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Law Firm Ballard Spahr Offers Criticism of CFPB’s Payday Lending Rule Provisions

On June 6th the Consumer Financial Protection Bureau (CFPB) delayed the implementation of mandatory underwriting requirements to November of 2020, but law firm Ballard Spahr LLP asserts that the CFPB should further clarify the upcoming payment provisions of the 2017 Payday Lending Rule before enacting this complex legislation without providing clear guidance.

The CFPB is still set to implement new payment provisions either on August 19, 2019 or when a current judicial stay is of the rule is lifted, as part of their overhaul of current payday, auto title, and high-rate installment loan rules.

Key Issues Identified

In a letter to the CFPB, Ballard Spahr identified multiple issues that could directly impact both the lending industry and consumers:

  • Lack of Justification and Authority – The issue here is that there’s no link between the Unfair, Deceptive, or Abusive Acts, or Practices (UDAAP) cited by the CFPB — that consumers who incurred non-sufficient funds (NSF) fees for bounced checks and ACH transactions after two consecutive failed payments — and the new burdensome notification requirements being proposed and implemented.
  • Treatment of Payment by Card – Unfortunately, the payment provisions subject debit and prepaid cards to the same restrictions as ACH and check payments, even if they don’t result in NSF fees.
  • Payment Notices; Model Forms – The proposed payment notices fail to address issues such as payments that are contingent upon the borrower’s failure to make an in-store cash payment, giving an accurate description of the payment transfer date, and changes to recurring payments.
  • Overly Broad Definition of “Unusual Withdrawal” – If interpreted literally, the payment provisions rule would require unusual withdrawal notices for everything from voluntary regular payments made within a business day of the scheduled payment date to modified payments resulting from a change to the loan terms.
  • “Business Day” Timing Requirements – It’s unclear how the CFBP is defining a business day for the purposes of the payment provisions rule, which creates potential compliance issues for lenders.
  • Blackout Periods – With the three to six business day required notice period for an “unusual withdrawal” there’s the issue of a de facto “blackout period” where lenders might not be able to honor a borrower’s request to make a payment that they previously would have allowed.
  • Phase-In of Payment Provisions – The CFPB has not stated whether or how the payment provisions rule will apply retroactively to loans made prior to the implementation date.
  • Treatment of Checks – Where checks are concerned, there should be a clear separation between payments made prior to an late/delinquent notice (i.e. not a “payment instrument” under the payment provisions rule) and payments made after the borrower receives a late/delinquent notice from the lender (i.e. the check is them a “leveraged payment mechanism” or a “payment instrument”).
  • Additional Matters for Clarification – The CFPB should also seek to clarify the following; cases involving multiple borrowers using the same account, whether e-disclosures and notices are allowable, and if a subsequent successful payment would reset the failed payment attempts count.