OCC Supports CFPB’s Revisions to Payday Loan Rule

Inside Subprime: Feb 18, 2019

By Lindsay Frankel

Comptroller of the Currency Joseph Otting supports the Consumer Financial Protection Bureau’s decision to rescind certain provisions of the Obama-era rule governing payday loans, title loans, and high-cost installment loans, according to a statement issued this week. The rule, which has yet to go into effect, would have required that lenders verify a borrower’s ability to repay a loan, among other provisions. But the CFPB has proposed gutting those underwriting requirements and delaying the rule’s compliance date until November 19, 2020.

Comptroller Otting praised CFPB director Kathy Kraninger’s decision to repeal the ability-to-repay provisions, calling the move “an important and courageous step that will allow banks and other responsible lenders to again help consumers meet their short-term small-dollar needs.”

When the final payday lending rule was released in October of 2017, the OCC reversed its previous guidance against banks issuing deposit advances, noting that the continuation of such guidance “would subject national banks and federal savings associations to potentially inconsistent regulatory direction and undue burden as they prepare to implement the requirements of the CFPB’s final rule.” The guidance had been intended to prevent bank products from causing undue financial harm to borrowers; The Center for Responsible Lending found that advance loan borrowers remained in debt for 175 days per year on average. But when banks stopped offering these products, subprime borrowers turned to payday loans.

In May of 2018, the OCC urged banks to offer safe alternatives to payday loans for borrowers in a bulletin, which indicated that many banks had ceased to offer short-term, small-dollar loans. Not only had banks withdrawn from a $90 billion market, but consumers were forced to turn to alternative financial institutions such as payday lenders to meet their small-dollar credit needs.

The OCC’s support of a less-restrictive rule governing small-dollar loans is likely intended to encourage banks to offer these products to their customers. Comptroller Otting stated that “banks may not be able to serve all of this large market, but they can reach a significant portion of it and bring additional options and more competition to the marketplace while delivering safe, fair, and affordable products that promote the long-term financial goals of their customers.”

But while rescinding aspects of the CFPB’s payday lending rule may provide more freedom for banks, consumer advocates argue that the decision leaves cash-strapped borrowers vulnerable to payday loans with predatory interest rates. The current options for small-dollar loans provided by alternative lenders often carry triple-digit interest rates and short repayment terms, trapping desperate borrowers in a cycle of debt. Additional guidance from the OCC is needed to help banks provide safe alternatives to payday loans.

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