A special thanks to Andrew Smith and the Covington team for providing this information. Summary of CFPB Final Small-Dollar Lending Rule

Transcription

1 A special thanks to Andrew Smith and the Covington team for providing this information. Summary of CFPB Final Small-Dollar Lending Rule I. Major Changes from the Proposed Rule... 1 II. Scope of Coverage and Related Definitions... 2 III. Underwriting Requirements... 6 IV. Payments V. Information Furnishing, Recordkeeping, Anti-Evasion, and Severability I. Major Changes from the Proposed Rule No ability-to-repay requirement for covered longer-term loans, except for covered longer-term balloon-payment loans. No credit reporting or registered information system requirements for covered longerterm loans, except for covered longer-term balloon-payment loans. Coverage triggered by the cost of credit using the TILA APR of 36 percent, not the total cost of credit or all-in APR/military APR methodology. Flexibility to assess ability-to-repay using either a debt-to-income ratio test or a residual income test. Ability to rely on stated income in certain circumstances. Ability to rely on household income and shared payment of expenses. Ability to rely on stated rent for housing expenses. No presumption of inability to repay. New exemptions for: o Accommodations loans (fewer than 2,500 per year and less than 10 percent of revenue); o Certain no-cost wage advance programs; and o Certain no-cost advances (e.g., no-cost overdrafts). 1

2 II. Scope of Coverage and Related Definitions The CFPB s final small-dollar lending rule applies to a lender that extends credit by making covered loans. (Section (a)) A lender is defined as a person who regularly extends loans to a consumer primarily for personal, family, or household purposes. (Section (13)) o The test for determining whether a person is a lender is based on making 25 nonhome secured loans or five home-secured loans in the previous calendar year, as set forth in Section (a)(17)(v) of Regulation Z. (Comment (13)-1) o In addition, any loan to a consumer for personal, family, or household purposes, not just covered loans, counts toward the numerical threshold for determining whether a person is a lender. (Comment (13)-1) A covered loan is closed-end or open-end credit that is extended to a consumer primarily for personal, family, or household purposes that is not excluded by, or conditionally exempted from, the rule and that falls within one of the following categories of covered loans: o Covered short-term loans. Closed-end credit that does not provide for multiple advances to consumers where the consumer is required to repay substantially the entire amount of the loan within 45 days of consummation; or For all other loans (open-end credit), the consumer is required to repay substantially the entire amount of the advance within 45 days of the advance under the loan. (Section (10) and.3(b)(1)). o Covered longer-term balloon-payment loan. Closed-end credit that does not provide for multiple advances to consumers where the consumer is required to repay substantially the entire balance of the loan in a single payment more than 45 days after consummation or to repay the loan through at least one payment that is more than twice as large as any other payment. For all other loans (open-end credit), The consumer is required to repay substantially the entire amount of an advance in a single payment more than 45 days after the advance is made or is required to make at least one payment on the advance more than twice as large as any other payment; or A multiple advance loan is structured such that the required minimum payments may not fully amortize the outstanding balance by a specified date or time, and the amount of the final payment could be more than twice the amount of other minimum payments under the plan. (Section (a)(7) and.3(b)(2)). 2

3 o Covered longer-term loans. For loans that are not covered short-term loans or covered longer-term balloon-payment loans, a loan is a covered loan if: The cost of credit for the loan exceeds 36 percent per annum: o For closed-end credit, measured at consummation; o For open-end credit, measured at consummation, and if not more than 36 percent, again at the end of each billing cycle for open-end credit, except that Open-end credit meets the 36 percent threshold in any billing cycle in which a lender imposes a finance charge, and the principal balance is $0; and Once open-end credit exceeds the 36 percent threshold for any billing cycle, it meets the condition for the duration of the plan; and The lender or service provider obtains a leveraged payment mechanism, as discussed below. (Section (a)(8) and.3(b)(3)). The cost of credit is the cost of consumer credit expressed as a per annum rate calculated in accordance with the requirements of Regulation Z standards for APR calculations. (Section (a)(6)). It includes all finance charges set forth in Section of Regulation Z, but without regard to whether the credit is consumer credit, or is extended to a consumer. Calculation of the cost of credit works as follows: For closed-end credit, calculate the cost of credit in accordance with Section of Regulation Z; and For open-end credit, calculate the cost of credit in accordance with the rules for calculating the effective APR for a billing cycle in Section (c) and (d) of Regulation Z. (Section (a)(6)). A leveraged payment mechanism gives a lender or servicer the right to initiate a transfer of money, through any means, from a consumer s account to satisfy an obligation on a loan. o A lender or service provider does not obtain a leveraged payment mechanism by initiating a single immediate transfer at the consumer s request after the consumer authorizes the transfer. (Section (c)). Covered loans include open-end credit, which is defined as an extension of credit to a consumer that is an open-end credit plan as defined in Regulation Z, 12 CFR (a)(20), but without regard to several elements of open-end credit under Regulation Z, including whether the credit is consumer credit or whether it permits a finance to be imposed from time to time on an outstanding balance. (Section (a)(16)). In addition, the final rule substitutes: o The defined term lender in Section (a)(13) for the Regulation Z definition of creditor in 12 CFR (a)(17); and 3

4 o The defined term consumer in Section (a) (4) for the Regulation Z definition of consumer in 12 CFR (a)(11). (Section (a)(16)). Exclusions. The term covered loan does not apply to the following types of credit: o Certain purchase money security interest loans. Credit extended for the sole and express purpose of financing a consumer s initial purchase of a good when the credit is secured by the property being purchased, whether or not the security interest is perfected or recorded. (Section (d)(1)). o Real estate secured credit. Credit that is secured by any real property, or by personal property used or expected to be used as a dwelling, and the lender records or otherwise perfects the security interest within the term of the loan. (Section (d)(2)). o Credit cards. Any credit card account under an open-end (not home-secured) consumer credit plan as defined in Regulation Z, 12 CFR (a)(15)(ii). (Section (d)(3)). o Student loans. Credit made, insured, or guaranteed pursuant to a program authorized by subchapter IV of the Higher Education Act of 1965, 20 U.S.C through 1099d, or a private education loan as defined in Regulation Z, 12 CFR (b)(5). (Section (d)(4)). o Non-recourse pawn loans. Credit in which the lender has sole physical possession and use of the property securing the credit for the entire term of the loan and for which the lender s sole recourse if the consumer does not elect to redeem the pawned item and repay the loan is the retention of the property securing the credit. (Section (d)(5)). o Overdraft services and overdraft lines of credit. Overdraft services as defined in Regulation E, 12 CFR (a), and overdraft lines of credit otherwise excluded from the definition of overdraft services under Regulation E, 12 CFR (a)(1). (Section (d)(6)). o Wage advance programs. Advances of wages that constitute credit if made by an employer, as defined in the Fair Labor Standards Act, 29 U.S.C. 203(d), or by the employer s business partner, to the employer s employees, provided that the advance is made only against the accrued cash value of any wages the employee has earned up to the date of the advance, and before any advance, the entity advancing the funds warrants to the consumer as part of the contract between the parties on behalf of itself and any business partners, that it or they, as applicable: Will not require the consumer to pay any charges or fees in connection with the advance, other than a charge for participating in the wage advance program; Has no legal or contractual claim or remedy against the consumer based on the consumer s failure to repay in the event the amount advanced is not repaid in full; and With respect to the amount advanced to the consumer, will not engage in any debt collection activities if the advance is not deducted directly from wages or otherwise repaid on the scheduled date, place the amount advanced as a debt with a debt collector or sell it to a debt buyer, or report 4

5 to a consumer reporting agency concerning the amount advanced. (Section (d)(7)). o No-cost advances. Advances of funds that constitute credit if the consumer is not required to pay any charge or fee to be eligible to receive or in return for receiving the advance, provided that before any amount is advanced, the entity advancing the funds warrants to the consumer as part of the contract between the parties that: It has no legal or contractual claim or remedy against the consumer based on the consumer s failure to repay in the event the amount advanced is not repaid in full; and With respect to the amount advanced to the consumer, such entity will not engage in any debt collection activities if the advance is not repaid on the scheduled date, place the amount advanced as a debt with a debt collector or sell it to a debt buyer, or report to a consumer reporting agency concerning the amount advanced. (Section (d)(8)). Conditional exemption for alternative loans. o Alternative loans are conditionally exempt from the final rule. (Section (e)). o An alternative loan must satisfy the following five loan term conditions: The loan is not structured as open-end credit; The loan has a term of not less than one month and not more than six months; The loan has a principal loan amount of not less than $200 and not more than $1,000; The loan is repayable in two or more payments, all of which are substantially equal in amount and fall due in substantially equal intervals, and amortizes completely during the term of the loan; and The lender does not impose any charges other than the rate and application fees permissible for Federal credit unions under NCUA regulations at 12 CFR (c)(7)(iii). (Section (e)(1)). o In addition, a lender must satisfy a borrower history condition and an income documentation condition to qualify for the conditional exemption: Borrower history condition. Prior to making an alternative loan, the lender must determine from its records that the loan would not result in the consumer being indebted on more than three outstanding loans made under this section from the lender within a period of 180 days. The lender must also make no more than one alternative loan at a time to a consumer. (Section (e)(2)). Income documentation condition. The lender must maintain and comply with policies and procedures for documenting proof of recurring income. (Section (e)(3)). o Loans made by Federal credit unions in compliance with the conditions set forth by the National Credit Union Administration at 12 CFR (c)(7)(iii) for a Payday Alternative Loan are deemed to be in compliance with the requirements and conditions for alternative loans. (Section (e)(4)). 5

6 Conditional exemption for accommodation loans. o Accommodation loans are conditionally exempt from the final rule. (Section (f)). o An accommodation loan is a covered loan if at the time the loan is consummated: The lender and its affiliates collectively have made 2,500 or fewer covered loans during the current calendar year, and made 2,500 or fewer such covered loans in the preceding calendar year; and During the most recent completed tax year in which the lender was in operation, the lender and any affiliates that were in operation and use the same tax year derived no more than 10 percent of their receipts (total income + cost of goods sold) from covered loans during the current tax year. If the lender was not in operation in a prior tax year, the lender reasonably anticipates that the lender and any of its affiliates that use the same tax year will derive no more than 10 percent of their receipts from covered loans during the current tax year. Provided, however, that covered longer-term loans for which all transfers meet the conditions in Section (a)(1)(ii) (conditional exclusion for certain transfers by account-holding institutions), and receipts from such loans, are not included for the purpose of determining whether the conditions for accommodation loans, described above, have been satisfied. (Section (f)). o The terms receipts (total income + cost of goods sold) and tax year are defined with reference to Internal Revenue Service rules. (Sections (g) and (h)). III. Underwriting Requirements It is an abusive and unfair practice for a lender to make covered short-term loans or covered longer-term balloon-payment loans without reasonably determining that the consumer will have the ability to repay the loans according to their terms. (Section ) Ability-to-Repay Requirement (Section ) Definitions (Section (a)). o Basic living expenses = expenses for goods and services necessary to maintain health, welfare and ability to produce income of the consumer and members of his or her household who are financially dependent on the consumer. (Section (a)(1)). o Debt-to-income ratio the ratio, expressed as a percentage, of The sum of the amounts that the lender projects will be payable by the consumer for major financial obligations during the relevant monthly period and the payments under the covered short-term loan or covered longer-term balloon-payment loan during the relevant monthly period, to The net income that the lender projects the consumer will receive during the relevant monthly period. (Section (a)(2)). 6

7 o Major financial obligations = housing expense + required payments under debt obligations + child support obligations + alimony obligations. (Section (a)(3)). o National consumer report a consumer report from a nationwide consumer reporting agency. (Section (a)(4)). o Net income total amount that a consumer receives after the payer deducts amounts for taxes withheld, voluntary contributions (such as consumer contributions to 401(k) and similar plans), and other obligations (such as premiums for employer-sponsored health insurance plans). Net income may include income to which a consumer has a reasonable expectation of access, as well as irregular or seasonal income, but does not include one-time payments such as tax refunds or legal settlements, unless verified as to amount and timing. (Section (a)(5)). o Payment under the covered short-term loan or covered longer-term balloonpayment loan includes all principal, interest, charges and fees; and for a line of credit is calculated assuming that the consumer draws down the full amount and makes only the minimum required payments. (Section (a)(6)). o Relevant monthly period the calendar month in which the highest sum of payments is due under the covered short-term or covered longer-term balloonpayment loan. (Section (a)(7)). o Residual income projected net income during the relevant monthly period, less amounts payable for major financial obligations during the relevant monthly period and payment under the covered short-term loan or covered longer-term balloon payment loan during the relevant monthly period. (Section (a)(8)). Reasonable determination required (Section (b)). o A lender must not make a covered short-term loan or covered longer-term balloon-payment loan or increase the credit available such loans, unless the lender first makes a reasonable determination that the consumer will have the ability to repay the loan according to its terms. (Section (b)(1)). Special rule for lines of credit: A lender must not permit a consumer to obtain an advance under a line of credit more than 90 days after the original ability to repay determination, unless the lender makes a new ability to repay determination. o A lender s determination of a consumer s ability to repay a covered short-term loan or covered longer-term balloon-payment loan is reasonable only if the lender reasonably concludes that either: Debt-to-income ratio test. The consumer s debt-to-income ratio calculated by the lender for the relevant monthly period and the lender s estimates of the consumer s basic living expenses for the relevant monthly period indicate that the consumer will be able to make payments for major financial obligations, make all payments under the loan, and meet basic living expenses: 7

8 For covered short-term loans, during the shorter of the term of the loan or the period ending 45 days after consummation of the loan, and for 30 days after having made the highest payment under the loan; or For covered longer-term balloon-payment loans, during the relevant monthly period, and for 30 days after having made the highest payment under the loan. Residual income test. The consumer s residual income calculated by the lender for the relevant monthly period and estimates of the consumer s basic living expenses for the relevant monthly period enables the consumer to make payments for major financial obligations, make all payments under the loan, and meet basic living expenses: For covered short-term loans, during the shorter of the term of the loan or the period ending 45 days after consummation of the loan, and for 30 days after having made the highest payment under the loan; or For covered longer-term balloon-payment loans, during the relevant monthly period, and for 30 days after having made the highest payment under the loan. (Section (b)(2)). Projecting consumer net income and payments for major financial obligations required (Section (c)). o A lender must make a reasonable projection of the amount and timing of a consumer s net income and payments for major financial obligations during the relevant monthly period using: The consumer s written statement, including the major financial obligations listed on the statement; Verification evidence to the extent required; and Information about rental housing expense. (Section (c)(1)). o A lender may reasonably consider other reliable evidence obtained from or about the consumer, including any consumer explanations. (Section (c)(1). o A lender must obtain a written statement from the consumer of: The amount of net income, which may include the income of another person to which the consumer has a reasonable expectation of access; and The amount of payments required for the consumer s major financial obligations. (Section (c)(2)(i). o A lender must obtain verification evidence for the consumer s net income and payments for major financial obligations (other than rental housing expense) as follows: For the consumer s net income: The lender must obtain a reliable record (or records) of an income payment (or payments) directly to the consumer covering sufficient history to support the lender s projection if a reliable record (or records) is reasonably available. o A reliable record includes a facially genuine original, photocopy, or image of a document, or electronic or paper 8

9 compilation of data included in such a document, stating the amount and date of the income paid to the consumer, as well as or electronic or paper record of transactions showing the amount and date of receipt of income. o A sufficient history typically is one biweekly or monthly pay cycle for a covered short-term loan and two biweekly or two monthly pay cycles for a covered longer-term balloon-payment loan, depending on how often the consumer is paid. o Income records are reasonably available if the consumer has access to a pay stub or can provide a bank account deposit history of direct deposits. If a lender determines that a reliable record (or records) of some or all of the consumer s net income is not reasonably available, the lender may reasonably rely on the stated income in the consumer s written statement for that portion of the consumer s net income. o Must be consistent with lender s written policies and procedures. o Must be no indication that stated income is implausibly high. o Must not engage in pattern of systematically overestimating consumers income. If the lender elects to include in the consumer s net income for the relevant monthly period any income of another person to which the consumer has a reasonable expectation of access, the lender must obtain verification evidence demonstrating that the consumer has reasonable expectation of access to that income. (Section (c)(2)(ii)). For the consumer s required payments under debt obligations: The lender must obtain a credit report from a nationwide consumer reporting agency, the records of the lender and its affiliates, and a consumer report from a CFPB-registered information system that has been registered for 180 days or more. If such reports and records do not include a debt obligation listed in the consumer s written statement, the lender may reasonably rely on the consumer s written statement in determining the amount of the required payment. (Section (c)(2)(ii)). For child support and alimony obligations: A lender must obtain a credit report from a nationwide consumer reporting agency. If the report does not include a child support or alimony obligation listed in the consumer s written statement, the lender may reasonably rely on the written statement in determining the amount of the required payment. (Section (c)(2)(ii)). Exception to verification of obligations: A lender is not required to obtain a credit report from a nationwide consumer reporting agency to verify the 9

10 consumer s debt, alimony, and child support obligation if during the preceding 90 days: The lender or an affiliate obtained a national consumer report for the consumer, retained the report under Section (b)(1)(ii), and checked the report again in connection with the new loan; and The consumer did not complete a loan sequence of three loans covered by Section and trigger the prohibition on and cooling-off period for making additional covered short-term or longer-term balloon-payment loans since the previous report was obtained. For rental housing expenses (i.e., housing expenses other than a payment for a debt obligation that appears on a credit report), the lender may reasonably rely on the stated housing expense in the consumer s written statement. (Section (c)(2)(iii)). Additional limitations on lending imposed (Section (d)). o Borrowing history review. Prior to making a covered short-term or longer-term balloon-payment loan, a lender must review the consumer s borrowing history from the records of the lender and its affiliates, and review credit report from one of the CFPB-registered information system, if available. (Section (d)(1). o Sequence of three loans plus cooling-off period. A lender must not make a covered short-term loan or covered longer-term balloon-payment loan during the period in which the consumer already has such a covered loan outstanding and for 30 days thereafter if the new covered short-term loan or covered longer-term balloon-payment loan would be the fourth loan in a sequence of covered shortterm loans, covered longer-term balloon-payment loans, or a combination of such loans. (Section (d)(2)). o Single loan plus cooling-off period. A lender must not make a covered short-term loan or covered longer-term balloon-payment loan during the period in which the consumer has a covered short-term loan outstanding under Section (the conditional exemption for certain covered short-term loans) and for 30 days thereafter. (Section (d)(3)). Prohibition against evasion (Section (e)). o A lender must not take any action with the intent of evading the requirements of the ability-to-repay section. Conditional Exemption for Certain Covered Short-Term Loans in a Loan Sequence with a Principal-Payoff Option (Section ) The ability to repay requirements do not apply to covered short-term loans in a three-loan sequence that provide for a principal-payoff option and meet certain loan term 10

11 requirements, borrowing history requirements, cooling-off requirement, and disclosure requirements. (Section (a)). Loan term requirements. A covered short-term loan must satisfy the following loan term requirements to be eligible for the conditional exemption: o The first loan in a three-loan sequence is for a principal amount of no more than $500, with the second loan in the sequence being for principal amount of no more than two thirds of the first loan, and the third loan in the sequence being for a principal amount of no more than one third of the first loan; o Fully amortizing, and the payment schedule provides for the lender allocating a consumer s payments to the outstanding principal and interest and fees as they accrue only by applying a fixed periodic rate of interest to the outstanding balance of the unpaid loan principal during every scheduled repayment period for the term of the loan; o No vehicle security; The term vehicle security is an interest a lender or service provider obtains in a consumer s motor vehicle as a condition of credit, regardless of how the transaction is characterized under State law, and includes: Any security interest in the motor vehicle, motor vehicle title, or motor vehicle registration whether or not the security interest is perfected or recorded; or A pawn transaction in which the consumer s motor vehicle is the pledged good and the consumer retains use of the motor vehicle during the period of the pawn agreement. (Section (a)(19)). o Not structured as open-end credit. (Section (b)). Borrowing history requirements. Prior to making a covered short-term loan, the lender must review the consumer s borrowing history in the records of the lender and its affiliates, as well as obtain credit report from a CFPB-registered information system to ensure that o The consumer has not had in the past 30 days an outstanding covered short-term loan or covered longer-term balloon-payment loan from any lender; o The loan would not result in the consumer having a loan sequence of more than three covered short-term loans made by any lender; and o The loan would not result in the consumer having more than six covered shortterm loans outstanding, or more than an aggregate of 90 days of outstanding indebtedness on covered short-term loans, during any consecutive twelve-month period. (Section (c)). Cooling-off requirement. If a lender makes a covered short-term loan under this conditional exemption to a consumer, the lender or its affiliate must not subsequently make a covered loan, except for a covered short-term loan that is part of the three-loan sequence, or a non-covered loan to the consumer while the covered short-term loan made under this section is outstanding and for 30 days thereafter. (Section (d)). 11

12 Disclosure requirements. Before the loan is consummated, the lender must provide clear and conspicuous disclosure of the amounts of the first, second and third loan amounts; a notice of the required cooling-off period; and a warning that the consumer should be able to repay the total amount of principal and finance charges on the contractual due date. (Section (e)). o These disclosures may be in writing or electronically (but not orally or by a recorded message), must be segregated from all other information except information necessary for product identification, branding, and navigation, must be made in a retainable, machine readable format, and must be substantially similar to the CFPB s model form: o Before providing a third loan in a sequence, the lender must make a disclosure substantially similar to the CFPB s model form: 12

13 IV. Payments It is an unfair and abusive practice for a lender to attempt to withdraw payment from a consumer s account in connection with a covered loan after the lender s second consecutive attempt to withdraw payment from the account has failed due to a lack of sufficient funds, unless the lender obtains the consumer s new and specific authorization to make further withdrawals from the account. (Section ). o Prohibited Payment Transfer Attempts (Section ). o A payment transfer is defined as any lender-initiated debit or withdrawal of funds from a consumer s account for the purpose of collecting any amount due or purported to be due in connection with a covered loan, regardless of the means through which the lender initiates the debit or withdrawal. (Section (a)(1)). Payment transfers include, without limitation, a debit or withdrawal of funds initiated through any of the following means: Electronic fund transfer, including a preauthorized electronic fund transfer as defined in Regulation E, 12 CFR (k); Signature check, regardless of whether the transaction is processed through the check network or another network, such as the automated clearing house (ACH) network; Remotely created check as defined in Regulation CC, 12 CFR 229.2(fff); Remotely created payment order as defined in 16 CFR 310.2(cc); or An account-holding institution s transfer of funds from a consumer s account that is held at the same institution. (Section (a)(1)(i)). Conditional exclusion for certain transfers by account-holding institutions. When the lender is also the account-holding institution, the institution s transfer of funds from a consumer s account held at the same institution is 13

14 not a payment transfer if the lender, pursuant to the terms of the loan agreement or account agreement, does not: Charge the consumer any fee, other than a late fee under the loan agreement, in the event that the lender initiates a transfer of funds from the consumer s account in connection with the covered loan for an amount that the account lacks sufficient funds to cover; or Close the consumer s account in response to a negative balance that results from a transfer of funds initiated in connection with the covered loan. (Section (a)(1)(ii)). o General prohibition. A lender must not initiate a payment transfer from a consumer s account in connection with a covered loan after the lender has attempted to initiate two consecutive failed payment transfers from the consumer s account in connection with any covered loan the consumer has with the lender. A payment transfer is deemed to have failed when it results in a return indicating that the consumer s account lacks sufficient funds or, for a lender that is the consumer s account-holding institution, the transfer is for an amount that the account lacks sufficient funds to cover. (Section (b)(1)). A payment transfer the fails for another reason, such as an administrative return, is not a failed payment transfer for the purposes of these payment restrictions. (Comment (b)(1)-3.) o Consecutive failed payment transfers are described in terms of a: First failed payment transfer occurs when the lender has initiated no other payment transfer for the covered loan or any other covered loan the consumer has with the lender, the immediately preceding payment transfer was successful (regardless of whether a previous payment transfer failed), or the transfer is the first to fail after the consumer s authorization for additional payment transfers; and Second consecutive failed payment transfer occurs if the immediately preceding payment transfer was a first failed payment transfer, including transfers initiated at the same time or on the same day as the first failed payment transfer and transfers initiated through a different channel than the first failed payment transfer. (Section (b)(2)). o Exception for additional payment transfers authorized by the consumer (Section (c)). A lender may initiate additional payment transfers from a consumer s account after two consecutive failed payment transfers if: The additional payment transfers are authorized by the consumer in accordance with the requirements and conditions in Section (c)(2) and (3); or 14

15 The lender executes a single immediate payment transfer at the consumer s request in accordance with Section (d). (Section (c)(1)). o General authorization requirements and conditions (Section (c)(2)). The consumer must authorize the specific date, amount, and payment channel of each additional payment transfer, except if: The additional payment transfer authorized by the consumer is returned for nonsufficient funds, in which case the lender may re-initiate the payment transfer, such as by re-presenting it once through the ACH system, on or after the date authorized by the consumer, provided that the returned payment transfer has not triggered the prohibition on consecutive failed payment transfers. The lender initiates an additional payment transfer solely to collect a late fee or returned item fee if the consumer has authorized the lender to initiate such payment transfers in advance of the withdrawal attempt. The consumer authorizes such payment transfers only if the consumer s authorization for additional payment transfers includes a clear and readily understandable statement that payment transfers may be initiated solely to collect a late fee or returned item fee and specifies the highest amount for such fees that may be charged and the payment channel to be used. o Requirements and conditions for obtaining authorization of additional transfers (Section (c)(3)). The lender may request that the consumer authorize additional payment transfers by: Providing the consumer with the consumer rights notice required by Section (c) and requesting authorization no earlier than the date the lender provides the notice to the consumer; and Including in the request the payment transfer term and, if applicable, the statements regarding the collection of a late fee or returned item fee in Section (c)(2); and Providing the terms and statements to the consumer In writing, or in retainable form by if the consumer consents or agrees to delivery; or By oral telephone communication if the consumer affirmatively contacts the lender in response to the consumer rights notice and agrees to receive the terms and statement orally as part of the same communication; and After the consumer s receipt of the consumer right notice, obtaining a signed authorization from the consumer, in writing or electronically in accordance with the signature requirements of the E-Sign Act (for example, consumer enters a code on a telephone keypad) and in a retainable format (not satisfied by a telephone recording) that includes the specific date, amount, and payment channel of each additional payment transfer the consumer is authorizing and any special authorization required for collection of a late fee or returned item fee. 15

16 The lender must record and retain any authorization obtained by oral telephone communication. When authorization is granted in a recorded telephone conversation or is otherwise not immediately retainable by the consumer at the time of signature, the lender must provide a memorialization in retainable form to the consumer no later than the date on which the first payment transfer authorized by the consumer is initiated. Expiration. The authorization expires if the lender subsequently obtains a new authorization or if two consecutive payment transfers initiated pursuant to the authorization fail. (Section (c)(4)). o Exception for single immediate payment transfer at the consumer s request (Section (d)). After a lender s second consecutive payment transfer has failed, the lender may initiate a payment transfer from the consumer s account without obtaining authorization for additional payment transfers if: The payment is a single immediate payment transfer at the consumer s request; and The consumer authorizes the one-time electronic fund transfer or provides the underlying signature check to the lender no earlier than the date the lender provides the consumer with the consumer rights notice or on the date the consumer affirmatively contacts the lender to discuss repayment options, whichever is earlier. (Section (d)). o For purposes of this exception, a single immediate payment transfer at the consumer s request is: A payment transfer initiated by a one-time electronic fund transfer within one business day after the lender obtains the consumer s authorization for the one-time electronic fund transfer; or A payment transfer initiated by means of processing the consumer s signature check through the check system or through the ACH system within one business day after the consumer provides the check to the lender. (Section (a)(2)). o Prohibition against evasion (Section (e)). A lender must not take any action with the intent of evading the requirements of the section governing prohibited payment transfer attempts. Disclosure of Payment Transfer Attempts (Section ). The final rule requires a number of consumer disclosures that must be: o Clear and conspicuous; o Provided in writing or electronically, if the consumer affirmatively consents in writing or electronically to the particular electronic delivery method; 16

17 Valid consumer consent to electronic delivery requires a lender to give the consumer the option to select as the method of electronic delivery, separate and apart from any other electronic delivery methods, such as mobile application or text message; A lender may not provide disclosures via a method of electronic delivery if the consumer revokes consent to receive disclosures through that delivery method or notifies the lender that the consumer is unable to receive disclosures through that delivery method at the address or number used; o Provided in a retainable form (except for certain short-form disclosures provided by text or mobile app); o Be segregated from all other materials or notices, other than information necessary for product identification, branding, and navigation; o Contain machine readable text accessible via both web browsers and screen readers if the disclosure is provided electronically; o Be substantially similar to the CFPB s model forms; and o May be in a language other than English, provided they are available in English upon request. (Section (a)). o Payment notice (Section (b)). Prior to initiating a payment transfer from a consumer s account, a lender must provide to the consumer a payment notice: For a first payment withdrawal, no earlier than when the lender obtains payment authorization and no later than three business days prior to initiating the transfer (if the notice is provided electronically or in person) or six business days prior to initiating the transfer (if the notice is provided by mail). For an unusual withdrawal, no earlier than seven business day and no later than three business day prior to initiating the transfer (if the notice is provided electronically or in person), and no earlier than 10 business days and no later than six business day prior to initiating the transfer (if the notice is provided by mail). If the unusual withdrawal notice is for openend credit, the lender may provide the notice with the periodic statement in accordance with the timing requirements of Regulation Z, 12 C.F.R (b). Exceptions. A payment notice is not required when the lender initiates: The initial payment transfer from a consumer s account after obtaining the consumer s authorization for additional payment transfers under Section (c); or A single immediate payment transfer at the consumer s request under Section (a)(2). o Contents of payment notice (Section (b)). Each payment notice must contain: An identifying statement, such as Upcoming Withdrawal Notice or, if the amount, timing, or channel will vary from the regularly scheduled 17

18 payments, Alert: Unusual Withdrawal, and the name of the lender providing the notice; Transfer terms, including: the transfer date; amount; identification of the consumer account; loan identification information; payment channel; check number if the transfer will be by check, remotely created check, or remotely created payment order; Payment breakdown, in tabular form, including: a heading, Payment Breakdown ; amount of payment applied to principal; amount of payment applied to accrued interest, fees, other charges; the Total Payment Amount using that phrase; and an explanation of any interest-only or negatively amortizing payment; Lender name, the name under which the transfer will be initiated, if different, and two different forms of lender contact information; and Additional content for unusual withdrawal attempts, such as varying amounts (but for open-end credit, required only if amount deviates from scheduled minimum payment disclosed on periodic statement), transfer date other than a regularly scheduled payment due date, different payment channel, or purpose of re-initiation of a returned transfer. The notices must be substantially similar to the CFPB s model forms: 18

19 A short notice is permitted when the consumer has consented to receive electronic disclosures. The short notice contains abbreviated content, and must be substantially similar to the CFPB s model form: 19

20 o Consumer rights notice (Section (c)). After a lender initiates two consecutive failed payment transfers from a consumer s account, the lender must provide to the consumer a consumer rights notice no later than three business days after it receives information that the second consecutive attempt has failed. Each consumer rights notice must contain: A statement that the named lender is no longer permitted to withdraw loan payments from the consumer s account; A statement that the last two payment transfer attempts were returned due to insufficient funds, or, if applicable to payments initiated by the consumer s account-holding institution, caused the account to go into overdraft status; Consumer account information sufficient information to permit the consumer to identify the account from which unsuccessful payment attempts were made, but without providing the complete account number; Loan identification information sufficient information to permit the consumer to identify any covered loans associated with the unsuccessful payment attempts; A statement that Federal law prohibits the lender from initiating further payment transfers without the consumer s permission; A statement that the lender may be in contact with the consumer about payment choices; A tabular breakdown of previous unsuccessful payment attempts, including o a heading stating previous payment attempts ; o the scheduled payment due date of each previous unsuccessful payment transfer attempted by the lender; the date of each previous attempt; o the amount of each previous unsuccessful payment transfer; o the fees charged by the lender for each unsuccessful payment attempt, if applicable, with an indication that the fees were charged by the lender; and 20

21 o a statement about the CFPB as the Federal government agency that created the notice with contact information, which must be the last piece of information in the notice. The notice must use language substantially similar to the language of the CFPB s model form: A short notice is permitted when the consumer has consented to receive electronic disclosures. The short notice contains abbreviated content, and must be substantially similar to the CFPB s model form: 21

22 V. Information Furnishing, Recordkeeping, Anti-Evasion, and Severability Furnishing to Information Systems (Section (a) and (b)). For each covered shortterm loan and covered longer-term balloon-payment loan a lender makes, the lender must furnish specified loan information to each information system that, as of the date the loan is consummated, has been registered with the CFPB for 180 days or more, or has been provisionally registered with the CFPB for 180 days or more. o The CFPB will publish on its website and in the Federal Register notice of provisional registrations, registrations, and suspensions or revocations of provisional registrations and registrations. o The CFPB will maintain on its website a current list of provisionally registered and registered information systems. o A provisional registration, registration, suspension, or revocation is effective on the date the CFPB publishes notice of such status on its website. o The CFPB will provide instructions on its website concerning the scope and terms of any suspension of revocation of a provisional registration or registration of an information system. Information to Be Furnished (Section (c)). A lender must furnish the following information about each covered short-term loan and covered longer-term balloonpayment loan in a format acceptable to each information system at the following stages: o At consummation, the lender must furnish on the date of consummation or as close in time as feasible to the date of consummation: Unique loan identifying information; Information to identify the specific consumer(s) responsible for the loan; Whether the loan is a covered short-term loan or a covered longer-term balloon-payment loan; Whether the loan is made under the short-term loan ability to repay standard in Section or under the conditional exemption for loan sequencing for certain covered short-term loans in Section , as applicable; 22

23 The loan consummation date; For a loan made under the conditional exemption for loan sequencing in Section , the principal amount borrowed; For a loan that is closed-end credit: The fact that the loan is closed-end credit; The date that each payment on the loan is due; and The amount due on each payment date. For a loan that is open-end credit: The fact that the loan is open-end credit; The credit limit on the loan; The date that each payment on the loan is due; and The minimum amount due on each payment date. (Section (c)(1)). o When a covered loan is outstanding, the lender must furnish updates within a reasonable period of time of the event which causes the information previously furnished to be out of date. (Section (c)(2)). o When a loan ceases to be outstanding, the lender must furnish no later than the date the loan ceases to be outstanding or as close in time as feasible to that date: The date as of which the loan ceased to be an outstanding loan; and Whether all amounts owed were paid in full, including the amount financed, charges included in the cost of credit, and charges excluded from the cost of credit. (Section (c)(3)). A loan ceases to be outstanding if no payments have been made for the prior 180 days. (Section (a)(17)). Registered Information Systems (Section ). o Eligibility criteria (Section (b)). An entity must satisfy each of the following eight conditions to be eligible for CFPB designation as a provisionally registered information system or a registered information system: Receiving capability. Possess the technical capability to receive information lenders must furnish under Section immediately upon the furnishing of such information, and use reasonable data standards that facilitate the timely and accurate transmission and processing of information in a manner that does not impose unreasonable costs or burdens on lenders. Reporting capability. Possess the technical capability to generate a consumer report containing, as applicable for each unique consumer, all information required to be furnished by a lender under Section substantially simultaneous to receiving the information from a lender. Performance. Perform in a manner that facilitates compliance with and furthers the purposes of Part Federal consumer financial law compliance program. Has developed, implemented, and maintains a compliance program reasonably designed to 23

24 ensure compliance with all applicable Federal consumer financial laws, which includes written policies and procedures, comprehensive training, and monitoring to detect and to promptly correct compliance weaknesses. Independent assessment of compliance program. Provide to the CFPB in its application for provisional registration or registration a written assessment of its Federal consumer financial law compliance program that: Sets forth a detailed summary of the Federal consumer financial law compliance program that the entity has implemented and maintains; Explains how the Federal consumer financial law compliance program is appropriate for the entity s size and complexity, the nature and scope of its activities, and risks to consumers presented by such activities; Certifies that, in the opinion of the assessor, the Federal consumer financial law compliance program is operating with sufficient effectiveness to provide reasonable assurance that the entity is fulfilling its obligations under all Federal consumer financial laws; and Certifies that the assessment has been conducted by a qualified, objective, independent third-party individual or entity that uses procedures and standards generally accepted in the profession, adheres to professional and business ethics, performs all duties objectively, and is free from any conflicts of interest that might compromise the assessor s independent judgment in performing assessments. Information security program. Has developed, implemented, and maintains a comprehensive information security program that complies with the Standards for Safeguarding Customer Information, 16 CFR part 314. Independent assessment of information security program. Provide to the CFPB in its application for provisional registration or registration and on at least a biennial basis thereafter, a written assessment of its information security program. Each written assessment must be completed and provided to the CFPB within 60 days after the end of the period to which the assessment applies. Each written assessment shall: Set forth the administrative, technical, and physical safeguards that the entity has implemented and maintains; Explain how such safeguards are appropriate to the entity s size and complexity, the nature and scope of its activities, and the sensitivity of the customer information at issue; Explain how the safeguards that have been implemented meet or exceed the protections required by the Standards for Safeguarding Customer Information, 16 CFR part 314; Certify that, in the opinion of the assessor, the information security program is operating with sufficient effectiveness to provide 24