The Consumer Financial Protection Bureau has removed mandatory underwriting requirements from the final version of its 2017 small dollar lending rule.
After conducting a legal and evidentiary review of the provision, the bureau found the basis for the requirement “insufficient”. The final rule does not rescind or alter the payments provisions.
The move is a stark departure from the previous position taken by the bureau under former director Richard Cordray, an Obama appointee. Originally, the rule would have required short-term lenders to determine a customers’ ability to repay a loan before making it, a controversial requirement supported by consumer advocates but opposed by many in the industry.
Removing the ability-to-repay requirement “ensures that consumers have access to credit and competition in states that have decided to allow their residents to use such products,” the bureau said. Currently, 32 states allow small dollar lending, many of which set maximum interest rates or impose other restrictions.
The CFPB said it would launch new research to identify which information should be required for disclosure to consumers during the small dollar lending process to allow them to make informed choices.
“A vibrant and well-functioning financial marketplace is important for consumers to access the financial products they need and ensure they are protected. Our actions today ensure that consumers have access to credit from a competitive marketplace, have the best information to make informed financial decisions, and retain key protections without hindering that access,” said CFPB Director Kathleen Kraninger.
The CFPB denied a petition to exclude credit and debit cards from the payments provisions of the small dollar lending rule.
The payments provisions of the final rule prohibit lenders from making a new attempt to withdraw funds from an account where two consecutive attempts have failed unless consumers consent to further withdrawals. They also require such lenders to provide consumers with written notice before making their first attempt to withdraw payment from their accounts and before subsequent attempts that involve different dates, amounts or payment channels.
The payments provisions are currently stayed from taking effect by court order, but the CFPB said it would “seek to have them go into effect with a reasonable period for entities to come into compliance.”