CFPB delays compliance date for key part of payday lending rule

The Consumer Financial Protection Bureau issued a final rule late Thursday to delay the compliance date for mandatory underwriting provisions of the 2017 payday lending rule.

The move, which was expected, delays the compliance date for those provisions by 15 months, until Nov. 19, 2020.

In February, CFPB Director Kathy Kraninger proposed rescinding the strict underwriting requirements initially finalized under her predecessor, Richard Cordray, in 2017. That was necessary before separately delaying the compliance date, which was the agency's move this week.

Some suggest the latest delay is part of the CFPB’s strategy to bolster its legal position if it is sued by consumer advocates for violating the Administrative Procedure Act, which prohibits agencies from issuing rules that are “arbitrary, capricious, and unsupported by substantial evidence.” The agency is in the unusual position of trying to reverse its own rule and must provide evidence its initial regulation was flawed.

“They know they are going to be sued by consumer advocates and state attorneys general, so they think this is the best way procedurally to effectuate their role so that it will withstand a judicial attack,” said Alan Kaplinsky, a partner at Ballard Spahr.

This delay gives the CFPB more time to finalize its repeal of the mandatory underwriting provisions for small-dollar loans. Under the initial proposal, the plan would have required lenders to assess the borrower's ability to repay before extending a short-term loan, as well as limited the number of payday loans. Lenders have long objected, saying the ability-to-repay provisions threatened their business model.

Though the CFPB has proposed rescinding those underwriting requirements, the agency is leaving intact a second component of the 2017 final rule that sought to limit how often a lender could attempt to debit payments from a borrower’s bank account.

The payment provisions had originally been slated to go into effect Aug. 19. But a federal judge in March effectively halted the compliance date while the rule is debated in court.

Many payday lenders ultimately expect that the final rule that goes into effect will be far narrower than what was originally finalized under Cordray.

“When the dust settles — putting aside what might happen in court — I think their hope and expectation is that the only thing that goes in effect is the payment provision and there won’t be any underwriting requirements,” Kaplinsky said.

The bureau also said it is making “certain corrections to address several clerical and non-substantive errors” that it has identified in the 2017 payday rule.