconsideration rulemaking. The Bureau believes that the Delay NPRM
should be finalized to give the Bureau time to consider fully whether
it should rescind provisions that may cause potentially market-altering
effects, some of which may be irreversible, before those effects occur.
Absent such delay, the Bureau's ability to reconsider the Mandatory
Underwriting Provisions could, as a practical matter, be compromised.
The Bureau disagrees with the comment suggesting that its analysis
of competition was a pretext for its concern over industry profits. The
Bureau is concerned about effects on industry revenue and profits only
to the extent that they, in turn, have an effect on competition among
lenders and on consumers' ability to access credit of the type and on
the terms they prefer. The Bureau also disagrees with the comment that
the Delay NPRM only vaguely or anecdotally defined the impact of the
2017 Final Rule on compliance costs and revenue losses. The 2017 Final
Rule described in detail the multi-billion dollar impact of the
Mandatory Underwriting Provisions on loan volumes and revenues, and the
Delay NPRM was based on those findings.
The Bureau also disagrees with the comment that the Delay NPRM
should have acknowledged that its estimates of the proposed delay's
impact on industry were the inverse of its impact on consumers. The
payday lender revenues at issue are the finance charge the
[[Page 27916]]
lender charges the consumer for the use of the lender's money. The
finance charges lenders would forego if compliance became mandatory are
amounts that consumers would have paid to lenders. However, the
consequences that the Bureau is concerned with here are the potentially
market-altering effects, some of which may be irreversible, that would
result from disrupting these payments and the resulting effects on
consumers' access to credit and ability to make their own choices.
Given the Bureau's strong reasons for questioning the factual and legal
predicates for the Mandatory Underwriting Provisions, the Bureau
concludes that it is appropriate to delay those consequences to allow
the Bureau to reconsider the Mandatory Underwriting Provisions.
3. Reconsideration Is a Valid Basis for Delay
A number of comments opined on whether reconsideration of a
substantive regulation was a valid ground for delaying the compliance
date of that regulation. A lender and a consumer advocacy group
commented that reconsideration of an existing regulation is an
equitable, fair, and sensible reason to delay a compliance date, as the
Bureau has proposed to do.
A group of State attorneys general, consumer advocacy groups, and
an individual commenter asserted that reconsideration of a rule is not
an adequate basis for delay. In making this argument, the consumer
advocacy groups cited cases in which courts vacated rules that delayed
compliance dates for existing regulations that had not yet gone into
effect.
A group of State attorneys general and consumer advocacy groups
commented that the Administrative Procedure Act imposes a number of
specific procedural requirements on an agency seeking to change its
regulation, that an agency must provide reasoned analysis for its
decision to change a regulation, and that the required reasoned
analysis cannot be avoided by staying the implementation of a final
rule. The group of State attorneys general and consumer advocacy groups
cited case law for the proposition that a delay of a substantive
regulation could not be justified with a less stringent or thorough
review than other rulemakings under the Administrative Procedure Act.
Finally, the group of State attorneys general asserted that the Bureau
cannot use the purported proposed future revision, which has yet to be
passed, as a justification for the delay of a regulation, and that a
delay must be justified on its own merits. A consumer advocacy group
commented that while agencies regularly reconsider rules, the authority
to reconsider rules does not in itself convey to the agency the
authority to delay an existing rule. According to the group of State
attorneys general, consumer advocacy groups, and an individual, the
Delay NPRM fails to satisfy Administrative Procedure Act requirements.
Consumer advocacy groups commented that delaying the Mandatory
Underwriting Provisions of the 2017 Final Rule would be tantamount to
early adoption of the rescission proposed by the Bureau in its
Reconsideration NPRM, and that the Bureau can only rescind the
Mandatory Underwriting Provisions by seeking and considering comments
on the merits of the reconsideration. A consumer advocacy group
asserted that the Delay NPRM assumed the validity and ultimate
implementation of the Reconsideration NPRM and that the Bureau was not
entitled to assume that the Mandatory Underwriting Provisions would be
repealed such that industry compliance with them would be unnecessary,
given the flaws in the Reconsideration NPRM. Further, the consumer
advocacy group asserted that acting based on flawed assumptions is a
cardinal example of arbitrary and capricious rulemaking.
The Bureau believes that if an agency has offered a strong and
reasoned basis for reconsideration, and seeks delay to provide for an
opportunity for notice and comment on the reconsideration of the
underlying regulation before significant costs associated with
compliance are incurred, such reconsideration of an existing regulation
is an appropriate grounds to delay a compliance date--at least where,
as here, there would be potentially market-altering effects, some of
which may be irreversible, absent a delay. The Bureau also believes
that such a reconsideration of an existing regulation can be an
adequate basis for delay and that it has complied with the
Administrative Procedure Act requirements for delaying the compliance
date of a regulation.
The Bureau understands that agencies must engage in reasoned
analysis to support proposed delays. The Bureau has done so here. As
set out in the sections above, the Delay NPRM relied on the Bureau's
clearly identified rationales for proposing to rescind the Mandatory
Underwriting Provisions of the 2017 Final Rule without concluding that
it would rescind those provisions. The Delay NPRM further articulated
the Bureau's reasons for proposing to postpone the compliance date
while the reconsideration rulemaking is moving forward. While many
commenters dispute the rationales set out in the Reconsideration NPRM,
the Bureau has articulated them clearly enough that commenters were
able to understand the Bureau's preliminary grounds for proposing
rescission of the Mandatory Underwriting Provisions and submit
responsive comments to help the Bureau decide whether to go forward
with the Reconsideration NPRM. The Delay NPRM, in turn, relied upon
those preliminary grounds in proposing a limited delay of the
compliance date for the Mandatory Underwriting Provisions for purposes
of avoiding disruptive and potentially market-altering effects, some of
which may be irreversible, while the Bureau reviews comments on the
rationales set forth in the Reconsideration NPRM.
The Bureau believes that the compliance date delay is appropriate
to allow for meaningful reconsideration of the 2017 Final Rule. Absent
such a delay, the Bureau is concerned that the Mandatory Underwriting
Provisions could have disruptive and potentially market-altering
effects, some of which may be irreversible.\47\ The risk of this
outcome is confirmed by the comments received, as set out in part
III.B.2, from lenders and trade associations who indicated that they or
their members would go out of business permanently if compliance with
the Mandatory Underwriting Provisions was required on August 19, 2019.
Therefore, the Bureau believes that a delay of the compliance date is
important to complete a meaningful reconsideration.
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\47\ The Bureau noted its concern in the Delay NPRM that the
proposed delay 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.'' 84
FR 4298, 4300.
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The Bureau disagrees with the assertion that finalization of the
Delay NPRM is tantamount to early adoption of the Reconsideration NPRM.
The Bureau has proposed a limited delay to the compliance date of 15
months to consider comments on the Reconsideration NPRM. This delay is
not indefinite--compliance with the Mandatory Underwriting Provisions
will be required as of the new compliance date unless the Bureau
decides rescind those provisions via the reconsideration rulemaking.
4. Length of the Proposed Delay
Several commenters opposing the proposed delay noted that the 2016
Proposal, which was later finalized as the 2017 Final Rule, had a 15-
month compliance period, and that the Bureau subsequently extended the
period by an
[[Page 27917]]
additional six months in the 2017 Final Rule. One commenter noted that
the Credit Card Accountability Responsibility and Disclosure Act of
2009 (CARD Act) gave credit card issuers nine months to comply with
major new consumer protections, including an ability-to-repay
requirement,\48\ and that changes to State laws with a more substantial
impact on the payday and title lending industries typically provide
only three to nine months for full implementation. These commenters
argued that industry participants' renewed requests for more time do
not justify further extension of what they consider an already lengthy
implementation period, or that even if compliance challenges posed as a
reason for delay (with the commenters also asserted that here they do
not), they certainly cannot justify a delay of an additional 15 months.
Relatedly, they argued that the industry complaints cited by the Bureau
bear no relationship to the proposed 15-month delay, asserting that the
Bureau's focus on these issues appears to be an attempt to support a
result the agency has already determined.
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\48\ Public Law 111-8, sections 3 and 109, 123 Stat. 1734
(2009), codified at 15 U.S.C. 1665e.
---------------------------------------------------------------------------
A group of State attorneys general claimed that the Bureau offered,
in the 2017 Final Rule, a legitimate and appropriate analysis
justifying the amount of time the rule provided industry to comply with
the Mandatory Underwriting Provisions, and that the reasons the Delay
NPRM offered contradicted its own prior analysis. One consumer advocacy
group claimed that the length of the delay the Bureau proposed does not
square with the reason the Bureau suggests for such delay, i.e., that
the delay proposed by the Bureau for considering and potentially
finalizing the Reconsideration NPRM was more time than the Bureau took
to finalize the 2017 Final Rule, which the group argued was a more
complex and difficult rulemaking. Commenters supportive of the Bureau's
proposal largely agreed that 15 months was an appropriate length of
time for the delay. Several commenters, however, suggested that the
Bureau delay for a longer period (such as 21 or 22 months, or until
December 31, 2021) or that the extension of the compliance date should
not begin until something else occurs (such as the completion of the
reconsideration rulemaking or the lifting of the stay in the pending
litigation challenging the Rule). One commenter asserted that a delay
shorter than 22 months would threaten serious and irreparable harm to
both payday and title lenders as well as the consumers who rely on them
for credit, and further asserted that such an extension would suffice
only if one assumes (incorrectly, in the view of this commenter) that
the original compliance period was adequate.
One commenter asserted that the Bureau did not explain how it
arrived at a decision to propose a 15-month delay, while simultaneously
quoting the Bureau's explanation that the Bureau was proposing a 15-
month delay in order to permit an orderly conclusion to its separate
rulemaking process to reconsider the Mandatory Underwriting Provisions
of the 2017 Final Rule.\49\
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\49\ See 84 FR 4298, 4299. The Bureau also explained in the
Delay NPRM that it preliminarily believed, based on its experience
writing the 2017 Final Rule and with other similar rulemakings, that
the proposed compliance date of November 19, 2020 would 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. Id. at 4301.
---------------------------------------------------------------------------
The Bureau continues to believe that 15 months is an appropriate
length of time to delay the August 19, 2019 compliance date for the
Mandatory Underwriting Provisions of the Rule, in order to permit an
orderly conclusion to the reconsideration rulemaking process. In
addition, the Bureau believes that providing a date certain for the
delay will provide more certainty and clarity to all relevant
stakeholders in this context.
The comment period for the Reconsideration NPRM closed on May 15,
2019, and the Bureau received approximately 190,000 comments. The
Bureau believes that the 15-month delay will give the Bureau sufficient
time to review the comments received, make a determination as to how to
proceed in that rulemaking, and to prepare, issue, and publish in the
Federal Register a final rule sufficiently in advance of the November
19, 2020 compliance date to allow the final rule to take effect by that
date (if the Bureau elects to rescind the Mandatory Underwriting
Provisions).\50\ This timeframe is not inconsistent with the Bureau's
timing for issuing final rules where the proposal garnered a
significant volume of comments. For example, the Bureau's rule
governing prepaid accounts under Regulations E (12 CFR part 1005) and Z
(12 CFR part 1026), which received approximately 65,000 comments, took
approximately 20 months from the close of the comment period to
publication, with an effective date approximately one year later
(although the overall effective date was ultimately extended an
additional 1.5 years, to April 1, 2019).\51\
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\50\ Under the Congressional Review Act, before a rule can take
effect, an agency must submit the rule to both Houses of Congress
and the Comptroller General. 5 U.S.C. 801(a). Prior to this
submission, an agency must obtain a determination from the Office of
Management and Budget (OMB) as to whether the rule is a ``major
rule'' under 5 U.S.C. 804(2). If OMB so determines, the rule
generally cannot take effect until the later of 60 days after
Congress receives the rule or the rule is published in the Federal
Register.
\51\ See 81 FR 83934 (Nov. 22, 2016), 82 FR 18975 (Apr. 25,
2017), 83 FR 6364 (Feb. 13, 2018).
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C. Other Aspects of the Delay NPRM
1. Unanticipated Potential Obstacles to Compliance
As discussed in the Delay NPRM, the Bureau's second reason for
proposing to delay the compliance date of the Mandatory Underwriting
Provisions was that the Bureau had discussed implementation efforts
with a number of industry participants since publication of the 2017
Final Rule. Through these conversations, the Bureau had received
reports of various unanticipated potential obstacles to compliance with
the Mandatory Underwriting Provisions by the August 19, 2019 compliance
date. The Bureau sought to better understand these reported 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. In the Delay NPRM, the Bureau specifically discussed recent
changes to State laws and systems or vendor-related issues as examples
of potential obstacles to compliance.
Commenters, including lenders, trade associations, consumer
advocacy groups, a group of State attorneys general, the SBA OA, and
others, spoke to potential obstacles to compliance generally, changes
to State laws enacted after the 2017 Final Rule was issued, and systems
or vendor-related issues, including such issues specifically related to
RISes. Some lenders, trade associations, and an attorney to lenders
asserted that the proposed delay is necessary even if the Bureau
decides not to rescind the Mandatory Underwriting Provisions. Lenders
and trade associations asserted that they would not be ready to comply
with the Mandatory Underwriting Provisions by August 2019 and were
deterred from making the significant investment in compliance by
uncertainty about the compliance date. However, commenters provided
little, if any, data or other
[[Page 27918]]
specific information to support the existence or magnitude of these or
other obstacles to compliance.\52\ In light of the absence of such data
or information in the rulemaking record, the Bureau is not basing its
final rule to delay the compliance date on the presence or effect of
obstacles to compliance, but rather is basing it on the need to conduct
an orderly rulemaking with regard to the Reconsideration NPRM.\53\
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\52\ Some commenters noted that lenders had expected to be able
to comply with the Mandatory Underwriting Provisions through the use
of third-party vendor and software services but stated that those
are not currently available in the marketplace. The lenders,
however, did not provide specific information as to the costs they
would be likely to incur were they to comply with the Mandatory
Underwriting Provisions in the absence of such third-party services.
\53\ Some commenters also asserted that compliance with the
Mandatory Underwriting Provisions would be impossible in the absence
of RISes. The general standard for making an ability-to-repay
determination under Sec. 1041.5, however, does not require that
lenders obtain a consumer report from an RIS if such a report is not
available.
---------------------------------------------------------------------------
2. Crossover Effects
The Bureau received a number of comments that addressed crossover
effects of the proposed delay of the Mandatory Underwriting Provisions
on the implementation of the Payment Provisions.
A comment from a group of State attorneys general expressed some
confusion about the request for comment on crossover effects.
Nevertheless, the comment stated that the compliance date for the
Payment Provisions should not be delayed and those provisions should go
into effect as scheduled on August 19, 2019. They asserted that they
were unaware of any circumstance where a high-cost lender does not act
in an unfair and abusive manner by making more than two consecutive
failed efforts to withdraw payments from a consumer's account without
first obtaining new consumer authorization.
On the other hand, trade association and industry commenters
contended that crossover effects existed and were reasons to delay or
reconsider the compliance date for the Payment Provisions. Industry
commenters stated that the 2017 Final Rule established a complex and
interconnected set of provisions that covers various categories of
covered loans. Given these interconnections, a number of commenters
stated that the proposed delay of the Mandatory Underwriting Provisions
potentially could impact the Payment Provisions, leading to confusion
and unintended consequences for consumers and industry. Commenters
stated that because of the complicated distinctions and overlapping
definitions of covered loans, reconsideration of the Mandatory
Underwriting Provisions could result in potential complications for
industry with respect to compliance obligations and operations.
Commenters asserted that such complications would be particularly
likely if the Reconsideration NPRM resulted in modifications to the
definitions or exemptions of covered loans.
A trade association stated that Payment Provisions cover a wider
range of covered loans than the Mandatory Underwriting Provisions and
therefore will impact more consumers and industry participants. Given
this consequence for consumers and industry, the trade association
urged the Bureau to delay and reconsider the Payment Provisions.
The Bureau has reviewed and analyzed these comments and has
determined that they do not identify crossover effects on
implementation of the Payment Provisions such that the Bureau should
delay parts of the Rule other than the Mandatory Underwriting
Provisions.
The Bureau disagrees with the comments asserting that finalizing
the Delay NPRM would have crossover effects on the implementation of
the Payment Provisions. The commenters in general did not identify
specific or definite examples of crossover effects. Further, commenters
generally did not identify with specificity negative or unintended
consequences to consumers or industry that would arise from any such
effects.
As to comments that said that changes to the 2017 Final Rule's
covered loan definition could have potential crossover effects, the
Bureau acknowledges that the Payment Provisions apply to a broader
group of covered loans than do the Mandatory Underwriting Provisions,
and if the Bureau undertook changes to narrow the 2017 Final Rule's
coverage those changes could impact implementation. However, neither
the Delay NPRM nor the Reconsideration NPRM proposed changes to the
scope of the 2017 Final Rule's coverage. Additionally, the Delay NPRM
did not propose delaying provisions that generally implement the
covered loan definition. Further, commenters did not explain how the
proposed rescission of the Mandatory Underwriting Provisions would in
practice affect the covered loan definition in the Rule.
Having considered these comments, the Bureau concludes that
delaying the Mandatory Underwriting Provisions will not result in
significant crossover effects on implementation of the Payment
Provisions.
Regarding comments about industry burden directly resulting from
the Payment Provisions, which include comments about those provisions'
compliance costs and market impacts, the Bureau considers these
comments outside the scope of the proposal. The Bureau did not propose
in the Delay NPRM to delay the compliance date for the Payment
Provisions.\54\ Rather, the Bureau specifically solicited comment about
whether and to what extent delaying the compliance date of the
Mandatory Underwriting Provisions would impact implementation of the
Payment Provisions.\55\ Comments about the Payment Provisions' industry
burden in general are not responsive to this request for comment.
However, as noted in both NPRMs, the Bureau has also received formal
and informal feedback regarding the Payment Provisions.\56\ As
indicated in those NPRMs, the Bureau intends to examine issues raised
by this feedback and determine whether further action is warranted.
---------------------------------------------------------------------------
\54\ See 84 FR 4298, 4301.
\55\ See id.
\56\ See id. See also 84 FR 4252, 4253, 4260.
---------------------------------------------------------------------------
D. Other Issues Raised by Commenters
1. Bureau Statements Regarding the Rule and the Litigation Stay
Commenters argued that a compliance date delay is needed because a
``cloud of uncertainty'' has hung over the rule since it was published
in 2017 and that as a result most lenders have deferred taking
necessary steps to implement the Mandatory Underwriting Provisions.
Commenters cited, variously, statements made by the Bureau or the then-
Acting Director, the filing of the lawsuit challenging the Rule in
April 2018, and the court's stay of the Rule's compliance date in
November 2018. One commenter asserted that this uncertainty has
prevented banks from being able to adequately design compliance
programs.
One commenter noted that the court's stay of the compliance date
remains in force, but could be lifted at any time, arguing that because
of this uncertainty, the stay does not ameliorate concerns about the
August 19, 2019 compliance date. Another commenter asserted that at
this stage it would be inequitable for lenders to be required to
commence implementation of costly compliance systems and undertake
other measures required to become compliant, especially if the stay of
the Rule is lifted by the court, and that the likely result
[[Page 27919]]
would be that smaller storefront lenders would exit the business.
A consumer advocacy group commented that the Bureau failed to
explain related decisions by the agency that could inform commenters'
reaction to the Delay NPRM, noting that the Bureau did not explain that
it had itself asked the court to stay the Rule's compliance date or
explain the Bureau's assumptions about the relationship between that
litigation and the Delay NPRM.
The Bureau acknowledges that its statements and pending litigation
have created greater uncertainty for industry and consumers. However,
the Bureau did not propose these issues as possible grounds for
delaying the compliance date, and is not relying on them here to
finalize the compliance date delay.
2. Decreased Consumer Complaints
In the Reconsideration NPRM, the Bureau noted that changes to
State-level regulation may have contributed to the decline in payday
lending complaints that the Bureau handled through its Office of
Consumer Response.\57\ Several commenters suggested in their comments
on the Delay NPRM that the Bureau should delay the compliance date of
the Mandatory Underwriting Provisions to see if the downward trend in
consumer complaints continues and whether State regulation is adequate
to protect consumers without limiting access to credit. The Bureau will
continue to monitor complaint volumes, but is not basing its decision
to delay on these grounds.
---------------------------------------------------------------------------
\57\ 84 FR 4252, 4254-55. As cited in the 2017 Final Rule, in
2016 the Bureau handled approximately 4,400 complaints in which
consumers reported ``payday loan'' as the complaint product. 82 FR
54472, 54483, citing Bureau of Consumer Fin. Prot., Consumer
Response Annual Report, Jan. 1-Dec. 31, 2016, at 33 (March 2017),
https://www.consumerfinance.gov/documents/3368/201703_cfpb_Consumer-Response-Annual-Report-2016.PDF.
In contrast, the Bureau received approximately 2,900 payday loan
complaints in 2017, and approximately 2,300 in 2018. In each of
these reporting years, it appears that consumers complained most
frequently about unexpected fees associated with payday loans, while
consumers complaining about receiving a loan for which payday
lenders had not determined their ability to repay loans were less
frequent. Bureau of Consumer Fin. Prot., Consumer Response Annual
Report, Jan. 1-Dec. 31, 2017, at 34 (March 2018), https://www.consumerfinance.gov/documents/6406/cfpb_consumer-response-annual-report_2017.pdf; Bureau of Consumer Fin. Prot. Consumer
Response Database. To provide a sense of the number of complaints
for payday loans relative to the number of complaints for other
product categories, from October 1, 2017 through September 30, 2018,
approximately 0.7 percent of all consumer complaints the Bureau
received were about payday loans, and 0.2 percent were about vehicle
title loans. Bureau of Consumer Fin. Prot., Semi-Annual Report of
the Bureau of Consumer Financial Protection, at 19 tbl. 3 (Fall
2018), https://www.consumerfinance.gov/documents/7266/cfpb_semi-annual-report-to-congress_fall-2018.pdf. The Bureau notes that there
is some overlap across product categories. For example, a consumer
complaining about the conduct of a debt collector seeking to recover
on a payday loan would frequently be in the debt collection product
category rather than the payday loan product category.
---------------------------------------------------------------------------
3. UDAAP Rulemaking Generally
One commenter suggested that the Bureau should adopt definitive
UDAAP standards through a standalone notice-and-comment rulemaking
process before promulgating and implementing specific rules relying on
what the commenter referred to as shifting and unsettled
interpretations of unfairness and abusiveness. The commenter also
asserted that applying new or revised UDAAP interpretations on an ad
hoc basis is arbitrary and capricious as well as an inappropriate way
to make regulatory policy.
The Bureau indicated in its fall 2018 semiannual regulatory agenda
that it is considering whether rulemaking or other activities may be
helpful to further clarify the meaning of ``abusiveness'' under the
section 1031 of the Dodd-Frank Act.\58\ This issue remains on the
Bureau's list of long-term actions.\59\ The Bureau also recently
announced that the first in an upcoming series of symposia that the
Bureau is hosting will focus on clarifying the meaning of abusive acts
or practices under section 1031 of the Dodd-Frank Act.\60\
---------------------------------------------------------------------------
\58\ 83 FR 58118, 58120 (Nov. 16, 2018).
\59\ See https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201904&RIN=3170-AA88.
\60\ See Bureau of Consumer Fin. Prot., Consumer Financial
Protection Bureau Announces Symposia Series (Apr. 18, 2019), https://www.consumerfinance.gov/about-us/newsroom/bureau-announces-symposia-series/.
---------------------------------------------------------------------------
At this time, the Bureau has not yet decided whether it will take
measures to address the general meaning of abusiveness. The Bureau
believes that its Reconsideration NPRM proposes an interpretation of
unfairness and abusiveness that is focused on the unique
characteristics of the markets for the loans at issue. The Bureau does
not consider this comment relevant to the specific issue presented in
the rulemaking, which is whether the compliance date of the Mandatory
Underwriting Provisions should be delayed. The Bureau already issued
the Mandatory Underwriting Provisions as part of the 2017 Final Rule
without the standalone rulemaking process desired by the commenter, and
it is delaying the compliance date in order to reconsider those
provisions.
4. Tribal Consultations and Interagency Coordination
Several commenters requested additional tribal government
consultations regarding the Rule, both NPRMs, and/or tribal lending
generally. Several other commenters requested that the Bureau
coordinate with the prudential regulators to create a unified framework
for regulating the small-dollar credit market. The Bureau will continue
to coordinate and consult with tribal governments and with the
prudential regulators as required by sections 1015 and 1022(b)(2)(B) of
the Dodd-Frank Act and in accordance with the Bureau's frameworks on
tribal government and interagency consultations.
5. Prejudgment of the Outcome of This Rulemaking and Stakeholder
Influence on Rulemaking
Several commenters opposing the delay suggested that the Bureau
might have prejudged the outcome of the Delay NPRM, arguing that the
Bureau's actions (including the Bureau's statements regarding the rule,
lack of an approved Office of Management and Budget (OMB) Control
Number under the Paperwork Reduction Act of 1995 (PRA), and posture in
the pending litigation) suggests that the Bureau decided to delay the
Mandatory Underwriting Provisions before it issued the Delay NPRM.
Commenters also asserted that the Reconsideration NPRM lacks support
and rests on what one referred to as biased and contaminated input due
to meetings that they asserted occurred prior to issuance of the NPRMs.
They also noted recent media reports regarding the influence of the
payday lending industry on academic studies and thereby purportedly on
the Bureau's rulemaking. One commenter noted the difficulty in
determining such industry influence on academic work and the rulemaking
process, and suggested that the Bureau conduct a thorough investigation
of all pro-industry studies reviewed or relied upon in connection with
both NPRMs to ascertain whether there has been any industry influence
on such purportedly independent work.
The Bureau issued NPRMs seeking comment on whether it should delay
the compliance date of the Mandatory Underwriting Provisions as well as
whether it should rescind those provisions. The Bureau's Director has
stated multiple times that she has an open mind about the outcome of
both
[[Page 27920]]
rulemakings.\61\ The Bureau regularly meets with representatives of
industry, consumer advocacy groups, and other interested stakeholders
at various points throughout the rulemaking process.\62\ The Bureau
summarized in the Delay NPRM the information on which it was relying
that it had received from industry regarding the possible need for a
delay of the compliance date for the Mandatory Underwriting Provisions,
thus making that information part of the record and inviting public
comment on it. As discussed elsewhere in this document, the public has
used this opportunity to provide the Bureau with extensive and useful
comments concerning the issues raised in the Delay NPRM.
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\61\ See, e.g., Bureau of Consumer Fin. Prot., Consumer
Financial Protection Bureau Releases Notices of Proposed Rulemaking
on Payday Lending (Feb. 6, 2019), https://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-releases-notices-proposed-rulemaking-payday-lending/ (`` `The Bureau will
evaluate the comments, weigh the evidence, and then make its
decision,' said Kathy Kraninger, Director of the Consumer Financial
Protection Bureau.'').
\62\ When these meetings occur while a rulemaking is pending, it
is the Bureau's policy to disclose the existence and content of such
meetings that impart information or argument directed to the merits
or outcome of the rulemaking, consistent with its written policy.
See Bureau of Consumer Fin. Prot., Policy on Ex Parte Presentations
in Rulemaking Proceedings, 82 FR 18687 (April 21, 2017).
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In its rulemaking proceedings, including those relating to the 2017
Final Rule and the ongoing reconsideration of the Mandatory
Underwriting Provisions in that Rule, the Bureau considers a broad
range of information. Many stakeholders, including members of industry,
trade associations, consumer advocacy groups, government agencies, and
others, fund studies bearing on issues relevant to Bureau rulemakings.
The Bureau conducts its own evaluation and analysis of the data
presented in these studies, and draws its own conclusions about them.
The Bureau does not believe that any information (including in media
reports) it has received or reviewed since the issuance of the
Reconsideration and Delay NPRMs undercuts the Bureau's preliminary
determination to reconsider the weight it gave to certain studies (such
as the Mann Study and Pew Study).
6. Comments Outside the Scope of the Proposal
As the Bureau indicated in the Delay NPRM, the purpose of that
document was to seek comment on whether the Bureau should delay the
August 19, 2019 compliance date for the Mandatory Underwriting
Provisions. The Bureau did not propose to delay the compliance date for
the other provisions of the 2017 Final Rule, including the Payment
Provisions.\63\
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\63\ In the Delay NPRM, the Bureau noted that, through its
efforts to monitor and support industry implementation of the 2017
Final Rule, it had heard concerns from some stakeholders regarding
the Rule that were outside of the scope of the proposal. For
example, the Bureau noted that it had 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. See 84 FR 4298, 4301.
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Nonetheless, many commenters addressed issues related to payments
or the scope of the Rule more generally in their comment letters. A
number of commenters, including lenders, trade associations, tribal
governments, the SBA OA, and others, requested that the Bureau: (1)
Delay the compliance date for the Payment Provisions or for the Rule as
a whole; (2) make modifications to the Payment Provisions or revise the
scope of covered loans or entities to which the Rule applies; and/or
(3) rescind the entire Rule. In addition, several commenters suggested
that the Payment Provisions should be reassessed in light of the
Reconsideration NPRM's proposed approach to unfairness and abusiveness,
asserting that the Payment Provisions are predicated on the 2017 Final
Rule's approach to unfairness and abusiveness, which the
Reconsideration NPRM preliminarily deemed problematic.
As the Bureau noted in the Delay NPRM, the Bureau intends to
separately examine these issues and the Bureau will determine whether
further action is warranted (which may include issuing a request for
information or an advance notice of proposed rulemaking relating to
these issues). These comments are outside the scope of this final rule,
and thus the Bureau is not delaying the compliance date for the Payment
Provisions or making any of the other requested modifications to the
Rule.
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.\64\ That discussion may be referred to for more information about
the legal authority for this final rule.
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\64\ 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.\65\ Accordingly, in finalizing 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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\65\ 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.\66\ 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.\67\ 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.\68\ The
term Federal consumer financial law includes rules prescribed under
Title X of the Dodd-Frank Act, including those prescribed under section
1031.\69\ 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.\70\
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\66\ See 82 FR 54472, 54522.
\67\ 12 U.S.C. 5512(b)(3)(A).
\68\ 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.
\69\ 12 U.S.C. 5481(14).
\70\ 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.'' \71\ 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
[[Page 27921]]
possible.'' \72\ As discussed above and in the Reconsideration NPRM,
the Bureau 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 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. Thus, the Bureau
believes that delaying the compliance date would be consistent with the
``orderly implementation period,'' given that the Bureau has strong
reasons to rescind the Mandatory Underwriting Provisions.
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\71\ 82 FR 54472, 54474.
\72\ Id. at 54814.
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Moreover, the Bureau concludes, for purposes of this final rule,
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.'' This is because the Bureau has strong reasons to believe
that the 2017 Final Rule was not the best application of the statutory
scheme in section 1031 of the Dodd-Frank Act that is designed to
protect that interest.
A trade association commented that the Bureau's authority to delay
the implementation of the 2017 Final Rule is firmly grounded in section
1031(b) of the Dodd-Frank Act. The trade association asserted that
because section 1031(b) provided that the Bureau ``may prescribe
rules'' identifying unfair, deceptive or abusive acts or practices,
Congress intended to give the Bureau the discretionary authority to
decide when such rules should be implemented and when the Bureau should
enforce compliance with such rules. Further, the commenter claimed that
the Bureau was right to take the view 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 given its preliminary
findings about the Mandatory Underwriting Provisions of the 2017 Final
Rule.
An individual commenter and consumer advocacy groups asserted that
the Bureau did not have the authority to delay the 2017 Final Rule. An
individual commenter claimed that the Bureau could not use its
``discretion'' under section 1031 or other statutory sources as a legal
authority to delay the compliance date. The individual commenter
further claimed that the Bureau failed to identify specific legal
authorities conferred by Congress that would permit the Bureau to delay
the 2017 Final Rule, absent which the Bureau's proposed delay would be
arbitrary and capricious under the Administrative Procedure Act. The
individual commenter claimed that there was no history prior to 2017
for compliance date delays, other than one identified by the commenter
that was issued in 2003 by the Office of the Comptroller of Currency,
which the Bureau did not cite. The individual commenter also asserted
that the Delay NPRM was arbitrary and capricious because section 705 of
the Administrative Procedure Act only permits a stay of an existing
rule pending judicial review if justice so requires, but the litigation
over the 2017 Final Rule in the Federal district court in Texas did not
justify such a stay because that case has already been stayed by the
court. A consumer advocacy group asserted that, by way of analogy, the
Bureau could not demonstrate under the standard established by section
705 of the Administrative Procedure Act a likelihood of success on the
merits if the Reconsideration NPRM were finalized and subject to
judicial review.
The Bureau concludes, contrary to the views of some commenters,
that it has the discretionary authority to delay the 2017 Final Rule.
Accordingly, the Bureau also agrees with the commenters who argued that
section 1031(b) of the Dodd-Frank Act confers upon the Bureau the
authority to reconsider or delay rules that the agency has issued based
on findings of unfair, deceptive or abusive acts and practices. The
Bureau further concludes that it properly identified in the Delay NPRM
the specific legal authorities that it relied on to delay the 2017
Final Rule; those authorities were identified in the Legal Authorities
section of the Delay NPRM and are set forth above. Finally, the Bureau
does not rely on section 705 of the Administrative Procedure Act in
issuing this rule, and that section is not otherwise relevant to this
rulemaking.
V. Section-by-Section Analysis
As discussed above, the 2017 Final Rule became effective on January
16, 2018, but had a compliance date of August 19, 2019 for Sec. Sec.
1041.2 through 1041.10, 1041.12, and 1041.13. The Bureau proposed 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 RISes.\73\ Section 1041.12 sets forth compliance
program and record retention requirements, with Sec. 1041.12(b)(1)
through (3) detailing record retention requirements that are specific
to the Rule's Mandatory Underwriting Provisions.\74\
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\73\ The Bureau is not delaying the compliance date for Sec.
1041.11, as discussed below, because the 2017 Final Rule did not
provide for an August 19, 2019 compliance date for that section; its
operative date was January 16, 2018. However, the Bureau is revising
certain dates that appear in the regulatory text of Sec. 1041.11 to
reflect the delayed compliance date for the Mandatory Underwriting
Provisions.
\74\ In the Reconsideration NPRM, the Bureau proposed to modify
the introductory text of Sec. 1041.12(b)(1) for clarity as to its
application to loan agreements for all covered loans, and thus it
was not listed with the provisions that the Bureau proposed to
rescind. Since the Bureau is not modifying the introductory text of
Sec. 1041.12(b)(1) in this final rule, it is included in the list
of provisions for which the compliance date is delayed.
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In the Delay NPRM, the Bureau sought comment on whether it had
identified the appropriate provisions of the 2017 Final Rule as
constituting the Mandatory Underwriting Provisions for purposes of the
proposed delay, as well as 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.
Several commenters agreed that the Bureau had identified the
correct provisions to delay. One commenter requested that the Bureau
amend the Rule itself to expressly state the delayed compliance date.
Another commenter, however, argued that there was no reason to change
the compliance date for Sec. 1041.11, noting that unlike the rest of
the rule, this section was set to be fully effective and implemented as
of January 16, 2018 and that it does not impose any mandatory
implementation costs. The commenter further stated that the Bureau has
provided no reason it should shutter its own system for processing RIS
applications, and that if the Bureau stalled the RIS application it
would suggest the Bureau has prejudged the outcome to the
Reconsideration NPRM.
The long-passed January 16, 2018 date for Sec. 1041.11 should not
be, and is not being, altered. As discussed above, the Bureau proposed
to delay the August 19, 2019 compliance date for the Mandatory
Underwriting Provisions; it did not propose to alter any other dates
associated with those provisions. To avoid any potential confusion,
however,
[[Page 27922]]
the Bureau is not including Sec. 1041.11 in the various lists that
appear throughout this document of the sections for which it is
delaying the compliance date (other than those reiterating language
used in the Delay NPRM).
In this final rule, the Bureau is delaying the August 19, 2019
compliance date to November 19, 2020 for Sec. Sec. 1041.4 through
1041.6, 1041.10, and 1041.12(b)(1) through (3).\75\ To implement this
compliance date delay, the Bureau is revising the few instances in the
regulatory text and commentary where the August 19, 2019 compliance
date appears. The Bureau is also adding new Sec. 1041.15 to expressly
state the Rule's effective and compliance dates. In addition, as noted
above, the Bureau is also making certain corrections to address several
clerical and non-substantive errors it has identified in the 2017 Final
Rule, in Sec. Sec. 1041.2(a)(9), 1041.3(e)(2), 1041.9(c)(3)(viii), and
appendix A.\76\ No substantive change is intended by these corrections.
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\75\ The Bureau is not delaying the compliance date for Sec.
1041.11, as discussed above, because the 2017 Final Rule did not
provide for an August 19, 2019 compliance date for that section; its
operative date was January 16, 2018. However, as discussed below,
the Bureau is revising certain dates that appear in the regulatory
text of Sec. 1041.11 to reflect the delayed compliance date for the
Mandatory Underwriting Provisions.
\76\ Under the Administrative Procedure Act, notice and
opportunity for public comment are not required if the Bureau for
good cause finds that notice and public comment are impracticable,
unnecessary, or contrary to the public interest. 5 U.S.C. 553(b)(B).
The Bureau is finalizing corrections in Sec. Sec. 1041.2(a)(9),
1041.3(e)(2), 1041.9(c)(3)(viii), and appendix A without notice and
public comment because it finds for good cause that seeking public
comment on them is unnecessary. The corrections are technical in
nature and have no intended substantive effect. Therefore, these
amendments are adopted in final form.
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Each of these revisions and additions is discussed in turn in the
section-by-section analyses that follow.
Subpart A--General
Sec. 1041.2 Definitions
Section 1041.2 provides definitions for the Rule. The term
``covered person'' is defined in Sec. 1041.2(a)(9). However, that term
is not used anywhere in the regulatory text or commentary of the Rule.
The Bureau is thus removing that definition and reserving Sec.
1041.2(a)(9). No substantive change is intended by this correction.
Sec. 1041.3 Scope of Coverage; Exclusions; Exemptions
Section 1041.3 addresses the Rule's scope of coverage, as well as
certain exclusions and exemptions. Section 1041.3(e) provides a
conditional exemption for alternative loans; Sec. 1041.3(e)(2)
addresses the borrowing history condition, which is one of several
conditions and requirements a covered loan must satisfy to qualify as
an alternative loan. Section 1041.3(e)(2) states that the lender must
determine from its records that the loan would not result in the
consumer being indebted on more than three outstanding loans made
``under this section'' from the lender with a period of 180 days.
However, that section (Sec. 1041.3) includes exclusions and exemptions
for a number of other types of loans that are not relevant to the
conditional exemption for alternative loans. The commentary
accompanying Sec. 1041.3(e)(2) refers to paragraph (e) rather than the
entirety of Sec. 1041.3 when discussing the requirements of the
conditional exemption. The Bureau is thus correcting ``this section''
to ``this paragraph (e)(2)'' in the regulatory text of Sec.
1041.3(e)(2). No substantive change is intended by this correction.
Subpart C--Payments
Sec. 1041.9 Disclosure of Payment Transfer Attempts
Section 1041.9 requires certain disclosures with respect to payment
transfer attempts, with Sec. 1041.9(c) addressing the timing, content,
and electronic delivery requirements for the consumer rights notice
that a lender must provide after it initiates two consecutive failed
payment transfers as described in Sec. 1041.8(b). Section 1041.9(c)(3)
lists the information and statements that the notice must contain, and
states that the language used must be substantially similar to the
language set forth in Model Form A-5. Section 1041.9(c)(3)(viii)
requires a statement that the Consumer Financial Protection Bureau
created this notice, a statement that the CFPB is a Federal government
agency, and the URL to www.consumerfinance.gov/payday-rule. Model Form
A-5, however, lists the URL as www.cfpb.gov/payday. To avoid any
potential confusion as to which URL should be used, the Bureau is
revising the URL in the regulatory text of Sec. 1041.9(c)(3)(viii) to
match the URL used in Model Form A-5. No substantive change is intended
by this correction.
Subpart D--Information Furnishing, Recordkeeping, Anti-Evasion,
Severability, and Dates
As discussed below, the Bureau is adding new Sec. 1041.15 to
explicitly set forth the effective and compliance dates in the Rule
itself. To reflect that change, the Bureau is adding ``Dates'' to the
heading for subpart D of the Rule.
Sec. 1041.10 Furnishing Information to Registered Information Systems
Comment 10(b)-1 addresses provisional registration and registration
of information systems while a loan is outstanding, and provides an
example of when a lender is and is not required to furnish information
to a provisionally-registered information system. That example used
dates in the year 2020. The Bureau is revising the example to instead
use dates in 2021, to avoid any potential confusion as to whether and
when lenders are required to furnish such information given this final
rule's delay of the compliance date for that requirement.
Sec. 1041.11 Registered Information Systems
As discussed above, the 2017 Final Rule became effective on January
16, 2018, though most provisions had a compliance date of August 19,
2019. The Bureau is not delaying the compliance date for Sec. 1041.11,
which sets forth requirements regarding RISes, because the 2017 Final
Rule did not provide for an August 19, 2019 compliance date for that
section; it became fully effective as of January 16, 2018. However, the
Bureau is revising the regulatory text and headings in Sec. 1041.11(c)
introductory text, (c)(1) and (2), (d) introductory text, and
(d)(1),\77\ and related commentary, to replace August 19, 2019, where
it appears, with the delayed compliance date of November 19, 2020, as
those provisions address how registration of information systems is to
occur before and after compliance with the Mandatory Underwriting
Provisions of the Rule more generally is required.
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\77\ Section 1041.11(c)(1) allows the Bureau to preliminarily
approve an entity as an information system before the compliance
date. Section 1041.11(c)(2) allows the Bureau to approve the
application from a preliminarily approved entity to become an RIS
prior to the compliance date.
The Bureau is not, however, changing 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 compliance date.
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Sec. 1041.15 Effective and Compliance Dates
The Bureau is adding new Sec. 1041.15 to expressly state the
effective and compliance dates for various aspects of the Rule. Section
1041.15(a) provides that the effective date of the Rule is January 16,
2018, as was stated in the
[[Page 27923]]
Dates section of the 2017 Final Rule.\78\ Section 1041.15(b) provides
that the deadline to submit an application for preliminary approval for
registration pursuant to Sec. 1041.11(c)(1) was April 16, 2018; this
was also stated in the Dates section of the 2017 Final Rule. Section
1041.15(c) and (d) list the sections that remain with an August 19,
2019 compliance date and those that are delayed until November 19, 2020
by this final rule; together, these paragraphs address all the sections
that were listed in the Dates section of the 2017 Final Rule with an
August 19, 2019 compliance date. Specifically, Sec. 1041.15(c)
provides that the compliance date for Sec. Sec. 1041.2, 1041.3, 1041.7
through 1041.9, 1041.12(a), (b) introductory text, and (b)(4) and (5),
and 1041.13 is August 19, 2019. Section 1041.15(d) provides that the
compliance date for Sec. Sec. 1041.4 through 1041.6, 1041.10, and
1041.12(b)(1) through (3) is November 19, 2020.
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\78\ 82 FR 54472.
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Appendix A to Part 1041--Model Forms
The 2017 Final Rule was published, and added to the Code of Federal
Regulations, without text headings for the model forms and clauses
contained in appendix A. The Bureau is adding these headings now, using
the text that appears in the images of the forms and clauses
themselves. No substantive change is intended by this correction.
VI. Effective and Compliance Dates
For the reasons set forth herein, the Bureau believes it is
appropriate 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, and 1041.12(b)(1) through
(3)--to November 19, 2020.\79\ This final rule adopting the compliance
date delay, along with several clarifying corrections to the Rule, will
become effective 60 days after publication in the Federal Register,
prior to the previous August 19, 2019 compliance date for the Mandatory
Underwriting Provisions of the Rule, and consistent with section 553(d)
of the Administrative Procedure Act \80\ and with section 801(a)(3) of
the Congressional Review Act.\81\
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\79\ As discussed above, the Bureau is not changing the
operative date of January 16, 2018 for Sec. 1041.11.
\80\ 5 U.S.C. 553(d).
\81\ 5 U.S.C. 801(a)(3).
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In the Delay NPRM, the Bureau stated that after considering
comments received on that proposal, the Bureau intended to publish a
final rule with respect to the delayed compliance date for the
Mandatory Underwriting Provisions of the 2017 Final Rule, if warranted.
The Bureau also stated that 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.
In response to the Bureau's request for comments on this aspect of
the Delay NPRM, one commenter agreed that the final rule to delay the
compliance date should be published and become effective prior to
August 19, 2019, in order to provide clarity to industry, markets, and
consumers and to avoid the possibility of piecemeal enforcement or the
inference that the Bureau has determined not to enforce an existing
rule. The commenter also stated that it would provide certainty beyond
the pending litigation's current compliance date stay.
Another commenter stated that the Bureau should not assume that it
can finalize a rule in time for it to be published and effective prior
to August 19, 2019. The commenter argued that the Bureau's review of
and response to comments should encompass the comments received on the
Reconsideration NPRM because the Delay NPRM's impact analysis rests on
the similar analysis in the Reconsideration NPRM. The commenter
repeated an argument, addressed elsewhere in the preamble to this final
rule, that the fact that the Reconsideration NPRM is pending does not
justify a delay, but asserted that if the Bureau seeks to rely on that
proposal it should address commenters' concerns about it.
The Bureau believes it was not incorrect to assume that it would be
able to finalize and publish a compliance date delay final rule in time
for it to be effective prior to August 19, 2019, as evidenced by the
fact that it is doing so via this document. The Bureau was aware that
it would not be able to finalize the Reconsideration NPRM itself by
that date, however, which is why it proposed the delay and
reconsideration concurrently in separate documents. As explained above,
as well as in the Delay NPRM, the purpose of this compliance date delay
is to permit an orderly conclusion to the Bureau's separate rulemaking
process to reconsider the Mandatory Underwriting Provisions of the 2017
Final Rule.
VII. Dodd-Frank Act Section 1022(b)(2) Analysis
A. Overview
As discussed above, this final rule delays the August 19, 2019
compliance date for the Mandatory Underwriting Provisions of the 2017
Final Rule to November 19, 2020. In the Reconsideration NPRM, the
Bureau considered 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.\82\ As this delay
of the August 19, 2019 compliance date constitutes a 15-month delay of
the 2017 Final Rule's compliance date for the Mandatory Underwriting
Provisions, its impacts are effectively 1.25 years of the annualized,
ongoing impacts described in the Reconsideration NPRM.\83\ The 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 will have minimal impacts on the eventual costs incurred by
lenders if the Bureau decides to retain the Mandatory Underwriting
Provisions.
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\82\ 84 FR 4252, 4281-95.
\83\ See 84 FR 4298, 4302.
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In developing this rule, the Bureau has considered the potential
benefits, costs, and impacts as required by section 1022(b)(2)(A) of
the Dodd-Frank Act.\84\ 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 section
1026 of the Dodd-Frank Act, and the impact on consumers in rural areas.
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\84\ 12 U.S.C. 5512(b)(2)(A).
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In the Delay NPRM, the Bureau set forth a preliminary analysis of
these effects and requested comments that could inform the Bureau's
analysis of the benefits, costs, and impacts of the proposal. The
Bureau specifically requested comment on the Delay NPRM's section
1022(b)(2) analysis as well as submission of additional information
that could inform the
[[Page 27924]]
Bureau's consideration of the potential benefits, costs, and impacts of
this rule to delay the August 19, 2019 compliance date of the Mandatory
Underwriting Provisions of the 2017 Final Rule. In response, the Bureau
received a number of comments on the topic. 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.
1. Description of the Baseline
In considering the potential benefits, costs, and impacts of this
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 original 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.\85\ 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.\86\
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\85\ In addition to the compliance date delay, the Bureau is
making certain clerical and non-substantive corrections to correct
several errors it has identified in the 2017 Final Rule in
Sec. Sec. 1041.2(a)(9), 1041.3(e)(2), 1041.9(c)(3)(viii), and
appendix A. No substantive change is intended by the corrections
herein; since these corrections will have no impact on providers or
consumers, they are not discussed further in this section 1022(b)(2)
analysis.
\86\ 84 FR 4252, 4282-84.
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2. Appropriateness of Federal Regulation
The appropriateness of regulation in this case--i.e., for a delay
of the compliance date--is discussed in more detail above. In summary,
first, the Bureau's Reconsideration NPRM, published on February 14,
2019 in the Federal Register, set 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 has proposed should be--
rescinded.\87\ 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. The
Bureau notes above that some of these impacts, notably, the exit of
smaller market participants, may be irreversible. A consumer advocacy
group commented that the Bureau should not rescind an existing rule
based on lack of evidence to justify that rule, without first making an
attempt to collect said evidence. The Bureau notes that the
Reconsideration NPRM sets forth both factual and legal grounds for
reconsideration, both with respect to the unfairness determination and
the abusiveness determination, and thus does not rely solely on the
absence of evidence. Furthermore, the Bureau also notes that ongoing
market monitoring is part of the Bureau's activities, but that to
postpone finalizing this compliance date delay in order to collect
additional evidence, and in so doing allowing compliance with the 2017
Final Rule's Mandatory Underwriting Provisions to become mandatory,
would cause substantial revenue and market disruptions.
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\87\ See 84 FR 4298, 4299, 4303.
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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 rule to delay the August 19, 2019
compliance date for the Mandatory Underwriting Provisions, these
annualized benefits and costs will 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 rule, these costs and benefits will be realized
for 15 months (1.25 years).
1. Benefits to Covered Persons and Consumers
This rule to delay the August 19, 2019 compliance date for the
Mandatory Underwriting Provisions will delay by 15 months the
implementation of the underwriting provisions and thus any restrictions
on consumers' ability to choose to take out covered loans (including
payday and vehicle title loans) that would be prohibited in the
baseline. Several commenters, including trade associations and lenders,
agreed with this characterization of maintained access, argued that
choice in the market is a benefit for consumers, claimed that available
alternatives are worse for consumers, and characterized those
alternatives as more expensive or less regulated. A trade association
further asserted it would be more costly for consumers to default on
more traditional credit products. Many consumer advocacy and public
interest groups, meanwhile, argued this was not a benefit to consumers
of the delay as access would be maintained for most consumers under the
2017 Final Rule, alternative products are already offered by banks and
credit unions, and several small-dollar lenders have begun to offer (or
have discussed offering) alternative products that would not be covered
by the Mandatory Underwriting Provisions of the 2017 Final Rule (e.g.,
non-covered installment loans).
The Bureau notes that it discussed these payday loan alternatives
and their relative costs in the 2017 Final Rule, and has taken them
into account in reaching its findings here.\88\
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\88\ 82 FR 54472, 54842-46.
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Several consumer advocacy groups also commented that extended loan
sequences should not be considered credit access as they do not
represent new credit, but the extension of existing loans, and asserted
that the Bureau did not acknowledge this in the proposal. The Bureau
disagrees that it fails to account for this; the analysis here, as well
as in the Reconsideration NPRM and in the 2017 Final Rule, focuses on
sequence lengths that treat reborrowing as part of a dynamic
decision.\89\ The Bureau agrees that most consumers would maintain
access to payday loans in the absence of the delay; however, as
outlined in the 2017 Final Rule, the Bureau's simulations suggest that
5.9 to 6.2 percent of borrowers would be unable to initiate a loan
sequence they would choose without the delay.\90\ Additionally, the
Bureau noted that a larger share of vehicle title borrowers would be
unable to initiate a loan under the 2017 Final Rule relative to payday
borrowers, and that some of these consumers would be unable to obtain a
payday loan as a substitute.\91\ A few consumer advocacy groups also
argued that the Bureau contradicted itself by finding that the 2017
Final Rule would result in reduced access but still concluding that the
rule would be a net benefit for consumers, while it now treats access
as a benefit to consumers. Access to credit itself is treated as a
benefit in both the 2017 Final Rule and
[[Page 27925]]
here, and the Bureau discusses the resulting costs from prolonged use
of this credit separately in the section that follows.\92\
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\89\ The Rule defines a loan as being part of a sequence if it
is taken out within 30 days of a prior loan being paid off. 12 CFR
1041.2(a)(14).
\90\ 82 FR 54472, 54839.
\91\ Id. at 54840.
\92\ Id. at 54817-18, 54839-43.
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This rule will 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 will 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).\93\ The rule will 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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\93\ 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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The Bureau notes that these estimates are based on simulations that
assume at least one RIS will exist in the market, allowing payday
lenders to issue loans under the principal step-down approach.\94\ The
Bureau still believes this is the most likely case in the steady-state
equilibrium. However, in the case where there would not be an RIS in
place at the 2017 Final Rule's compliance date, and the principal step-
down approach would not be available on the compliance date, then the
estimated decrease in payday loans and revenues under the Mandatory
Underwriting Provisions would be more severe. For example, the 2017
Final Rule estimates a decrease in payday loan volumes of 92 to 93
percent in a regime where all loans are subject to the prescribed
ability-to-repay underwriting of Sec. 1041.5.\95\ If no RIS will exist
on the 2017 Final Rule's compliance date this rule will at least
delay--and to the extent it allows at least one RIS to enter the
market, avoid--substantially larger decreases in revenues for payday
lenders, while preserving substantially greater access to this type of
credit for consumers.\96\
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\94\ 82 FR 54472, 54826.
\95\ Id. at 54826.
\96\ It is also possible that this increased access would be on
average more beneficial to consumers, compared to the access this
rule would preserve if the principal step-down approach would be
available on the compliance date. This is because the evidence
suggests short-term use of loans, and or loans taken in response to
discrete needs may be welfare enhancing for consumers on average.
The principal step-down approach largely ensured access to such
loans in the 2017 Final Rule. However, this rule would better ensure
access to such loans if the principal step-down approach were
somehow infeasible.
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Multiple consumer advocacy groups commented that benefits to payday
lenders are overstated because the Bureau's cost estimates from the
2017 Final Rule did not account for lenders making changes to the terms
of their loans to better fit the regulatory structure, or offering
other products. The Bureau notes that this would fall under ``changes
to the profitability and industry structure that would have occurred in
response to the 2017 Final Rule'' discussed in part VII.B.3 below. One
payday lender commented that the benefits of delay to payday lenders
are understated, because the estimates from the 2017 Final Rule did not
account for business closures resulting in complete revenue loss. The
Bureau disagrees because the estimated revenue reductions cited are for
the industry as a whole and the Bureau noted in the 2017 Final Rule
that some lenders would likely exit as a result of decreased
revenues.\97\ Additionally, the Bureau's estimates are consistent with
two industry comments citing three separate studies, as discussed in
the 2017 Final Rule.\98\ Similarly, a trade association claimed the
revenue reduction would be higher than estimated in the 2017 Final Rule
because the analysis did not account for consumers with the ability to
repay being unable to demonstrate their ability under the mandated
requirements, but the trade association did not cite any evidence or
give further detail explaining this assertion. In the 2017 Final Rule,
the Bureau allowed for reasonable steps to establish the ability to
repay (including using estimates and lenders' prior experience with
other customers) while also noting that the estimated share of
borrowers who would qualify under the ability-to-repay provisions was
``necessarily imprecise'' given the available data.\99\ At the same
time, the Bureau notes its estimates were in line with estimates using
information provided by industry in comments to the 2016 Proposal.\100\
If the commenters were correct in asserting that the Bureau's estimates
of these impacts are low, that would strengthen the Bureau's reasoning
for postponing the compliance date. However, the Bureau does not
believe this is the case, and is not relying on the assertions in those
comments for its determination.
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\97\ Further, the cited revenue decreases were for the
simulation with no step-down approach loans. The Bureau estimated
that with step-down approach loans included the effect of the 2017
Final Rule would most likely result in revenue decreases of 37 to 48
percent.
\98\ 82 FR 54472, 54826-27.
\99\ Id. at 54824-25.
\100\ Id. at 54831-33.
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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, relative to the baseline in which compliance became
mandatory, the Rule would impose potential costs on consumers by
increasing the risks of: Experiencing costs associated with extended
unanticipated 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.\101\ Relative to the baseline where the 2017
Final Rule's compliance date is unaltered, these costs will be
maintained for 15 additional months under this rule.
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\101\ 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. 84 FR 4252, 4290 n.351.
---------------------------------------------------------------------------
Several consumer advocacy groups commented that certain of these
costs would continue for more than 15 months and the effects may be
long-lasting for some consumers. The Bureau recognizes that some costs
resulting from loan sequences begun during the 15-month delay may occur
after November 19, 2020. The Bureau notes these costs are already
included, and accounted for, in the baseline. Specifically, there would
have been similar costs associated with loans originated prior to the
2017 Final Rule's compliance date that extended beyond that date, and
that rule's section 1022(b)(2) analysis accounted for these extended
costs. These same extended costs will result after this rule's delayed
compliance date, and are thus accounted for in the baseline, and do not
represent an additional impact on the market by this delay final rule.
The Bureau also notes that there are costs resulting from loan
sequences that began prior to the 15-month delay that occur during the
15-month period of time, and that these costs are included in this
estimate. This is consistent with
[[Page 27926]]
the approach used throughout this section 1022(b)(2) analysis, which
symmetrically assesses the costs and benefits resulting directly from
the 15-month delay only (and does not account for costs and benefits
already present in the baseline). A number of consumer advocacy groups
argued the revenue that lenders would receive under the delay would
come from fees paid by consumers and would simply represent a transfer
from consumers to lenders and should, therefore, be treated as a cost
to consumers. As in the section 1022(b)(2) analysis of the 2017 Final
Rule, the Bureau does not double-count such transfers; lenders will
receive additional revenue as a result of the delay and consumers will
pay additional fees in exchange for the use of payday loans. A trade
association commented that the Bureau's estimated costs to consumers
are too high because the Bureau never established that consumers are
harmed by extended loan sequences, did not consider the benefits of
these loan sequences for consumers, and ignored the set of alternatives
consumers would have in the absence of payday loans. They further
argued that consumers use these loans strategically and cite the Mann
Study as evidence that borrowers know what they are getting into with
an extended loan sequence.\102\ The Bureau notes that in the context of
the 2017 Final Rule it discussed the benefits to consumers from
extended loan sequences and commenters provided no new or additional
evidence of such benefits.\103\
---------------------------------------------------------------------------
\102\ See Ronald Mann, Assessing the Optimism of Payday Loan
Borrowers, 21 Supreme Court Econ. Rev. 105, at 123 (2013).
\103\ 82 FR 54472, 54841-42.
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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 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 RISes (e.g., borrowers circumventing lender policies
against taking multiple concurrent payday loans, lenders having more
difficulty identifying chronic defaulters, etc.). Each of these
potential impacts is discussed in the section 1022(b)(2) analysis for
the 2017 Final Rule and the section 1022(b)(2) analysis of the
Reconsideration NPRM. To the extent that these impacts actually exist,
they would continue under this rule for the 15-month delay of the
compliance date for the 2017 Final Rule's Mandatory Underwriting
Provisions.
A consumer advocacy group claimed the Bureau offered vague,
``unquantified effects'' in the Delay NPRM with little information on
the importance of these effects in considering the impact. To the
extent that data are available, the Bureau attempted to quantify these
effects but notes that there is limited research on most of these
effects other than what it discussed in the 2017 Final Rule. An
independent research and advocacy group argued the delay will reduce
the effect of regulatory uncertainty (e.g., by reducing investment)
because many lenders will not implement changes to comply with the 2017
Final Rule given that it may be changed. While the Bureau agrees this
delay will have some impact on regulatory uncertainty, it does not have
evidence of what the effects will be, especially given the pending
status of the Reconsideration NPRM, which may ultimately decrease,
increase, or have no effect on the compliance costs lenders will face.
A trade association claimed the Bureau failed to consider the cost to
consumer privacy. The Bureau notes that any risks to consumer privacy
are delayed but otherwise are unaffected by this delay final rule. The
Bureau also notes that it did discuss privacy concerns relating to
consumers providing lenders with additional financial information to
comply with the 2017 Final Rule (though the Bureau knows of no
available data that can be used to directly estimate the cost to
consumers of providing this information). Multiple consumer advocacy
groups argued the estimated costs of the delay are higher since the
Bureau ignored the cost of increased auto repossession under the delay.
The Bureau notes that vehicle repossession was explicitly considered in
the potential costs to consumers of the delay above and in the section
1022(b)(2) analysis of the 2017 Final Rule.\104\ Some commenters
asserted that the Bureau failed to consider emotional or psychological
harms to consumers due to the delay of the rule. While consumers might
face such non-pecuniary harms from this rule, most of these harms have
not been causally linked to the use of payday or title loans, let alone
ones issued without ability-to-repay-based underwriting, so there does
not appear to be compelling evidence that the delay of the rule will
cause such harms.
---------------------------------------------------------------------------
\104\ 82 FR 54472, 54839.
---------------------------------------------------------------------------
The Bureau does not believe the one-time benefits and costs
described in the Reconsideration NPRM will be substantially affected by
this rule to delay the August 19, 2019 compliance date for the
Mandatory Underwriting Provisions. In effect, this rule will 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 rule delaying the compliance date will not allow lenders
to recoup these sunk costs. With the delayed compliance date 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. A
trade association offered its support for the Bureau's claim that the
delay will primarily shift compliance costs for lenders and suggested
that some lenders may further reduce their costs if they use the
additional time to flexibly implement changes. An independent research
and advocacy group likewise supported the delay to reduce compliance
costs, but further argued that these costs would be passed on to
consumers. As the Bureau discussed in the 2017 Final Rule, standard
economic
[[Page 27927]]
theory does predict such costs would be shared with or passed on to
consumers; however, ``many covered loans are being made at prices equal
to caps that are set by State law or State regulation'' so lenders
would have been unable to pass on such costs in a number of
States.\105\ As a result, while this rule will delay when lenders incur
these compliance costs, it should not cause prices already at State
caps to fall below those caps as those caps were unchanged by the 2017
Final Rule.
---------------------------------------------------------------------------
\105\ 82 FR 54472, 54834-35.
---------------------------------------------------------------------------
The Bureau expects, however, that with the delayed compliance date
for the Mandatory Underwriting Provisions, most firms will simply delay
incurring some or all of the costs of coming into compliance. The delay
of 15 months will effectively reduce the one-time benefits and costs by
1.25 years of their discount rate.\106\ While these firms will
experience potentially quantifiable benefits, the Bureau cannot know
what proportion of the firms will 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 is likely to be less than 3 percent of the value of those
benefits and costs.\107\ As such, the Bureau believes the one-time
benefits and costs of this rule are minimal, relative to the other
benefits and costs described above.
---------------------------------------------------------------------------
\106\ Over and above this inflationary discounting, it is also
possible that the finalized delay will 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.
\107\ The 3 percent value assumes a discounting of 2.38 percent
(the Effective Federal Funds rate as of June 4, 2019) for 1.25
years. This implicitly assumes all firms would undertake the
necessary actions immediately in the absence of this rule, and would
delay those actions for the full 15 months once the rule is 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.
---------------------------------------------------------------------------
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 rule will 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 rule's delay does not affect
such products' longer-term viability, this rule will have minimal
effect on these products and institutions.
D. Potential Impact on Consumers in Rural Areas
The Bureau concludes that delaying the compliance date will not
reduce consumer access to consumer financial products and services, and
it may increase all consumers' access by delaying the point at which
covered firms implement changes to comply with the 2017 Final Rule's
Mandatory Underwriting Provisions. Under the rule, consumers in rural
areas will 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. A
trade association suggested the Bureau did not fully consider the
impact for consumers in rural areas. The Bureau disagrees as it
discussed differential impacts for rural consumers especially in regard
to costs from changes in geographic availability of payday loans in the
2017 Final Rule and as referenced above.
VIII. Regulatory Flexibility Act
The Regulatory Flexibility Act \108\ as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996 \109\ (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.\110\ 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.\111\
---------------------------------------------------------------------------
\108\ Public Law 96-354, 94 Stat. 1164 (1980).
\109\ Public Law 104-21, section 241, 110 Stat. 847, 864-65
(1996).
\110\ 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).
\111\ 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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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.\112\ 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.\113\
---------------------------------------------------------------------------
\112\ 5 U.S.C. 601 through 612.
\113\ 5 U.S.C. 609.
---------------------------------------------------------------------------
The Bureau certified that the Delay NPRM would not have a
significant economic impact on a substantial number of small entities
and that therefore neither an IRFA nor a small business review panel
was required.\114\ Upon considering relevant comments, the Bureau
concludes that this rule will not have a significant economic impact on
a substantial number of small entities. Therefore, a FRFA is not
required.\115\
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\114\ 84 FR 4298, 4305.
\115\ See 5 U.S.C. 605(b).
---------------------------------------------------------------------------
In the Delay NPRM, the Bureau explained that the proposed
compliance date delay 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
[[Page 27928]]
ongoing costs that result from complying with the Mandatory
Underwriting Provisions of the 2017 Final Rule. The Bureau also
explained that 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 Bureau concluded that the Delay NPRM would
not have a significant economic impact on any small entities.
A trade association commenter stated that it agreed with the Bureau
that the proposed compliance date delay would not have a significant
economic impact on small entities, but rather would significantly
benefit them, reiterating the argument that the Mandatory Underwriting
Provisions, if implemented, will have a devastating impact on the
industry, particularly on smaller entities. The commenter also agreed
that because small entities retain the option of coming into compliance
with the Mandatory Underwriting Provisions on the original August 19,
2019 compliance date, a compliance date delay would not increase the
costs incurred by small entities.
Other commenters criticized the Bureau's RFA certification on the
grounds that various benefits to small entities from delay were
described elsewhere in the Delay NPRM, and these commenters viewed such
benefits as qualifying as a significant economic impact on a
substantial number of small entities. Specifically, one commenter noted
that the Bureau had explained elsewhere in the Delay NPRM that some
small lenders believe the Mandatory Underwriting Provisions will
significantly reduce their lending revenue, causing some to exit the
market, and that some smaller industry participants had indicated that
they do not have the resources to comply with new State and Federal
requirements at the same time.\116\ Another commenter perceived the
Delay NPRM's RFA certification as asserting that the benefit to small
entities was primarily a timing change, while earlier portions of the
NPRM estimate that a delay would result in concrete revenue gains for
lenders. This commenter also perceived the RFA certification as relying
upon a prediction that small entities would voluntarily adopt the
Mandatory Underwriting Provisions, which the commenter viewed as
contradicted by the rest of the Delay NPRM.
---------------------------------------------------------------------------
\116\ As discussed above, the Bureau is not finalizing the
compliance date delay on the grounds of unanticipated potential
obstacles to compliance.
---------------------------------------------------------------------------
The Bureau does not agree that the benefits to small entities of
this rule are capable of qualifying as a ``significant economic
impact'' on a substantial number of small entities such that an IRFA
and FRFA are required under the RFA.\117\ That specific phrase is used
several times in the RFA, and under accepted principles of statutory
interpretation there is a presumption that a specific phrase bears the
same meaning throughout a statutory text. Other uses of the phrase make
clear that it refers to adverse effects on small entities, not
benefits. For example, an IRFA must discuss alternatives considered by
the agency that ``minimize any significant economic impact'' on small
entities, and a FRFA must discuss steps taken by the agency to
``minimize the significant economic impact'' on small entities.\118\
Congress could not have intended through the RFA to minimize benefits
to small entities, and accordingly the Bureau does not believe that the
benefits of this rule qualify as a significant economic impact. Further
reinforcing this conclusion, the other required elements of an IRFA and
FRFA generally focus on adverse effects on small entities, and none
specifically focuses on benefits to small entities.\119\ Thus,
performing an IRFA or FRFA for a rule (such as this compliance date
delay rule) that has only benefits to small entities and no adverse
effects on them would serve little purpose.
---------------------------------------------------------------------------
\117\ 5 U.S.C. 605(b).
\118\ 5 U.S.C. 603(c), 604(a)(6). See also 5 U.S.C. 610(a)
(Periodic review of rules); Public Law 96-354, section 2(a)(7), 94
Stat. 1164 (1980) (Congressional findings).
\119\ See 5 U.S.C. 603, 604.
---------------------------------------------------------------------------
Clerical and non-substantive corrections. In addition to the
compliance date delay, the Bureau is making certain clerical and non-
substantive corrections to correct several errors it has identified in
the 2017 Final Rule in Sec. Sec. 1041.2(a)(9), 1041.3(e)(2),
1041.9(c)(3)(viii), and appendix A. No substantive change is intended
by the corrections herein, and so these corrections will have no impact
on small entities.
Certification. Accordingly, the undersigned hereby certifies that
this final rule will not have a significant economic impact on a
substantial number of small entities.
IX. Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA),\120\ 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 this information
collection request. In addition, given the Bureau's proposals to delay
and reconsider the Mandatory Underwriting Provisions, pursuant to the
requirements of the PRA and the applicable implementing
regulations,\121\ OMB requested that the Bureau make an additional
submission relating to just the Payment Provisions of the Rule; as of
June 5, 2019, an OMB Control Number has not been assigned for this
request.\122\
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\120\ 44 U.S.C. 3501 et seq.
\121\ 44 U.S.C. 3504(h) and 5 CFR 1320.11.
\122\ See https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201902-3170-002.
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The Bureau has determined that this final 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.
A consumer advocacy group commenter stated that the Delay NPRM did
not explain the statement (also included herein, above) that the Bureau
considers the OMB Control Number assigned to the 2017 Final Rule to be
``not yet active'' because OMB has not approved the PRA request
submitted with the Rule. The commenter noted that January 16, 2018 was
the statutory deadline for OMB to decide on the PRA request associated
with the 2017 Final Rule and asserted that the Director of OMB declined
to make a decision about that PRA request, with no announcement about
that decision, his reasoning, or its impact. The commenter also noted
that OMB regulations allow agencies to proceed with PRA collections,
based on inferred OMB approval, if OMB does not act upon the agency's
submission within 60 days of a final rule being published in the
Federal Register.\123\ The commenter suggested that the Bureau was
using the lack of PRA approval and OMB's inaction as an alternative
justification
[[Page 27929]]
for delaying the Mandatory Underwriting Provisions. The commenter noted
that the lack of OMB approval under the PRA affects not only the
Mandatory Underwriting Provisions but also the Payment Provisions,
which have a compliance date of August 19, 2019. The commenter asserted
that a clear explanation of the Bureau's approach with respect to these
issues is needed.
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\123\ 5 CFR 1320.5(a)(2), 1320.12(e)(2).
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The Bureau is not relying on the lack of OMB approval under the PRA
as a justification for this delay final rule; it was not cited in the
Delay NPRM as such, nor is it cited herein. The Bureau does not have
control over OMB's timing for approval of pending Information
Collection Requests or issuance of OMB Control Numbers.
X. Congressional Review Act
Pursuant to the Congressional Review Act,\124\ the Bureau will
submit a report containing this rule and other required information to
the U.S. Senate, the U.S. House of Representatives, and the Comptroller
General of the United States at least 60 days prior to the rule's
published effective date. The Office of Information and Regulatory
Affairs has designated this rule as a ``major rule'' as defined by 5
U.S.C. 804(2).
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\124\ 5 U.S.C. 801 et seq.
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List of Subjects in 12 CFR Part 1041
Banks, Banking, Consumer protection, Credit, Credit Unions,
National banks, Registration, Reporting and recordkeeping requirements,
Savings associations, Trade practices.
Authority and Issuance
For the reasons set forth above, the Bureau amends 12 CFR part 1041
as set forth below:
PART 1041--PAYDAY, VEHICLE TITLE, AND CERTAIN HIGH-COST INSTALLMENT
LOANS
0
1. The authority citation for part 1041 continues to read as follows:
Authority: 12 U.S.C. 5511, 5512, 5514(b), 5531(b), (c), and (d),
5532.
Subpart A--General
Sec. 1041.2 [Amended]
0
2. Amend Sec. 1041.2 by removing and reserving paragraph (a)(9).
Sec. 1041.3 [Amended]
0
3. Amend Sec. 1041.3 by removing ``section'' and adding in its place
``paragraph (e)'' in paragraph (e)(2).
Subpart C--Payments
Sec. 1041.9 [Amended]
0
4. Amend Sec. 1041.9 by removing ``www.consumerfinance.gov/payday-rule'' and adding in its place ``www.cfpb.gov/payday'' in paragraph
(c)(3)(viii).
0
5. Revise the heading for subpart D to read as follows:
Subpart D--Information Furnishing, Recordkeeping, Anti-Evasion,
Severability, and Dates
Sec. 1041.11 [Amended]
0
6. Amend Sec. 1041.11 by removing ``August 19, 2019'' everywhere it
appears and adding in its place ``November 19, 2020'' in paragraphs (c)
and (d).
0
7. Add Sec. 1041.15 as follows:
Sec. 1041.15 Effective and compliance dates.
(a) Effective date. The effective date of this part is January 16,
2018.
(b) April 16, 2018 application deadline. The deadline to submit an
application for preliminary approval for registration pursuant to Sec.
1041.11(c)(1) is April 16, 2018.
(c) August 19, 2019 compliance date. The compliance date for
Sec. Sec. 1041.2, 1041.3, 1041.7 through 1041.9, 1041.12(a), (b)
introductory text and (b)(4) and (5), and 1041.13 is August 19, 2019.
(d) November 19, 2020 compliance date. The compliance date for
Sec. Sec. 1041.4 through 1041.6, 1041.10, and 1041.12(b)(1) through
(3) is November 19, 2020.
Appendix A to Part 1041--Model Forms
0
8. In appendix A to part 1041, add headings for Model Forms and Clauses
A-1 through A-8 to read as follows:
A-1 Model Form for First Sec. 1041.6 Loan
* * * * *
A-2 Model Form for Third Sec. 1041.6 Loan
* * * * *
A-3 Model Form for First Payment Withdrawal Notice Under Sec.
1041.9(b)(2)
* * * * *
A-4 Model Form for Unusual Withdrawal Notice Under Sec. 1041.9(b)(3)
* * * * *
A-5 Model Form for Consumer Rights Notice Under Sec. 1041.9(c)
* * * * *
A-6 Model Clause for First Payment Withdrawal Electronic Short Notice
Under Sec. 1041.9(b)(4)
* * * * *
A-7 Model Clause for Unusual Withdrawal Electronic Short Notice Under
Sec. 1041.9(c)(4)(ii)(B)
* * * * *
A-8 Model Clause for Consumer Rights Electronic Short Notice Under
Sec. 1041.9(c)(4)
* * * * *
0
9. In supplement I to part 1041:
0
a. Under Section 1041.10--Furnishing Information to Registered
Information Systems, revise 10(b) Information Systems to Which
Information Must Be Furnished.
0
b. Under Section 1041.11--Registered Information Systems, revise the
headings for subsections 11(c) and 11(d).
The revisions and addition read as follows:
Supplement I to Part 1041--Official Interpretations
* * * * *
Section 1041.10--Furnishing Information to Registered Information
Systems
* * * * *
10(b) Information Systems to Which Information Must Be Furnished
1. Provisional registration and registration of information system
while loan is outstanding. Pursuant to Sec. 1041.10(b)(1), a lender is
only required to furnish information about a covered loan to an
information system that, at the time the loan is consummated, has been
registered pursuant to Sec. 1041.11(c)(2) for 180 days or more or has
been provisionally registered pursuant to Sec. 1041.11(d)(1) for 180
days or more or subsequently has become registered pursuant to Sec.
1041.11(d)(2). For example, if an information system is provisionally
registered on March 1, 2021, the obligation to furnish information to
that system begins on August 28, 2021, 180 days from the date of
provisional registration. A lender is not required to furnish
information about a loan consummated on August 27, 2021 to an
information system that became provisionally registered on March 1,
2021.
2. Preliminary approval. Section 1041.10(b) requires that lenders
furnish information to information systems that are provisionally
registered pursuant to Sec. 1041.11(d)(1) and information systems that
are registered pursuant to Sec. 1041.11(c)(2) or (d)(2). Lenders are
not
[[Page 27930]]
required to furnish information to entities that have received
preliminary approval for registration pursuant to Sec. 1041.11(c)(1)
but are not registered pursuant to Sec. 1041.11(c)(2).
* * * * *
Section 1041.11--Registered Information Systems
* * * * *
11(c) Registration of Information Systems Prior to November 19, 2020
* * * * *
11(d) Registration of Information Systems On or After November 19, 2020
* * * * *
Dated: June 5, 2019.
Kathleen L. Kraninger,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2019-12307 Filed 6-14-19; 8:45 am]
BILLING CODE 4810-AM-P