By M. Shakyor. Villanova University. 2018.
As discussed further below my quick payday loan, the Bureau believes based on its research that it makes sense to apply the same presumption where a borrower returns to borrow within 30 days of a prior covered long-term balloon-payment loan one time payday loan. And as discussed 574 further below account checking loan payday without, the Bureau believes it is appropriate to apply a presumption where there are indicia that the borrower is already in distress with regard to other types of loans outstanding with the same lender. The presumption is based on concerns that, in these narrowly-defined circumstances, the prior loan may have triggered the need for the new loan because it exceeded the consumer’s ability to repay, and that, absent an increase in residual income or a substantial decrease in the size of the payments on the loan, the new loan will also be unaffordable for the consumer. As with covered short-term loans, the Bureau is concerned that payments on a covered longer-term loan that exceed a consumer’s ability to repay will cause the consumer to experience harms associated with defaulting on the loan or satisfying the loan payment but being unable to then meet other financial obligations and basic living expenses. The presumption can be overcome, however, in circumstances that suggest that there is sufficient reason to believe that the consumer would, in fact, be able to afford the new loan even though he or she is seeking to reborrow during the term of or shortly after a prior loan. The Bureau recognizes, for example, that there may be situations in which the prior loan would have been affordable but for some unforeseen disruption in income or unforeseen increase in major financial obligations that occurred during the prior expense cycle and is not reasonably expected to recur during the underwriting period under § 1041. The Bureau also recognizes that there may be circumstances, albeit less common, in which even though the prior loan proved to be unaffordable, a new loan would be affordable because of a reasonably projected increase in net income or decrease in major financial obligations—for example, if the consumer has obtained a second, steady job that will increase the consumer’s residual income 575 src="http://www. In such circumstances, a consumer would be presumed to not have the ability to repay a covered longer- term loan under proposed § 1041. In addition, for the convenience of lenders and so that all restrictions relating to covered longer-term loans made under proposed § 1041. The Bureau notes that this overall proposed approach is fairly similar to the framework included in the Small Business Review Panel Outline. There, the Bureau included a presumption of inability to repay for a covered longer-term loan if there are circumstances indicating distress and the new loan is made during the term of a prior loan, whether covered or not, from the same 693 The Bureau notes that the proposed ability-to-repay requirements do not prohibit a consumer from taking out a covered longer-term loan when the consumer has one or more covered loans outstanding, but instead account for the presence of concurrent loans in two ways: (1) a lender would be required to obtain verification evidence about required payments on debt obligations, which are defined under proposed § 1041. The Bureau considered a “changed circumstances” standard for overcoming the presumption that would have required lenders to obtain and verify evidence of a change in consumer circumstances indicating that the consumer had the ability to repay the new loan according to its terms. The Bureau also, as noted above, included a 60-day reborrowing period in the Small Business Review Panel Outline. The Small Business Review Panel Report further recommended that the Bureau consider additional approaches to regulation, including whether existing State laws and regulations could provide a model for elements of the Bureau’s proposed interventions. In this regard, the Bureau notes that some States have cooling- off periods of one to seven days, as well as longer periods that apply after a longer sequence of loans. The Bureau’s prior research has examined the effectiveness of these cooling-off 577 src="http://www. The Bureau has made a number of adjustments to the presumptions framework in response to this feedback. For instance, the Bureau is proposing a 30-day reborrowing period rather than a 60-day reborrowing period. The Bureau has also provided greater specificity and flexibility about when a presumption of unaffordability would apply, for example, by proposing certain exceptions to the presumptions of unaffordability. The proposal also would provide somewhat more flexibility about when a presumption of unaffordability could be overcome by permitting lenders to determine that there would be sufficient improvement in financial capacity for the new loan because of a one-time drop in income since obtaining the prior loan (or during the prior 30 days, as applicable). The Bureau has also continued to assess potential alternative approaches to the presumptions framework, discussed below. The Bureau solicits comment on all aspects of the proposed presumptions of unaffordability, and other aspects of proposed § 1041. Alternatives considered As with the additional limitations on making a covered short-term loan under § 1041. The Bureau considered an alternative approach under which, instead of defining the circumstances in which a formal presumption of unaffordability applies and the determinations that a lender must make when such a presumption applies to a transaction, the Bureau would identify circumstances indicative of a consumer’s inability to repay that would be relevant to whether a lender’s determination under proposed § 1041. This approach would likely involve a number of examples of indicia requiring greater caution in underwriting and examples of countervailing factors that might support the reasonableness of a lender’s determination that the consumer could repay a subsequent loan despite the presence of such indicia. This alternative approach would be less prescriptive and thus leave more discretion to lenders to make such a determination. However, it would also provide less certainty as to when a lender’s particular ability-to-repay determination is reasonable. In addition, the Bureau has considered whether there is a way to account for unusual expenses within the presumptions framework without creating an exception that would swallow the rule. In particular, the Bureau considered permitting lenders to overcome the presumptions 579 of unaffordability in the event that the consumer provided evidence that the reason the consumer was struggling to repay the outstanding loan or was seeking to reborrow was due to a recent unusual and non-recurring expense. For example, under such an approach, a lender could overcome the presumption of unaffordability by finding that the reason the consumer was seeking a new covered longer-term loan was as a result of a recent emergency car repair, furnace replacement or an unusual medical expense, so long as the expense is not reasonably likely to recur during the period of the new loan. The Bureau considered including such circumstances as an additional example of a situation in which the consumer’s financial capacity going forward could be considered to be significantly better than it was during the prior 30 days (or since obtaining the prior loan) as described with regard to proposed § 1041. While such an addition could provide more flexibility to lenders and to consumers to overcome the presumptions of unaffordability, an unusual and non-recurring expense test would also present several challenges. To effectuate this test, the Bureau would need to define, in ways that lenders could implement, what would be a qualifying “unusual and non-recurring expense,” a means of assessing whether a new loan was attributable to such an expense rather than to the unaffordability of the prior loan, and standards for how such an unusual and non-recurring expense could be documented (e. Such a test would have substantial implications for the way in which the ability-to-repay requirements in § 1041.
Section 1022(b)(3)(B) of the Dodd-Frank Act specifies three factors 407 that the Bureau shall cash loan payday loans advance, as appropriate apply for a payday loan with no credit check, take into consideration in issuing such an exemption payday loan consolidation loans. Additional description of the Dodd-Frank Act authorities on which the Bureau is relying for proposed §§ 1041. Section 1041 of the Dodd-Frank Act Section 1041(a)(1) of the Dodd-Frank Act provides that Title X of the Dodd-Frank Act, other than sections 1044 through 1048, “may not be construed as annulling, altering, or affecting, or exempting any person subject to the provisions of [Title X] from complying with,” the statutes, regulations, orders, or interpretations in effect in any State (sometimes hereinafter, State laws), “except to the extent that any such provision of law is inconsistent with the provisions of 412 [Title X], and then only to the extent of the inconsistency. Section 1041(a)(2) further provides that, “A determination regarding whether a statute, regulation, order, or interpretation in effect in any engages; and (iii) existing provisions of law which are applicable to the consumer financial product or service and the extent to which such provisions provide consumers with adequate protections. Dodd-Frank Act section 1002(27) defines “State” to include any federally recognized Indian tribe. The Bureau believes that the requirements of the proposed rule would coexist with State laws that pertain to the making of loans that the proposed rule would treat as covered loans (hereinafter, applicable State laws). Consequently, any person subject to the proposed rule would be required to comply with both the requirements of the proposed rule and applicable State laws, except to the extent the applicable State laws are inconsistent with the 414 requirements of the proposed rule. This is consistent with the established framework of Federal and State laws in many other substantive areas, such as securities law, antitrust law, environmental law and the like. As noted above, Dodd-Frank Act section 1041(a)(2) provides that State laws that afford greater consumer protections than provisions under Title X are not inconsistent with the provisions under Title X. The Bureau believes that the requirements of the proposed rule would coexist with these different approaches, which are 415 reflected in applicable State laws. The Bureau is aware of certain applicable State laws that 414 The Bureau also believes that the requirements of the proposed rule would coexist with applicable laws in cities and other localities, and the Bureau does not intend for the proposed rule to annul, alter, or affect, or exempt any person from complying with, the regulatory frameworks of cities and other localities to the extent those frameworks provide greater consumer protections or are otherwise not inconsistent with the requirements of the proposed rule. The Bureau is proposing to identify unfair and abusive acts or practices under the statutory definitions in sections 1031(c) and 1031(d) of the Dodd- 141 src="http://www. The Bureau believes that the fee and interest rate caps in these States would provide greater consumer protections than, and would not be inconsistent with, the requirements of the proposed rule. It also provides that the purpose of this part is to identify certain unfair and abusive acts or practices in connection with certain consumer credit transactions and to set forth requirements for preventing such acts or practices and to prescribe requirements to ensure that the features of those consumer credit transactions are fully, accurately, and effectively disclosed to consumers. It also notes that this part also prescribes processes and criteria for registration of information systems. This proposal and any rule that may be finalized are not intended to limit the further development of State laws protecting consumers from unfair or deceptive acts or practices as defined under State laws, or from similar conduct prohibited by State laws. The Bureau believes that basing this proposal’s definitions on previously defined terms may minimize regulatory uncertainty and facilitate compliance, particularly where the other regulations are likely to apply to the same transactions in their own right. However, as discussed further below, the Bureau is in certain definitions proposing to expand or modify the existing definitions or the concepts enshrined in such definitions for purposes of this proposal to ensure that the rule has its intended scope of effect particularly as industry practices may evolve. As reflected below with regard to individual definitions, the Bureau solicits comment on the appropriateness of this general approach and whether alternative definitions in statute or regulation would be more useful for these purposes. Regulation E generally defines account to include demand deposit (checking), savings, or other consumer asset accounts (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution 416 and established primarily for personal, family, or household purposes. The Bureau has proposed in a separate rulemaking to enumerate rules for a broader category of prepaid accounts. The Bureau believes that defining this term consistently with an existing regulation would reduce the risk of confusion among consumers, industry, and regulators. The Bureau believes the Regulation E definition is appropriate because that definition is broad enough to capture the types of transactions that may implicate the concerns addressed by this part. The Bureau solicits comment on whether the Regulation E definition of account is appropriate in the context of this proposed part and whether any additional guidance on the definition is needed. The Dodd-Frank Act defines affiliate as any person that controls, is controlled by, or is under common control with another person. The Bureau believes that defining this term consistently with the Dodd-Frank Act would reduce the risk of confusion among consumers, industry, and regulators. The Bureau solicits comment on whether the Dodd-Frank Act definition of affiliate is appropriate in the context of this proposed part and whether any additional guidance on the definition is needed. This term is used in various parts of the rule where the Bureau is proposing to tailor provisions specifically for closed-end and open-end credit in light of their different structures and durations. The Bureau solicits comment on whether this definition of closed-end credit is appropriate in the context of this proposed part and whether any additional guidance on the definition is needed. The Dodd-Frank Act defines consumer as an individual or an agent, trustee, or representative acting on behalf of an individual. The term is used in numerous provisions across this part to refer to applicants for and borrowers of covered loans. The Bureau believes that this definition, rather than the arguably narrower Regulation Z definition of consumer—which defines consumer as “a cardholder or natural person to whom consumer credit is offered or extended”—is appropriate to capture the types of transactions that may implicate the concerns addressed by this proposal. In particular, the Dodd-Frank Act definition expressly defines the term consumer to include agents and representatives of individuals rather than just individuals themselves. The Bureau believes that this definition may more comprehensively foreclose possible evasion of the specific consumer protections imposed 145 by this part than would the Regulation Z definition.
The Bureau does not believe online instant payday loan, however payday loan lead, that the restrictions on lending would lead to increases in borrowers defaulting on payday loans cash payday loan, in part because the step-down provisions of the proposed Alternative approach are designed to help the consumer reduce their debt over subsequent loans. This step-down approach should reduce the risk of payment shock and lower the risk to lenders and borrowers of borrowers defaulting when a lender is unable to continue to lend to them. Borrowers taking out single-payment vehicle title loans would also be much less likely to be able to roll their loans over or borrow again within a short period of time than they are today. Reduced Geographic Availability of Covered Short-Term Loans Consumers would also have somewhat reduced physical access to payday storefront locations. Bureau research on States that have enacted laws or regulations that substantially impacted the revenue from storefront lending indicates that the number of stores has declined 962 roughly in proportion to the decline in revenue. Because of the way payday stores locate, however, this has had much less impact on the geographic availability of payday loans. This is consistent with theoretical research showing that state price caps should lead to fewer stores and more borrowers per store (see Mark Flannery & Katherine Samolyk, Scale Economies at Payday Loan Stores, Proceedings of the Federal Reserve Bank of Chicago’s 43rd Annual Conference on Bank Structure and Competition, at 233-259 (May 2007), available at http://papers. When a payday store closes in response to laws that reduce revenue, there is usually a store nearby that remains open. Across several States with regulatory changes, between 93 and 95 percent of payday borrowers had to travel less than five additional miles to find a store that remained open, which is roughly the median travel distance for payday borrowers nationwide. There is a much smaller literature on the effects of access to online loans, and very little research that can describe the effects of access to vehicle title lending. It is important to stress that most prior research has addressed the question of what happens when all access to a given form of credit is cut off. It is important to note that the estimates for the reduction in lending above may underestimate impacts in some ways and overestimate them in others. In addition, the reduced physical presence and therefore visibility of stores, even in areas where as store is fairly close by, may lead to some consumers not taking out loans, or borrowing less, because they are not reminded as frequently of the availability of payday loans. Some lenders, however, may successfully adapt to the proposed regulation by, for example, broadening the range of products they offer. The evidence on the effects on consumers of access to storefront payday loans is mixed, with some studies finding positive effects from access to loans, others no effects, and others finding that consumers are made worse off when loans are available. Some evidence suggests that the consumers who are most likely to benefit from access to payday loans are those that have experienced a discrete short-term loss of income or a one-time expense, such as from a natural disaster. If payday lenders make loans using the Alternative approach, the proposed regulation would not prevent people in these situations from taking out loans; they would be prevented from taking out many loans in a row, but if they are truly facing a short-term need and can quickly repay this restriction would not affect them. The limited evidence on which consumers tend to take out many loans in a row suggests that it is consumers who chronically have expenses greater than their income, rather than consumers with unusual one-time drops in income or increases in expenses. There are fewer studies on the effects of online lending on borrowers, but those consistently show negative effects of these loans with respect to outcomes like overdrafts and insufficient funds. Most studies of the effects of payday loans on consumer welfare have relied on State- level variation in laws governing payday lending. Melzer (2011) measured access to payday loans of people in States that do not allow 968 payday lending using distance to the border of States that permit payday lending. He measured the effects of access on the payment of mortgages, rent and utilities, and found that greater access causes greater difficulty in paying these basic expenses, as well as delays in needed medical care. Campbell, Asís Martínes-Jerez, & Peter Tufano, Bouncing Out of the Banking System: An Empirical Analysis of Involuntary Bank Account Closures, 36 J. Melzer, The Real Costs of Credit Access: Evidence from the Payday Lending Market, 162 Quarterly J. Zinman (2010) conducted a survey of payday loan users in Oregon and Washington both before and after a new law took effect in Oregon that limited the size of payday loans and 970 reduced overall availability of these loans. He showed that the law appeared to increase consumer hardship, measured by unemployment and qualitative self-assessments of current and expected future financial conditions, over the subsequent five months. Morse (2009) looked at the impact of the availability of payday loans in particular 971 circumstances, natural disasters. Using information about the concentration of payday lenders by zip code and linking it to data on natural disasters, she found that greater access to payday lending in times of disaster—which may generalize to unexpected personal emergencies— reduces home foreclosures and small property crime. Dobridge (2014) found that in normal times access to payday loans reduced consumer well-being, as measured by purchases of 972 consumer durable goods. But, similar to Morse (2009), Dobridge found that in times of severe weather, access to payday loans allowed consumers to smooth consumption and avoid declines in food spending or missed mortgage payments. Dobridge, Heterogeneous Effects of Household Credit: The Payday Lending Case (working paper, Nov. They speculated that some of the difference in the outcomes of the two preceding studies could reflect the fact that re- enlisting in the Army was easier than re-enlisting in the Air Force during the time periods covered by the respective studies. This study also found some evidence that access to payday loans increased what the author referred to as “temptation purchases,” specifically alcohol and consumer electronics. Other studies, rather than using differences across States in the availability of payday loans, have used data on borrowers who apply for loans and are either offered loans or are rejected. Skiba and Tobacman (2015) in using this approach found that taking out a payday loan 973 Scott Carrell & Jonathan Zinman, In Harm’s Way? They found that initial approval for a payday loan essentially doubled the bankruptcy rate of borrowers. They found that obtaining a loan had no impact on how the consumers’ credit scores evolved over the following months.
The Bureau seeks comment on the evidence and proposed findings and conclusions in proposed § 1041 payday loan and check cashing. Thus what is a payday loan lender, after a lender’s second consecutive attempt to withdraw payment from a consumer’s account has failed payday loan consolidation company, the lender could avoid engaging in the unfair or abusive practice either by not making any further payment withdrawals or by obtaining from the consumer a new and specific authorization and making further payment withdrawals pursuant to that authorization. Section 1031(b) of the Dodd-Frank Act provides that the Bureau may prescribe rules “identifying as unlawful unfair, deceptive, or abusive acts or practices” and may include in such rules requirements for the purpose of preventing unfair, deceptive, or abusive acts or practices. In addition to its authority under section 1031(b), the Bureau is proposing two provisions—§ 1041. Section 1032(a) authorizes the Bureau to prescribe rules to ensure that the features of consumer financial products and services, “both initially and over the term of the product or service,” are disclosed “fully, accurately, and effectively. The Bureau believes that these disclosures, by informing consumers in advance of the timing, amount, and channel of upcoming withdrawal attempts, will help consumers to detect errors or problems with upcoming payments and to contact their lenders or account-holding institutions to resolve them in a timely manner, as well as to take steps to ensure that their accounts contain enough money to cover the payments, when taking such steps is feasible for consumers. The two payments-related sections in the proposed rule thus complement and reinforce each other. Under this exception, a lender would be permitted to make further payment withdrawals from a consumer’s account if the lender obtains the consumer’s new and specific authorization for the terms of the withdrawals, as specified in the proposed rule. Under this exception, a lender would be permitted to make further payment withdrawals on a one-time basis within one business day after the consumer authorizes the withdrawal, subject to certain requirements and conditions. As discussed more fully below, the Bureau believes a single, broadly-applicable term would help to ensure 731 uniform application of the payments-related consumer protections and reduce complexity in the proposed rule. To illustrate the definition’s application to existing payment methods, proposed § 1041. The Bureau believes that a broad payment transfer definition that focuses on the collection purpose of the debit or withdrawal, rather than on the particular method by which the debit or withdrawal is made, would help to ensure uniform application of the proposed rule’s payments-related consumer protections. As discussed in Market Concerns—Payments, in markets for loans that would be covered under the proposed rule, lenders use a variety of methods to collect payment from consumers’ accounts. Some lenders take more than one form of payment authorization from consumers in connection with a single loan. In addition, the Bureau believes that, for a proposed rule designed to apply across multiple payment methods and channels, a single defined term is necessary to avoid the considerable complexity that would result if the proposed rule merely adopted existing terminology for every specific method and channel. Defining payment transfer in this way would enable the proposed rule to provide for the required payment notices in proposed § 1041. Similarly, this proposed definition ensures that the prohibition in proposed § 1041. Proposed comment 14(a)(1)-1 explains that a transfer of funds meeting the general definition is a payment transfer regardless of whether it is initiated by an instrument, order, or means not specified in § 1041. Proposed comment 14(a)(1)-2 explains that a lender- initiated debit or withdrawal includes a debit or withdrawal initiated by the lender’s agent, such as a payment processor. Proposed comment 14(a)(1)-3 provides examples to illustrate how the proposed definition applies to a debit or withdrawal for any amount due in connection with a covered loan. Proposed comment 14(a)(1)-4 clarifies that the proposed definition applies even when the transfer is for an amount that the consumer disputes or does not legally owe. Proposed comment 14(a)(1)-5 provides three examples of covered loan payments that, while made with funds transferred or withdrawn from a consumer’s account, would not be covered by the proposed definition of a payment transfer. Specifically, proposed comment 14(a)(1)(i)-1 explains that the general definition of a payment transfer would apply to any electronic fund transfer, including but not limited to an electronic fund transfer initiated by a debit card or a prepaid card. Last, proposed comment 14(a)(1)(v)-1 clarifies, by providing an example, that an account-holding institution initiates a payment transfer when it initiates an internal transfer of funds from a consumer’s account to collect payment on a depository advance product. The Bureau seeks comment on all aspects of the proposed definition of a payment transfer. In particular, the Bureau seeks comment on whether the scope of the definition is appropriate and whether the use of a single defined term in the manner proposed would achieve the objectives discussed above. In addition, the Bureau seeks comment on whether the rule should provide additional examples of methods for debiting or withdrawing funds from consumers’ accounts to which the definition applies and, if so, what types of examples. Further, the Bureau recognizes that the proposed definition could apply to instances when a lender that is the consumer’s account-holding institution exercises a right of set-off in connection with a covered loan—if, for example, in exercising that right, the lender initiates an internal transfer from the consumer’s account. The Bureau seeks comment on the extent to which the proposed definition would apply to exercising a right of set-off, on whether and why the definition should apply to such instances, and on what additional provisions may be needed to clarify the definition’s application in this context. Such payment transfers would be 735 exempted from certain requirements in the proposed rule, as discussed further below. The principal characteristic of a single immediate payment transfer at the consumer’s request is that it is initiated at or near the time that the consumer chooses to authorize it. The Bureau believes that applying fewer requirements to payment transfers initiated immediately after consumers request the debit or withdrawal is both warranted and consistent with the important policy goal of providing consumers greater control over their payments on covered loans. Accordingly, the proposed definition would be used to apply certain exceptions to the proposed rule’s payments-related requirements in two instances. First, a lender would not be required to provide the payment notice in proposed § 1041. The first of these prongs would apply specifically to payment transfers initiated via a one-time electronic fund transfer. The Bureau believes that a one-business-day timeframe would allow lenders sufficient time to initiate the transfer, while providing assurance that the account would be debited in accordance with the consumer’s timing expectations. Proposed comment 14(a)(2)(i)-1 explains that for purposes of the definition’s timing condition, a one-time electronic fund transfer is initiated at the time that the transfer is sent out of the lender’s control and that the electronic fund transfer thus is initiated at the time that the lender or its agent sends the payment to be processed by a third party, such as the lender’s bank.