It’s Here: CFPB Issues Final Payday and Auto Title Lending Rule

What Will It Mean for Texas?

The Consumer Financial Protection Bureau (CFPB) released the final payday and auto title lending rule on October 5, after spending the past five years studying the market and its impacts on borrowers. The final rule was posted in the Federal Register on November 17, which officially starts the 21-month period to full implementation.    

Texas Appleseed, along with our partners in the Texas Fair Lending Alliance and Texas Faith Leaders for Fair Lending, have worked diligently ensure that Texas families and communities had a voice in the rulemaking process. The Texas story is important. Texans have seen some of the most harmful impacts of these loans in our state because of lax regulatory standards. Watch our video below that explains the harmful effects of predatory lending.

The CFPB final rule is a step forward for Texas families, but more work is needed. It includes the following standards:

1. For payday and auto title loans of 45 days or less and longer-term installment balloon loans (with one payment at least twice as large as all others), the rule:

• Requires a full ability to repay assessment, AND 
• Limits refinances to two (a maximum of three loans in a row that are less than 30 days apart). 

2. There is one exception for payday loans only. The lender does not need to assess a borrower’s ability to repay the loan for certain borrowers who have made limited use of covered payday and auto title loans over the past 12 months, IF: 

• The loan is $500 or less, AND
• If the borrower refinances the loan, each payment must reduce the principal by 1/3, so that the loan is paid off after a maximum of three payments.

3. For all covered loans + consumer installment loans with a 36% APR or higher: 

• The lender must notify the borrower before taking money from an account, AND 
• After two consecutive failed attempts, the lender would need new debit authorization for withdrawals.

The new CFPB rule also allows two exceptions designed to support community bank and credit union small-dollar lending programs:

1. Loans are exempt if they follow the National Credit Union Administration Payday Alternative Loan standards.
2. Loans are exempt for businesses that make 2,500 or fewer covered loans per year AND the covered loans make up 10% or less of total revenues.

The rule covers at least 73% of all payday and auto title loan transactions in Texas based on 2016 data and would save Texans who have those loans $402-$432 million. That’s good news for Texas. Many of the most abusive loans would be made fairer.  

However, the rule leaves out payday and auto title installment loans of 46 days or more. These loans often carry the same high APRs of 500% or more, and are designed to be profitable even when the borrower fails.  

What does Texas need moving forward?

1. Make sure the rule sticks. Congress could overturn it within 60 legislative days of the Federal Register posting on November 17.  That can mean up to six months, depending on how often Congress is in session. People and organizations need to weigh in to support the rule: https://www.texasappleseed.org/take-action.
2. Stop efforts by payday lenders and others to expand high-cost lending in Texas.  
3. Strengthen the local ordinance movement. Local ordinances offer the only protections currently available against abusive installment payday and auto title loans.
4. Continue push for affordable and beneficial small loan options for Texas families.

Thanks to so many of you for your help and support of this important work! Please stand with us to make sure this rule goes into effect as we continue our work to create a Texas consumer lending market that supports financial success for our families and local economics.