Payment Law Advisor Legal Commentary and Resources for the Payment Industry

Agency Activity in Small-Dollar Lending

Posted in Regulatory and Compliance

Earlier this month, the Federal Deposit Insurance Corporation (FDIC) published a Request for Information (RFI) seeking public comment on issues related to small-dollar lending by FDIC-supervised financial institutions. Specifically, the RFI solicits comments about “consumer demand for small-dollar credit products, the supply of small-dollar credit products currently offered by banks, and whether there are steps the FDIC could take to better enable banks to provide such products to consumers to meet demand.” Comments responsive to the RFI will be accepted for 60 days after publication in the Federal Register.

The FDIC’s RFI on small-dollar lending comes just weeks after the CFPB released a statement “Regarding Payday Rule Reconsideration.” The Bureau announced that it expects to issue proposed rules in January 2019 that will reconsider the Bureau’s rule regarding Payday, Vehicle Title, and Certain High-Cost Installment Loans and address the rule’s compliance date. The payday rule, originally published in the Federal Register on November 17, 2017 with an effective date of January 16, 2018, has a compliance date of August 19, 2019. Shortly after the Bureau announced its intention to reconsider the rule, industry groups successfully petitioned a federal district court to stay the putative compliance date. The rule’s compliance date is now stayed until further order from the court.

The final payday rule generally requires that lenders conduct an “ability to repay” assessment to determine upfront that borrowers can afford to repay their loans without re-borrowing, and imposes a “debit attempt cutoff” for any short-term loan, balloon-payment loan, or longer-term loan with an annual percentage rate higher than 36 percent that includes authorization for the lender to access the borrower’s checking or prepaid account. The Bureau only plans to propose revisiting the controversial “ability to repay” provisions—and not the payments provisions.

Read together, these announcements from the FDIC and CFPB suggest that federal regulators encourage the issuance of small-dollar credit products. In the FDIC’s RFI, the agency cites to the prevalence of people with good credit behavior without access to necessary small loans; and in the CFPB’s statement, it bemoans the consequences the Payday Rule had on the industry, namely imposing complex underwriting rules that significantly limit lenders’ ability to issue small dollar loans, potentially forcing some lenders out of business.

The FDIC and CFPB are not the only federal agencies concerned with small-dollar lending. When the CFPB submitted its payday rule to the Federal Register in October 2017, the OCC rescinded restrictive guidance regarding deposit advance products, originally published in the Federal Register on November 26, 2013. The OCC explained that continuing the guidance would have subjected national banks and federal savings associations to potentially inconsistent regulatory direction and undue burden as they prepared to implement the requirements of the CFPB’s final payday rule. In May of this year, the OCC issued a bulletin giving national banks and federal savings associations the green light to issue short-term, small-dollar installment loans. This guidance clears the way for national banks to compete with small-dollar lenders.

We will continue to monitor activity from all of the relevant federal agencies for updates in small dollar lending.