Payday Loan Rule – Part 4 of 3, Submitting Comments

The CFPB is accepting comments on its proposed Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule, released June 2, 2016.  Comments on the proposed rule must be submitted by September 14, 2016.

You may submit comments, identified by Docket No. CFPB-2016-0025 or RIN 3170–AA40, by any of the following methods:

• Email: FederalRegisterComments@cfpb.gov. Include Docket No. CFPB-2016-0025 or RIN 3170–AA40 in the subject line of the email.
• Electronic: http://www.regulations.gov. Follow the instructions for submitting comments.
• Mail: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street, NW., Washington, DC 20552.
• Hand Delivery/Courier: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1275 First Street, NE., Washington, DC 20002.

Instructions: All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Because paper mail in the Washington, DC area and at the Bureau is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public inspection and copying at 1275 First Street, NE., Washington, DC 20002, on official business days between the hours of 10 a.m. and 5 p.m. eastern time. You can make an appointment to inspect the documents by telephoning (202) 435-7275.

All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or Social Security numbers, should not be included. Comments will not be edited to remove any identifying or contact information.

At the same time, the CFPB released a Request for Information on Payday Loans, Vehicle Title Loans, Installment Loans, and Open-End Lines of Credit, with responses due by October 14, 2016.

Because Congress has charged the Bureau with protecting consumers from unfair, deceptive, or abusive credit practices, the Bureau is interested in learning more about the potential consumer protection concerns that may arise in high-cost loans that are not covered by the Bureau’s Concurrent Proposal. The Bureau is also looking ahead to anticipate potential changes in the consumer lending market in response to both the Concurrent Proposal and other regulatory and economic developments. Accordingly, the Bureau seeks public feedback to better understand the prevalence of problematic business practices in this market.

While the Bureau invites all comments relevant to this general topic, the Bureau specifically invites commenters to address the following questions. With respect to these noncovered, high-cost, longer-duration installment loans and open-end lines of credit that lack vehicle security or leveraged payment features:

1. Is there a viable business model in extending high-cost, non-covered loans for terms longer than 45 days without regard to the borrower’s ability to repay the loan as scheduled? If so, what are the essential characteristics of this business model or models and what consumer protection concerns, if any, are associated with such practices? For example:

a. Are there non-covered loan products with particular payment structures that make it viable for a lender to extend loans without regard to the consumer’s ability to repay?

b. Are there non-covered loan products with security or possessory interests in products or documents other than the consumer’s vehicle (and without leveraged access to the consumer’s transaction account) that make it viable for a lender to extend loans without regard to the consumer’s ability to repay?

c. Are there particular collection practices that make it viable for lenders to make high-cost, non-covered loans without regard to the consumer’s ability to repay?

d. Are there other loan features or practices that make it viable for lenders to extend loans without regard to the consumer’s ability to repay?

e. To the extent there are loans made in categories a through d, how prevalent are such practices? How easy is it for consumers to find and obtain such products? To what extent are these loans leading to injury to consumers? To what extent are consumers aware of the costs and risks of such loans?

f. Are there changes in technology or the market that make such practices more likely to develop or spread in the future?

2. To the extent that certain business models enable lenders to extend non-covered loans to consumers facing liquidity shortfalls without regard to the consumer’s ability to repay, what factors might limit or encourage growth of these business models going forward?

a. What are the State and Federal regulations that affect their viability and growth?

b. What effect, if any, would the Bureau’s Concurrent Proposal, if finalized, have on their viability and growth?

c. Are technology, investment, and other market factors affecting their viability and growth?

d. What factors affect competition in these markets, particularly the emergence of new market players and development of new product alternatives?

3. To what extent are consumers able to protect themselves in the selection or use of products identified in response to questions number 1(a) through 1(d)? For example:

a. What evidence, data, or other information exists with respect to the ability of consumers to shop effectively for products of the type described above and for alternative products that may better serve consumers’ needs? Are there currently websites or other digital tools that facilitate effective price comparison among lenders offering products designed to serve the needs of liquidity-constrained borrowers, including comparison of prices, prior to surrendering personal information such as names, email addresses, and bank account numbers? Are consumers in search of a loan to meet a liquidity shortfall able to avail themselves of common internet search engines to effectively shop for loans to meet their needs?

b. Are new business entrants in the market for high-cost, non-covered loans able to offer loans at a lower cost than those offered by established lenders? What factors enhance or inhibit the ability of new market entrants to do so? Are new business entrants with lower pricing able to effectively raise customer awareness about the benefits of their products in comparison to established covered or non-covered loans?

c. Are there cognitive, behavioral, or psychological limitations that make it more difficult for consumers facing a liquidity crisis to shop effectively for a noncovered loan to meet their needs?

d. Are there marketing practices or loan features that take advantage of these cognitive, behavioral, or psychological limitations?

e. What evidence, data, or other information exists with respect to the existence and prevalence of any such limitations, marketing practices, or loan features?

4. Are there practices in obtaining or using wage garnishment orders to collect covered or non-covered loans that raise consumer protection concerns? If so, what data, evidence, or other information tends to show these concerns exist or are likely to emerge in the future?

5. Are there practices in obtaining or using attachment or garnishment orders to seize funds from deposit accounts, prepaid cards, or other consumer assets to collect covered or non-covered loans that raise consumer protection concerns? If so, what data, evidence, or other information tends to show these concerns exist or are likely to emerge in the future?

6. Are there practices in obtaining or using judgment liens on vehicles or other consumer goods that raise consumer protection concerns? If so, what data, evidence, or other information tends to show these concerns exist or are likely to emerge in the future?

7. With respect to each of these questions, what is the prevalence of these practices in the current market? And, can the Bureau reasonably anticipate that these practices would increase or decrease if the Bureau were to finalize a rule along the lines of the Bureau’s Concurrent Proposal? If so, why?

8. Do particular Federal, State, or local laws affect consumer protection concerns associated with enhanced collection practices that would not be addressed by the Concurrent Proposal?

9. Are there marketing or other business practices with respect to lender incentives or encouragement of loan refinancing that raise consumer protection concerns?

a. If so, what specific business practices or contractual terms are associated with consumer harm?

b. What data, evidence, or other information tends to show the current or likely future prevalence of consumer harm associated with these practices?

10. Are there circumstances in which the imposition of prepayment penalties raises consumer protection concerns in non-covered loans marketed to consumers facing a liquidity crisis?

a. If so, what specific contractual terms or business activities are associated with consumer harm?

b. What evidence, data, or other information tends to show the current or likely future prevalence of consumer harm associated with prepayment penalties in noncovered loans?

11. Are there methods of imposing informal penalties for prepayment, such as withholding a promised rebate, which raise consumer protection concerns in either covered or non-covered loans marketed to consumers facing liquidity crisis?

a. If so, specifically what contractual terms or business activities are associated with consumer harm?

b. What evidence, data, or other information tends to show the current or likely future prevalence of consumer harm associated with such informal penalties for prepayment.

12. Are there circumstances in which excessively slow amortization of high-cost installment loans or open-end lines of credit raise consumer protection concerns?

a. If so, what specific contractual terms or business activities are associated with consumer harm?

b. To what extent are consumers aware of the costs and risks of such loans? Are there other factors that might frustrate the ability of consumers to protect their interests in using such loans?

c. Is there consumer harm from loan payment schedules where the bulk of repayment allocated to principal occurs in the final few payments of an even-payment loan? What specific criteria should the Bureau consider in identifying such consumer harm, if any?

d. What data, evidence, or other information tends to show the current or likely future prevalence of consumer harm, if any, associated with payment schedules of this type?

e. What evidence exists that consumers who make an even-payment understand that the lower principal is not being evenly paid down?

13. With respect to each of these questions, what is the prevalence of these practices in the current market? And, can the Bureau reasonably anticipate that these practices would increase or decrease if the Bureau were to issue a final rule along the lines of the Bureau’s notice of proposed rulemaking? If so, why?

14. Other than circumstances identified in the Concurrent Proposal, as discussed above, under what circumstances do lenders’ use of post-delinquency or default revenue terms such as late fees, default interest rates, or other contractual provisions or remedies in either covered or non-covered loans marketed to consumers facing liquidity crisis raise consumer protection concerns?

a. To what extent do lenders making covered loans or non-covered, high-cost loans to consumers facing cash shortfalls consider post-delinquency or default revenue generating terms such as late fees, default interest rates, or other contractual provisions or remedies when they perform underwriting? If they do so, how do they do it?

b. If lenders’ current underwriting practices do not include consideration of the borrower’s ability to repay post-delinquency or default revenue generating terms, what would be a reasonable method of underwriting for this factor?

c. What evidence, data, or other information shows the current or likely future prevalence of consumer harm, if any, associated with post-delinquency or default revenue terms in covered or non-covered high-cost consumer loans?

15. Are there circumstances in which the use of teaser rates which reset to high-cost loans made to consumers facing liquidity crisis raise consumer protection concerns?

a. If so, what specific contractual terms or business activities are associated with consumer harm?

b. Do teaser rate products, to the extent any exist, create a mismatch between borrowers’ repayment expectations and their actual experiences in either covered or non-covered loans?

c. If lenders offer teaser rate products in loans to consumers facing liquidity needs, do they consider recast interest rates in underwriting? If they do so, how do they do it?

d. What data, evidence, or other information tends to show the current or likely future prevalence of consumer harm, if any, associated with adjustable interest rates products in covered or non-covered high-cost loans?

16. Are there other circumstances in which “back-end” pricing impedes the ability of consumers to afford or to understand and compare credit options marketed to consumers facing liquidity crisis in a way that raises consumer protection concerns or impedes their ability to understand or anticipate the full cost of the loan to that consumer?

a. If so, what specific back-end pricing fees, contractual terms, or other business activities exist in the marketplace or are likely to evolve in the future?

b. If so, what back-end pricing fees, contractual terms, or other business activities are associated with consumer harm?

c. What data, evidence, or other information tends to show the current or likely future prevalence of consumer harm, if any, associated with such back-end pricing in covered or non-covered high-cost loans?

17. Aside from affordability, are there consumer protection concerns arising out of the marketing of ancillary products in covered payday, vehicle title, or similar loans? If so, what evidence, data, or other information shows the current or likely future prevalence of these concerns?

18. To what extent do lenders making non-covered, high-cost loans consider the cost of ancillary products in determining whether borrowers have the ability to repay?

a. If they do so, how do they do it?

b. If lenders do not currently consider the affordability of such products, what would be a reasonable method of underwriting for this component of the loan?

c. What evidence, data, or other information shows the current or likely future prevalence of unaffordable ancillary products in non-covered loans?

19. Are there other consumer protection concerns associated with the marketing or use of ancillary products in combination with covered or non-covered, high-cost credit? If so, what evidence, data, or other information shows the current or likely future prevalence of such consumer protection concerns?

20. Are there other marketing, origination, underwriting, or collection practices that currently exist or, if the Bureau issues a final rule along the lines of the Concurrent Proposal, are likely to emerge, that pose risk to consumers and may warrant Bureau regulatory, supervisory, enforcement, or consumer educational action?

21. Are there arrangements with brokers, credit service organizations, or other intermediaries in the marketing, origination, underwriting, collection or information-sharing practices associated with non-covered high-cost credit markets that pose risk to consumers and may warrant Bureau regulatory, supervisory, enforcement, or consumer educational action?

22. If so, what specific actions or policies should the Bureau consider in addressing such consumer harm? Other than usury limits applicable to an extension of credit, which Congress has not authorized the Bureau to establish, are there examples of existing law, regulations, or other policy interventions that the Bureau should consider?

You may submit comments, identified by Docket No. CFPB-2016-0026 or RIN 3170-AA40, by any of the following methods:

• Email: FederalRegisterComments@cfpb.gov. Include Docket No. CFPB-2016-0026 or RIN 3170-AA40 in the subject line of the email.
• Electronic: http://www.regulations.gov. Follow the instructions for submitting comments.
• Mail: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street, NW., Washington, DC 20552.
• Hand Delivery/Courier: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1275 First Street, NE., Washington, DC 20002.

Instructions: Because paper mail in the Washington, DC area and at the Bureau is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public inspection and copying at 1275 First Street, NE., Washington, DC 20002, on official business days between the hours of 10 a.m. and 5 p.m. eastern time. You can make an appointment to inspect the documents by telephoning (202) 435-7275.

All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or Social Security numbers, should not be included. Comments will not be edited to remove any identifying or contact information.