In 2017, the Consumer Financial Protection Bureau (CFPB) issued a rule, which is generally called the “Payday Lending Rule.” Part of this rule requires lenders who make payday loans, auto title loans, deposit advances, and longer-term loans with balloon payments to conduct an ability-to-repay test before making a loan. (12 C.F.R. § 1041.5). The point of the test is to determine upfront whether a borrower can afford to repay a loan without rolling it over. (Paying a fee to delay repayment of a payday loan is generally called “rolling” it over.) Certain types of less-risky loans, like those that banks and credit unions offer, as well as those that provide an option to repay the debt more gradually, are exempt from the rule.
Opponents of this rule have contended that it unfairly hinders the payday loan industry, which serves millions of customers who often don’t have access to more traditional banking products. Previously, the CFPB announced it was going to consider rescinding the ability-to-repay test altogether. For now, instead of eliminating the test, the CFPB has extended the compliance date for the rule from August 19, 2019, to November 19, 2020. We’ll provide further updates if new developments arise.
Effective date: November 19, 2020