# Payday, Vehicle Title, and Certain High-Cost Installment Loans

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2019-01906

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** February 14, 2019
- **Citation:** 84 FR 4252

## Text

BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1041
[Docket No. CFPB-2019-0006]
RIN 3170-AA80
Payday, Vehicle Title, and Certain High-Cost Installment Loans

AGENCY:

Bureau of Consumer Financial Protection.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

The Bureau of Consumer Financial Protection (Bureau) is proposing to rescind certain provisions of the regulation promulgated by the Bureau in November 2017 governing Payday, Vehicle Title, and Certain High-Cost Installment Loans (2017 Final Rule or Rule). The provisions of the Rule which the Bureau proposes to rescind provide that it is an unfair and abusive practice for a lender to make a covered short-term or longer-term balloon-payment loan, including payday and vehicle title loans, without reasonably determining that consumers have the ability to repay those loans according to their terms; prescribe mandatory underwriting requirements for making the ability-to-repay determination; exempt certain loans from the mandatory underwriting requirements; and establish related definitions, reporting, and recordkeeping requirements. This proposal is related to another proposal, published separately in this issue of the
Federal Register
, seeking comment on whether the Bureau should delay the August 19, 2019 compliance date for these portions of the 2017 Final Rule.

DATES:

Comments must be received on or before May 15, 2019.

ADDRESSES:

You may submit comments, identified by Docket No. CFPB-2019-0006 or RIN 3170-AA80, by any of the following methods:

•
Electronic: https://www.regulations.gov.
Follow the instructions for submitting comments.

•
Email: 2019-NPRM-PaydayReconsideration@cfpb.gov.
Include Docket No. CFPB-2019-0006 or RIN 3170-AA80 in the subject line of the message.

•
Mail/Hand Delivery/Courier:
Comment Intake, Bureau of Consumer Financial Protection, 1700 G Street NW, Washington, DC 20552.

Instructions:
The Bureau encourages the early submission of comments. 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
https://www.regulations.gov.
In addition, comments will be available for public inspection and copying at 1700 G Street NW, Washington, DC 20552, 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. Proprietary information or sensitive personal information, such as account numbers, Social Security numbers, or names of other individuals, should not be included. Comments will not be edited to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT:

Eliott C. Ponte, Attorney-Advisor; Amy Durant, Lawrence Lee, or Adam Mayle, Counsels; or Kristine M. Andreassen, Senior Counsel, Office of Regulations, at 202-435-7700. If you require this document in an alternative electronic format, please contact
CFPB_Accessibility@cfpb.gov.

SUPPLEMENTARY INFORMATION:

I. Summary of the Proposed Rule

On October 5, 2017, the Bureau issued the 2017 Final Rule establishing consumer protection regulations for payday loans, vehicle title loans, and certain high-cost installment loans, relying on authorities under Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act or the Act).
1

The Rule was published in the
Federal Register
on November 17, 2017.
2

It became effective on January 16, 2018, although most provisions (12 CFR 1041.2 through 1041.10, 1041.12, and 1041.13) have a compliance date of August 19, 2019.
3

On January 16, 2018, the Bureau issued a statement announcing its intention to engage in rulemaking to reconsider the 2017 Final Rule.
4

A legal challenge to the Rule was filed on April 9, 2018, and is pending in the United States District Court for the Western District of Texas.
5

On October 26, 2018, the Bureau issued a subsequent statement announcing it expected to issue notices of proposed rulemaking (NPRMs) to reconsider certain provisions of the 2017 Final Rule and to address the Rule's compliance date.
6

This is one of those proposals; the other is published separately in this issue of the
Federal Register
.

1
Public Law 111-203, 124 Stat. 1376 (2010).

2
82 FR 54472 (Nov. 17, 2017). The Bureau released its proposal regarding payday, vehicle title, and certain high-cost installment for public comment on June 2, 2016 (2016 Proposal). 81 FR 47864 (July 22, 2016).

The Bureau received well over one million comments on the 2016 Proposal. As the Bureau noted in the 2017 Final Rule, these comments included a large number of positive accounts of how people successfully used such loans to address shortfalls or cope with emergencies and concerns about the possibility of access to payday loans being removed. 82 FR 54472, 54559. There were, however, a significant though smaller number of comments discussing negative experiences from individual consumers or persons concerned about the impact payday loans have had on consumers whom they knew.
Id.
at 54559-60.

3

Id.
at 54814.

4

See
Bureau of Consumer Fin. Prot.,
Statement on Payday Rule
(Jan. 16, 2018),
https://www.consumerfinance.gov/about-us/newsroom/cfpb-statement-payday-rule/.

5

Cmty. Fin. Serv. Ass'n of Am.
v.
Consumer Fin. Prot. Bureau,
No. 1:18-cv-295 (W.D. Tex.). On November 6, 2018, the court issued an order staying the August 19, 2019 compliance date of the Rule pending further order of the court.
See id.,
ECF No. 53. The litigation is currently stayed.
See id.,
ECF No. 29.

6

See
Bureau of Consumer Fin. Prot.,
Public Statement Regarding Payday Rule Reconsideration and Delay of Compliance Date
(Oct. 26, 2018),
https://www.consumerfinance.gov/about-us/newsroom/public-statement-regarding-payday-rule-reconsideration-and-delay-compliance-date/.

The 2017 Final Rule addressed two discrete topics. First, the Rule contained a set of provisions with respect to the underwriting of covered short-term and longer-term balloon-payment loans, including payday and vehicle title loans, and related recordkeeping and reporting requirements.
7

These provisions are referred to herein as the “Mandatory Underwriting Provisions” of the 2017 Final Rule. Second, the Rule contained a set of provisions, applicable to the same set of loans and also to certain high-cost installment loans,
8

establishing certain requirements and limitations with respect to attempts to withdraw payments on the loans from consumers' checking or other accounts.
9

These provisions are referred to herein as the “Payment Provisions” of the 2017 Final Rule.

7
12 CFR 1041.4 through 1041.6, 1041.10, 1041.11, and portions of 1041.12.

8
The 2017 Final Rule refers to all three of these categories of loans together as covered loans. 12 CFR 1041.3(b).

9
12 CFR 1041.7 through 1041.9, and portions of 1041.12.

The Bureau is proposing in this NPRM to rescind the Mandatory Underwriting Provisions of the 2017 Final Rule. Specifically, the Bureau is proposing to rescind (1) the “identification” provision which states that it is an unfair and abusive practice for a lender to make covered short-term

loans or covered longer-term balloon-payment loans without reasonably determining that consumers will have the ability to repay the loans according to their terms;
10

(2) the “prevention” provision which establishes specific underwriting requirements for these loans to prevent the unfair and abusive practice;
11

(3) the “conditional exemption” provision for certain covered short-term loans;
12

(4) the “furnishing” provisions which require lenders making covered short-term or longer-term balloon-payment loans to furnish certain information regarding such loans to registered information systems (RISes) and create a process for registering such information systems;
13

and (5) those portions of the recordkeeping provisions related to the mandatory underwriting requirements.
14

The Bureau also is proposing to rescind the Official Interpretations relating to these provisions.

10
12 CFR 1041.4.

11
12 CFR 1041.5.

12
12 CFR 1041.6.

13
12 CFR 1041.10 and 1041.11.

14
12 CFR 1041.12(b)(1) through (3).

As explained below, the Bureau now initially determines that the evidence underlying the identification of the unfair and abusive practice in the Mandatory Underwriting Provisions of the 2017 Final Rule is not sufficiently robust and reliable to support that determination, in light of the impact those provisions will have on the market for covered short-term and longer-term balloon-payment loans, and the ability of consumers to obtain such loans, among other things. The Bureau is not aware of any additional evidence that would provide the support needed for the key findings that are essential to such a determination and does not believe it is cost-effective for itself and for lenders and borrowers to conduct the necessary research to try to develop those key findings. The Bureau is therefore proposing to rescind those identifications. The Bureau is also now initially determining that its approach for unfairness and abusiveness was problematic and is proposing a different approach to determining whether consumers can reasonably avoid the substantial injury that the Rule determined is caused or likely to be caused by the failure to underwrite these loans,
15

whether such injury is outweighed by countervailing benefits to consumers and to competition,
16

and whether the failure to underwrite takes unreasonable advantage of particular consumer vulnerabilities.
17

Based on its reconsideration of these issues, the Bureau is proposing to rescind the Mandatory Underwriting Provisions in their entirety.

15

See
12 U.S.C. 5531(c)(1)(A).

16

See
12 U.S.C. 5531(c)(1)(B).

17

See
12 U.S.C. 5531(d)(2)(A).

The Bureau is not proposing to reconsider the Payment Provisions of the 2017 Final Rule, and the Payment Provisions are outside the scope of this NPRM. However, the Bureau has received a rulemaking petition to exempt debit card payments from the Rule's Payment Provisions. The Bureau has also received informal requests related to various aspects of the Payment Provisions or the Rule as a whole, including requests to exempt certain types of lenders or loan products from the Rule's coverage and to delay the compliance date for the Payment Provisions. The Bureau intends to examine these issues and if the Bureau determines that further action is warranted, the Bureau will commence a separate rulemaking initiative (such as by issuing a request for information (RFI) or an advance notice of proposed rulemaking). In addition, the Bureau intends to use its existing market monitoring authority to gather data on whether the requirement in the 2017 Final Rule that lenders provide consumers with “unusual withdrawal” notices before the lenders make certain withdrawal attempts are made affects the number of unsuccessful withdrawals made from consumers' accounts.
18

18
12 CFR 1041.9(b)(1)(ii).

II. Background

The
SUPPLEMENTARY INFORMATION
accompanying the 2017 Final Rule contains background on the payday and vehicle title markets
19

and on the consumers who use these products.
20

The
SUPPLEMENTARY INFORMATION
also contains findings of the impacts that the Mandatory Underwriting Provisions of the 2017 Final Rule would have on consumers and covered persons.
21

The Bureau does not here repeat all of that information and those findings. Rather, this section summarizes the information and findings from the 2017 Final Rule that the Bureau views as most relevant to the Bureau's decision to propose rescinding the Mandatory Underwriting Provisions.

19

See
82 FR 54472, 54474-96.

20

Id.
at 54555-60.

21

Id.
at 54814-46.

A. The Market for Short-Term and Balloon-Payment Loans

As the Bureau observed in the 2017 Final Rule, consumers living paycheck to paycheck and with little to no savings often use credit as a means of coping with financial shortfalls.
22

These shortfalls may be due to mismatched timing between income and expenses, income volatility, unexpected expenses or income shocks, or expenses that simply exceed income.
23

According to a recent survey conducted by the Board of Governors of the Federal Reserve System (Board), over one-quarter of adults are either just getting by or finding it difficult to get by; a similar percentage skipped necessary medical care in 2017 due to being unable to afford the cost. In addition, 40 percent of adults reported they would either be unable to cover an emergency expense costing $400 or would have to sell something or borrow money to cover it.
24

Whatever the cause of these financial shortfalls, consumers in these situations sometimes seek what may broadly be termed a “liquidity loan.”

22

Id.
at 54474.

23

Id., citing, generally,
Rob Levy & Joshua Sledge,
A Complex Portrait: An Examination of Small-Dollar Credit Consumers
(Ctr. for Fin. Serv. Innovation, 2012),
https://www.fdic.gov/news/conferences/consumersymposium/2012/A%20Complex%20Portrait.pdf.

24
Bd. of Governors of the Fed. Reserve Sys.,
Report on the Economic Well-Being of U.S. Households in 2017,
at 2, 5, 7, 21, 23 (May 2018),
https://www.federalreserve.gov/publications/files/2017-report-economic-well-being-us-households-201805.pdf
; and Bd. of Governors of the Fed. Reserve Sys.,
Report on the Economic Well-Being of U.S. Households in 2017, Appendix A: Survey Questionnaire, https://www.federalreserve.gov/publications/appendix-a-survey-questionnaire.htm.
These represent improvements from the 2016 survey relied upon in the 2017 Final Rule.
See
82 FR 54472, 54474 & n.9,
citing
Bd. of Governors of the Fed. Reserve Sys.,
Report on the Economic Well-Being of U.S. Households in 2016,
at 2, 8 (May 2017),
https://www.federalreserve.gov/publications/files/2016-report-economic-well-being-us-households-201705.pdf.

The Mandatory Underwriting Provisions of the 2017 Final Rule focused specifically on short-term loans and a smaller market segment of longer-term balloon-payment loans. As the Bureau noted, the largest categories of short-term loans are “payday loans,” which are generally short-term loans required to be repaid in a lump-sum single payment on receipt of the borrower's next income payment, and short-term vehicle title loans, which are also almost always due in a lump-sum single payment, typically within 30 days after the loan is made.
25

25
82 FR 54472, 54475.

1. Payday Loans

Seventeen States and the District of Columbia prohibit payday lending or impose interest rate caps that payday lenders find too low to enable them to make such loans profitably. The remaining 33 States have either created a carve-out from their general usury cap

for payday loans or do not regulate interest rates on loans.
26

Several States that previously authorized payday lending have, over the past several years, changed their laws to restrict payday lending.
27

26

See, e.g., id.
at 54477 & n.25. The 2017 Final Rule cited 35 payday authorizing States, counting New Mexico among those States. At the time the rule was issued, New Mexico had enacted a law which had not yet taken effect, prohibiting short-term payday lending. Now that the law is in effect, New Mexico is no longer counted here. Recently, Ohio enacted a law that, when implemented on April 27, 2019, will effectively prohibit short-term payday and vehicle title lending. Because the Ohio law has not yet been implemented, Ohio is counted as a payday authorizing State and references herein refer to current Ohio law.
See
Ohio House Bill 123,
An Act to Modify the Short-Term Loan Act, https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA132-HB-123; https://www.com.ohio.gov/documents/fiin_HB123_Guidance.pdf.

27

See, e.g.,
82 FR 54472, 54485-86. In addition, most recently, voters in Colorado approved a ballot initiative on November 6, 2018 to cap annual percentage rates (APRs) on payday loans at 36 percent. This initiative takes effect February 1, 2019, shortly before the release of this NPRM. Colorado is now counted here as a State prohibiting short-term payday lending.
See
Colo. Legislative Council Staff,
Initiative #126 Initial Fiscal Impact Statement, https://www.sos.state.co.us/pubs/elections/Initiatives/titleBoard/filings/2017-2018/126FiscalImpact.pdf;

see also
Colo. Sec'y of State,
Official Certified Results—State Offices & Questions, https://results.enr.clarityelections.com/CO/91808/Web02-state.220747/#/c/C_2
(Proposition 111).

States that permit payday lending have chosen to adopt a variety of limitations, including regulations of the maximum price,
28

minimum loan term,
29

maximum loan amount,
30

the maximum number of loans that can be made to an individual consumer (loan cap),
31

the maximum number of times that a consumer may renew or roll over a loan,
32

and the length of time between loans (cooling-off periods).
33

In addition, at least 16 States have adopted laws requiring payday lenders to offer borrowers the option of taking an extended repayment plan when encountering difficulty in repaying the loan.
34

These State laws represent the judgment of the various States as to the limitations, if any, that should be placed on the terms pursuant to which consumers have the ability to choose payday loans within their respective jurisdictions.

28
Of the States that expressly authorize payday lending, Rhode Island has the lowest cap at 10 percent of the loan amount. R.I. Gen. Laws sec. 19-14.4-4(4). Florida caps fees at 10 percent of the loan amount plus a flat $5 database verification fee. Fla. Stat. Ann. sec. 560.404(6). Oregon's fees are $10 per $100 capped at $30 plus 36 percent interest. Or. Rev. Stat. sec. 725A.064(1) & (2). Some States have tiered caps depending on the size of the loan. Generally, in these States the cap declines with loan size. However, in Mississippi, the cap is $20 per $100 for loans under $250 and $21.95 for loans up to $500 (the State maximum). Miss. Code Ann. sec. 75-67-519(4). Six States do not cap fees on payday loans or are silent on fees: Delaware, Idaho, Nevada, Texas (no cap on credit access business fees added to interest on loans), Utah, and Wisconsin. Del. Code Ann. tit. 5, sec. 2229; Idaho Code sec. 28-46-412(3); Nev. Rev. Stat. Ann. sec. 675.365; Tex. Fin. Code Ann. sec. 393.602(b); Utah Code Ann. sec. 7-23-401; Wis. Stat. Ann. sec. 138.14(10)(a).
See also
82 FR 54472, 54477 & n.31.

29
For example, Washington requires the due date to be on or after the borrower's next pay date, but if the pay date is within seven days of taking out the loan, the due date must be on the second pay date after the loan is made. Wash. Rev. Code Ann. sec. 31.45.073(2).
See also
82 FR 54472, 54478 & n.35.

30
At least 18 States cap payday loan amounts between $500 and $600 (Alabama, Alaska, Florida, Hawaii, Iowa, Kansas, Kentucky, Michigan, Mississippi, Missouri, Nebraska, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, Tennessee, and Virginia). Ala. Code sec. 5-18A-12(a); Alaska Stat. sec. 06.50.410; Fla. Stat. Ann. sec. 560.404(5); Haw. Rev. Stat. sec. 480F-4(c); Iowa Code Ann. sec. 533D.10(1)(b); Kan. Stat. Ann. sec. 16a-2-404(1)(c); Ky. Rev. Stat. Ann. sec. 286.9-100(9); Mich. Comp. Laws Ann. sec. 487.2153(1); Miss. Code Ann. sec. 75-67-519(2); Mo. Rev. Stat. sec. 408.500(1); Neb. Rev. Stat. sec. 45-919(1)(b); N.D. Cent. Code sec. 13-08-12(3); Ohio Rev. Code Ann. sec. 1321.39(A); Okla. Stat. Ann. tit. 59, sec. 3106(7); R.I. Gen. Laws sec. 19-14.4-5.1(a); S.C. Code Ann. sec. 34-39-180(B); Tenn. Code Ann. sec. 45-17-112(o); Va. Code Ann. sec. 6.2-1816(5). California limits payday loans to $300 (including the fee), and Delaware caps loans at $1,000. Cal. Fin. Code sec. 23035(a); Del. Code Ann. tit. 5, sec. 2227(7). States that limit the loan amount to the lesser of one percent of the borrower's income or a fixed-dollar amount include Idaho (25 percent or $1,000), Illinois (25 percent or $1,000), Indiana (20 percent or $550), Washington (30 percent or $700), and Wisconsin (35 percent or $1,500). Idaho Code Ann. sec. 28-46-413(1)-(2); 815 Ill. Comp. Stat. 122/2-5(e); Ind. Code secs. 24-4.5-7-402, 404; Wash. Rev. Code sec. 31.45.073(2); Wis. Stat. Ann. sec. 138.14(12)(b). At least one State, Nevada, caps the maximum payday loan at 25 percent of the borrower's gross monthly income. Nev. Rev. Stat. sec. 604A.5017. A few States' laws (
e.g.,
Utah and Wyoming) are silent as to the maximum loan amount. Utah Code Ann. sec. 7-23-401; Wyo. Stat. Ann. sec. 40-14-363.
See also
82 FR 54472, 54477 & n.27.

31
Washington limits consumers to no more than eight loans from all lenders in a rolling 12-month period.
See
Wash. Dep't of Fin. Insts.,
2017 Payday Lending Report,
at 7,
https://dfi.wa.gov/sites/default/files/reports/2017-payday-loan-report.pdf.
Delaware, a State with no fee restrictions for payday loans, restricts consumers to five payday loans, including rollovers, in a 12-month period. Del. Code Ann. tit. 5, secs. 2227(7), 2235A(a)(1).
See also
82 FR 54472, 54486 & nn.128, 129.

32
States that prohibit rollovers include California, Florida, Hawaii, Illinois, Indiana, Kentucky, Michigan, Minnesota, Mississippi, Nebraska, Oklahoma, South Carolina, Tennessee, Virginia, Washington, and Wyoming. Cal. Fin. Code sec. 23037(a); Fla. Stat. Ann. sec. 560.404(18); Haw. Rev. Stat. sec. 480F-4(d); 815 Ill. Comp. Stat. 122/2-30; Ind. Code sec. 24-4.5-7-402(7); Ky. Rev. Stat. Ann. sec. 286.9-100(14); Mich. Comp. Laws Ann. sec. 487.2155(1); Minn. Stat. Ann. sec. 47.60(2)(f); Miss. Code Ann. sec. 75-67-519(5); Neb. Rev. Stat. sec. 45-919(1)(f); Okla. Stat. Ann. tit. 59, sec. 3109(A); S.C. Code Ann. sec. 34-39-180(F); Tenn. Code Ann. sec. 45-17-112(q); Va. Code Ann. sec. 6.2-1816(6); Wash. Rev. Code Ann. sec. 31.45.073(2); Wyo. Stat. Ann. sec. 40-14-364. Other States such as Iowa and Kansas restrict a loan from being repaid with the proceeds of another loan; Wisconsin limits such loans. Iowa Code Ann. sec. 533D.10(1)(e); Kan. Stat. Ann. sec. 16a-2-404(6); Wis. Stat. Ann. sec. 138.14 (12)(a). Other States that permit some limited degree of rollovers include Alabama (one); Alaska (two); Delaware (four); Idaho (three); Missouri (six if there is at least 5 percent principal reduction on each rollover); Nevada (may extend loan up to 60 days after the end of the initial loan term); North Dakota (one); Oregon (two); Rhode Island (one); and Utah (allowed up to 10 weeks after the execution of the first loan). Ala. Code sec. 5-18A-12(b); Alaska Stat. sec. 06.50.470(b); Del. Code Ann. tit. 5, sec. 2235A(a)(2); Idaho Code Ann. sec. 28-46-413(9); Mo. Rev. Stat. sec. 408.500(6); Nev. Rev. Stat. sec. 604A.5029(1); N.D. Cent. Code sec. 13-08-12(12); Or. Rev. Stat. sec. 725A.064(6); R.I. Gen. Laws sec. 19-14.4-5.1(g); Utah Code Ann. sec. 7-23-401(4)(c).
See also
82 FR 54472, 54478 & n.37.

33
States with cooling-off periods include Alabama (next business day after a rollover is paid in full); Florida (24 hours); Illinois (seven days after a consumer has had payday loans for more than 45 days); Indiana (seven days after five consecutive loans); North Dakota (three business days); Ohio (one day with a two loan limit in 90 days, four per year); Oklahoma (two business days after fifth consecutive loan); Oregon (seven days); South Carolina (one business day between all loans and two business days after seventh loan in a calendar year); Virginia (one day between all loans, 45 days after fifth loan in a 180-day period, and 90 days after completion of an extended payment plan or extended term loan); and Wisconsin (24 hour after renewals). Ala. Code sec. 5-18A-12(b); Fla. Stat. Ann. sec. 560.404(19); 815 Ill. Comp. Stat. 122/2-5(b); Ind. Code sec. 24-4.5-7-401(2); N.D. Cent. Code sec. 13-08-12(4); Ohio Rev. Code Ann. sec. 1321.41(E), (N), (R); Okla. Stat. Ann. tit. 59, sec. 3110; Or. Rev. Stat. sec. 725A.064(7); S.C. Code Ann. sec. 34-39-270(A), (B); Va. Code Ann. sec. 6.2-1816(6); Wis. Stat. Ann. sec. 138.14(12)(a).
See also
82 FR 54472, 54478 & n.39.

34
States with statutory extended repayment plans include Alabama, Alaska, Florida, Idaho, Illinois, Indiana, Louisiana, Michigan (fee permitted), Nevada, Oklahoma (fee permitted), South Carolina, Utah, Virginia, Washington, Wisconsin, and Wyoming. Florida also requires that, as a condition of providing a repayment plan (called a grace period), borrowers make an appointment with a consumer credit counseling agency and complete counseling by the end of the plan. Ala. Code sec. 5-18A-12(c); Alaska Stat. sec. 06.50.550(a); Fla. Stat. Ann. sec. 560.404(22)(a); Idaho Code Ann. sec. 28-46-414; 815 Ill. Comp. Stat. 122/2-40; Ind. Code sec. 24-4.5-7-401(3), 404; La. Rev. Stat. Ann. sec. 9:3578.4.1; Mich. Comp. Laws Ann. sec. 487.2155(2); Nev. Rev. Stat. sec. 604A.5027(1); Okla. Stat. tit. 59, sec. 3109(D); S.C. Code Ann. sec. 34-39-280; Utah Code Ann. sec. 7-23-403; Va. Code Ann. sec. 6.2-1816(26); Wash. Rev. Code Ann. sec. 31.45.084(1); Wis. Stat. Ann. sec. 138.14(11)(g); Wyo. Stat. Ann. sec. 40-14-366(a).
See
also 82 FR 54472, 54478 & n.40.

Changes to State-level regulation as described above may have contributed to the decline in payday lending complaints the Bureau handled through its Consumer Response database. As cited in the 2017 Final Rule, in 2016 the Bureau handled approximately 4,400 complaints in which consumers reported “payday loan” as the complaint product.
35

In contrast, the Bureau received approximately 2,900 payday loan complaints in 2017, and

approximately 2,300 in 2018.
36

In each of these reporting years, it appears that consumers complained most frequently about unexpected fees associated with payday loans, while consumers complaining about receiving a loan for which payday lenders had not determined their ability to repay loans were less frequent.

35
Bureau of Consumer Fin. Prot.,
Consumer Response Annual Report, Jan. 1-Dec. 31, 2016,
at 33 (March 2017),
https://www.consumerfinance.gov/documents/3368/201703_cfpb_Consumer-Response-Annual-Report-2016.PDF.

36
Bureau of Consumer Fin. Prot.,
Consumer Response Annual Report, Jan. 1-Dec. 31, 2017,
at 34 (March 2018),
https://www.consumerfinance.gov/documents/6406/cfpb_consumer-response-annual-report_2017.pdf;
Bureau of Consumer Fin. Prot. Consumer Response Database. To provide a sense of the number of complaints for payday loans relative to the number of complaints for other product categories, from October 1, 2017 through September 30, 2018, approximately 0.7 percent of all consumer complaints the Bureau received were about payday loans, and 0.2 percent were about vehicle title loans. Bureau of Consumer Fin. Prot.,
Fall 2018 Semi-Annual Report of the Bureau of Consumer Financial Protection,
at 25 (forthcoming Feb. 2019). The Bureau notes that there is some overlap across product categories, for example, a consumer complaining about the conduct of a debt collector seeking to recover on a payday loan would be in the debt collection product category rather than the payday loan product category.

The primary channel through which consumers obtain payday loans, as measured by total dollar volume, is through State-licensed storefront locations. Nevertheless, as discussed in the 2017 Final Rule, the online payday loan industry generates about 50 percent of total payday loan revenue.
37

According to one industry analyst, there were an estimated 14,348 storefronts in 2017, down from the industry's peak of over 24,000 stores ten years earlier.
38

In the 2017 Final Rule, the Bureau noted that there were at least 10 payday lenders with approximately 200 or more storefront locations.
39

The Bureau also estimated that there were over 2,400 storefront payday lenders that are small businesses as defined by the Small Business Administration (SBA).
40

37

See
82 FR 54472, 54487 and John Hecht,
Short Term Lending Update: Moving Forward with Positive Momentum
(2018) (Jefferies LLC, slide presentation) (on file).

38

See
John Hecht,
Short Term Lending Update: Moving Forward with Positive Momentum
(2018) (Jefferies LLC, slide presentation) (on file). In 2017 Final Rule, the Bureau cited the same analyst's estimate of 16,480 payday storefronts in 2015.
See
82 FR 54472, 54480 & n.53.

39
82 FR 54472, 54479 & n.49. These lenders include ACE Cash Express, Advance America, Amscot Financial, Axcess Financial (including brands Check `n Go, Allied Cash), Check Into Cash, Community Choice Financial (including brand Checksmart), CURO Financial Technologies (including brand Speedy Cash), DFC Global Corp (Money Mart), FirstCash, and QC Holdings. Additional payday lenders with at least 200 storefront locations include Cash Express, LLC and Cottonwood Financial dba Cash Store.
See
ACE Cash Express, “Store Locator,”
https://www.acecashexpress.com/locations;
Advance America, “Find an Advance America Store Location,”
https://www.advanceamerica.net/store-locations;
Amscot Financial, Inc., “Amscot Locations,”
https://www.amscot.com/locations.aspx;
Check `n Go, “State Center,”
https://www.checkngo.com/resources/state-center;
Allied Cash Advance, “Allied Cash Advance Store Directory,”
https://locations.alliedcash.com/index.html;
Check Into Cash, “Payday Loan Information By State,”
https://checkintocash.com/payday-loan-information-by-state;
Community Choice Financial (Checksmart), “Locations,”
https://www.ccfi.com/locations/;
SpeedyCash, “Speedy Cash Stores Near Me,”
https://www.speedycash.com/find-a-store;
Money Mart Financial Services, “Home,”
http://www.moneymartfinancialservices.com/index.html;
FirstCash Inc., “Find a Location Near You,”
http://www.firstcash.com/;
QC Holdings, Inc., “United States Retail Operations,”
https://www.qchi.com/productsandservices/usa/retail/; see
Cash Express, LLC,
https://www.cashtn.com/; see also

https://www.consumerfinance.gov/about-us/newsroom/bureau-consumer-financial-protection-settles-cash-express
/(noting approximately 328 retail lending outlets); Cottonwood Financial dba Cash Store,
https://www.cashstore.com/cash-advance-lender-about-us
(all last visited Feb. 4, 2019).

40
82 FR 54472, 54479 & n.52. The number of storefront payday lenders classified as small businesses has likely declined to some extent, continuing the trend noted over the last several years.
See id.
at 54480 & n.53.

Studies seeking to determine the number of consumers who use payday loans annually have come up with a wide range of estimates, from 2.2 million households
41

to 12 million individuals.
42

Given the number of storefronts and the average number of customers per storefront plus the presence of the large online market for payday loans, the actual number of borrowers appears closer to the higher end of the estimates and is cited by at least one industry trade association.
43

41

See
Fed. Deposit Ins. Corp.,
2017 FDIC National Survey of Unbanked and Underbanked Households,
at 41 (Oct. 2018),
https://www.fdic.gov/householdsurvey/2017/2017report.pdf.
This is a reduction from the 2015 numbers of 2.5 million households cited in the 2017 Final Rule;
see
82 FR 54472, 54479 & n.42,
citing
Fed. Deposit Ins. Corp.,
2015 FDIC National Survey of Unbanked and Underbanked Households,
at 2, 34 (Oct. 20, 2016),
https://www.fdic.gov/householdsurvey/2015/2015report.pdf.

42
82 FR 54472, 54479 & n.44,
citing
Pew Charitable Trusts,
Payday Lending in America: Who Borrows, Where They Borrow, and Why,
at 4 (July 2012),
http://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_assets/2012/pewpaydaylendingreportpdf.pdf.

43
Community Financial Services of America, a trade association representing payday and small-dollar lenders, states that approximately 12 million Americans use small dollar loans each year.
See https://www.cfsaa.com/
(last visited Feb. 4, 2019). The 2017 Final Rule pointed to one study estimating, based on administrate State data from three States, that the average payday store served around 500 customers per year. 82 FR 54472, 54480 & n.59 citing Pew Charitable Trusts,
Payday Lending in America: Policy Solutions,
at 18 (Report 3, 2013)
https://www.pewtrusts.org/-/media/legacy/uploadedfiles/pcs_assets/2013/pewpaydaypolicysolutionsoct2013pdf.pdf.

A number of studies have focused on the characteristics of payday borrowers and have found that they typically come from low and moderate income households.
44

The Bureau's own research found that 18 percent of storefront borrowers relied on Social Security or some other form of government benefits or public assistance.
45

44

See
82 FR 54472, 54556-57 (citing studies discussed in text).

45

See id.
at 54556 & n.469, referencing the Bureau's analysis of confidential supervisory data in Bureau of Consumer Fin. Prot.,
Payday Loans and Deposit Advance Products—A White Paper of Initial Data Findings,
at 18 (2013),
https://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf.

Studies of payday borrowers show poor credit histories, limited credit availability, and recent credit-seeking activity.
46

For example, a report analyzing credit scores of borrowers from five large storefront payday lenders and a number of online lenders found that the average storefront borrower had a VantageScore 3.0 score of 532 and that the average online borrower had a score of 525.
47

An academic paper that matched administrative data (
i.e.,
data that is collected or obtained from an organization's or institution's own records and operations) from one storefront payday lender to credit bureau data found that 80 percent of payday applicants had either no credit card or no credit available on a card.
48

The average borrower had 5.2 credit inquiries on her credit report over the 12 months preceding her initial application for a payday loan (three times the number for the general population), but obtained only 1.4 accounts on average.
49

46

See
82 FR 54472, 54557 (citing studies discussed in text).

47

See id.
at 54557, nn.480, 482,
citing
nonPrime101,
Report 8: Can Storefront Payday Borrowers Become Installment Loan Borrowers? Can Storefront Payday Lenders Become Installment Lenders?,
at 5, 7 (2015) (on file). A VantageScore 3.0 score is a credit score created by an eponymous joint venture of the three major credit reporting companies; scores lie in the range of 300-850.
See
82 FR 54472, 54557 n.479. By way of comparison, the national average VantageScore in 2017 was 675 and only 21.2 percent of consumers have a VantageScore below 600. Experian,
State of Credit: 2017
(2018),
https://www.experian.com/blogs/ask-experian/state-of-credit/.

48

See
82 FR 54472, 54557 & n.477,
citing
Neil Bhutta et al.,
Consumer Borrowing after Payday Loan Bans,
59 J. of L. and Econ. 225, at 231-233 (2016). Note that the credit score used in this analysis was the Equifax Risk Score which ranges from 280-850. Frederic Huynh,
FICO Score Distribution,
FICO Blog (Apr. 15, 2013),
http://www.fico.com/en/blogs/risk-compliance/fico-score-distribution-remains-mixed/.

49
82 FR 54472, 54557 & n.478,
citing
Neil Bhutta et al.,
Consumer Borrowing after Payday Loan Bans,
59 J. of L. & Econ. 225, at 231-233 (2016).

Surveys of payday borrowers add to the picture of a substantial portion of consumers in financial distress.
50

For example, in a survey of payday borrowers published in 2009, fewer than half reported having any savings or

reserve funds.
51

Similarly, a 2007 survey found that over 80 percent of payday borrowers reported making at least one late payment on a bill in the preceding three months, and approximately one quarter reported frequently paying bills late.
52

Approximately half reported bouncing at least one check in the previous three months, and 30 percent reported doing so more than once.
53

Furthermore, a 2012 survey found that 58 percent of payday borrowers report that they struggle to pay their bills on time.
54

50
82 FR 54472, 54458 (citing surveys referenced in text).

51

Id.
at 54458 & n.485,
citing
Gregory Elliehausen,
An Analysis of Consumers' Use of Payday Loans,
at 29 (Geo. Wash. Sch. of Bus., Monograph No. 41, 2009),
https://www.researchgate.net/publication/237554300_AN_ANALYSIS_OF_CONSUMERS%27_USE_OF_PAYDAY_LOANS.

52
82 FR 54472, 54558 & n.486,
citing
Jonathan Zinman,
Restricting Consumer Credit Access: Household Survey Evidence on Effects Around the Oregon Rate Cap,
at 20 tbl. 1 (Dartmouth College, 2008),
http://www.dartmouth.edu/~jzinman/Papers/Zinman_RestrictingAccess_oct08.pdf.

53

Id.

54
82 FR 54472, 54558 & n.487,
citing
Pew Charitable Trusts,
Payday Lending in America: How Borrowers Choose and Repay Payday Loans,
at 9 (Report 2, 2013),
http://www.pewtrusts.org/en/research-and-analysis/reports/2013/02/19/how-borrowers-choose-and-repay-payday-loans.

According to Bureau research, payday loan borrowers typically borrow relatively small amounts, with a median loan size of $350.
55

As the Bureau observed in the 2017 Final Rule, understanding why borrowers take out a payday loan is challenging for several reasons. For example, because money is fungible, a consumer who has an unexpected expense may not feel the effect fully until weeks later and thus, when surveyed, may say either that she took out the loan because of the unexpected expense, or that she took out the loan to cover a bill that had come due and for which she was short of cash.
56

Perhaps because of this difficulty, results across surveys are somewhat inconsistent, with one finding that unexpected expenses were driving a large share of payday borrowing, while others finding that payday loans are used primarily to pay for regular expenses such as rent, utilities, or other bills.
57

55
82 FR 54472, 54477 & n.28,
citing
Bureau of Consumer Fin. Prot.,
Payday Loans and Deposit Advance Products—A White Paper of Initial Data Findings,
at 15 (2013),
https://files.consumerfinance.gov/f/201304_cfpb_payday-dap-whitepaper.pdf.

56
82 FR 54472, 54558.

57

Id.; see also id.
at 54558-59 (citing and discussing surveys).

Research by the Bureau found that 80 percent to 85 percent of payday borrowers succeed in repaying their loans.
58

Of these, the Bureau found that between 22 percent and 30 percent do so after receiving a single loan while the remainder repaid after reborrowing one or more times.
59

Of those who defaulted, according to the Bureau's research, roughly 30 percent did so when the loan was initially due while the remainder defaulted after taking out one or more subsequent loans.
60

The Bureau found that borrowers end up taking out at least four loans in a row 43 to 50 percent of the time, taking out at least seven loans in a row 27 to 33 percent of the time, and taking out at least 10 loans in a row 19 to 24 percent of the time.
61

The average payday loan sequence, according to Bureau research, is between 5 and 6 loans.
62

58
Bureau of Consumer Fin. Prot.,
Supplemental findings on payday, payday installment, and vehicle title loans and deposit advance products,
at 120 (June 2016),
https://www.consumerfinance.gov/documents/329/Supplemental_Report_060116.pdf (hereinafter, Supplemental Findings).

59

Id.
The Bureau looked at repayment rates over loan “sequences” and analyzed outcomes using a 14-day definition of a loan sequence (
i.e.,
treating loans made within 14 days of a prior loan as part of a single sequence) and, alternatively, a 30-day definition. The higher repayment rates are from the 14-day definition.

60

Id.

61

Id.
at 123.

62

Id.
at 117.

A longitudinal report by a specialty consumer reporting agency following 1,000 borrowers conducted over 4.5 years found that 30 percent of the original 1,000 borrowers used payday loans persistently over the full observation period.
63

For the persistent borrowers, the average number of loan sequences was approximately 7.3 and these borrowers had a payday loan outstanding about 60 percent of the time.
64

Of the original borrowers who did not use payday loans persistently during the observation period, the average number of loan sequences was approximately 4.5.
65

63

See
82 FR 54472, 54836,
citing
nonPrime 101,
Report 7C: A Balanced View of Storefront Payday Borrowing Patterns,
at tbl. A-7 (2016) (on file);
see also id.
at 6 (tbl.3), 11. The study sought to have a constant population of 1,000 borrowers. Borrowers who left during the time period of the study were replaced by new borrowers to maintain a constant population 1,000 borrowers.
Id.
at 3. For the study's definition of “persistent borrower,” see
id.
at 4.

64
nonPrime101,
Report 7C: A Balanced View of Storefront Payday Borrowing Patterns,
at 3, 6 (2016) (on file);
see also id.
at 14-15 & fig. 42.

65

Id.
at 6 & tbl. 3.

2. Single-Payment Vehicle Title Loans

The second major category of loans covered by the Mandatory Underwriting Provisions of the 2017 Final Rule is single-payment vehicle title loans. As explained in the 2017 Final Rule, in a title loan transaction, the borrower must provide identification and usually the title to the vehicle as evidence that the borrower owns the vehicle “free and clear.”
66

The lender retains the vehicle title or some other form of security interest during the duration of the loan, while the borrower retains physical possession of the vehicle.
67

Single-payment vehicle title loans are typically due in 30 days.
68

66
82 FR 54472, 54489.

67

See id.
at 54490.
See also, e.g.,
Speedy Cash,
Title Loans FAQs, https://www.speedycash.com/faqs/title-loans
(last visited Feb. 4. 2019); TitleMax,
Answers to Your Questions about Title Loans, https://www.titlemax.com/faqs
(last visited Feb. 4, 2019).

68

See
82 FR 54472, 54490 & n.181,
citing
Pew Charitable Trusts,
Auto Title Loans—Market practices and borrowers' experiences
(2015),
https://www.pewtrusts.org/~/media/assets/2015/03/autotitleloansreport.pdf. See also
Idaho Dep't of Fin.,
Idaho Credit Code `Fast Facts,' https://www.finance.idaho.gov/ConsumerFinance/Documents/Idaho-Credit-Code-Fast-Facts-With-Fiscal-Annual-Report-Data-01012015.pdf
; Tenn. Dep't of Fin. Inst.,
2018 Report on the Title Pledge Industry,
at 4 (Apr. 23, 2018)
https://www.tn.gov/content/dam/tn/financialinstitutions/new-docs/TP%20Annual%20Report%202018.pdf.

As with payday loans, the States have taken different regulatory approaches with respect to single-payment vehicle title loans. Seventeen States currently permit single-payment vehicle title lending.
69

Another six States permit title installment loans but those loans are not affected by the Mandatory Underwriting Provisions of the 2017 Final Rule.
70

Three States (Arizona, Georgia, and New Hampshire) permit single-payment vehicle title loans but prohibit or substantially restrict payday loans.
71

As with State restrictions on payday loans, these State vehicle title laws represent the judgment of the various States as to the limitations, if any, that should be placed on consumers' ability to choose vehicle title loans within their respective jurisdictions.

69
As noted in the 2017 Final Rule, New Mexico had enacted a law in 2017, effective January 1, 2018, that prohibits single-payment vehicle title loans and allows only installment title lending. New Mexico is no longer counted as one of the States authorizing single-payment vehicle title loans.
See
82 FR 54472, 54490. Ohio is counted as one of the 17 States but as noted above, a bill signed by the governor in 2018 will prohibit lenders from making loans of $5,000 or less secured by a vehicle title or any other collateral. Ohio lenders must comply with the law as of April 27, 2019.
See https://www.com.ohio.gov/documents/fiin_HB123_Guidance.pdf; see also
Ohio House Bill 123,
An Act to Modify the Short-Term Loan Act, https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA132-HB-123.

70

See
82 FR 54472, 54490. New Mexico is now counted in this group as the State allows only title installment lending.

71

Id.

Also as with payday loans, some of the States that permit single-payment vehicle title loans have adopted a

variety of regulatory provisions governing such loans, including limitations on the maximum price
72

and maximum loan size.
73

A few States regulate reborrowing with either a cooling-off period between loans or a mandatory minimum amortization.
74

A number of State laws contain provisions addressing default and repossession including cure provisions and provisions governing deficiencies or surpluses if a vehicle is repossessed and sold.
75

72
States with a 15 percent to 25 percent per month rate cap include Alabama, Georgia (rate decreases after 90 days), Mississippi, and New Hampshire. Ala. Code sec. 5-19A-7(a); Ga. Code Ann. sec. 44-12-131(a)(4); Miss. Code Ann. sec. 75-67-413(1); N.H. Rev. Stat. Ann. sec. 399-A:18(I)(f). Tennessee limits interest rates to 2 percent per month, but also allows for a fee up to 20 percent of the original principal amount. Tenn. Code Ann. sec. 45-15-111(a). Virginia's fees (installment title loans) are tiered at 22 percent per month for amounts up to $700 and then decrease on larger loans. Va. Code Ann. sec. 6.2-2216(A).
See also
54472, 54490 & n.184.

73
For example, some maximum vehicle title loan amounts are $2,500 in Mississippi and Tennessee, and $5,000 in Missouri. Miss. Code Ann. sec. 75-67-415(f); Tenn. Code Ann. sec. 45-15-115(3); Mo. Rev. Stat. sec. 367.527(2). Illinois limits the loan amount to $4,000 or 50 percent of monthly income, Virginia (installment title loans) and Wisconsin limit the loan amount to 50 percent of the vehicle's value and Wisconsin also has a $25,000 maximum loan amount. Ill. Admin. Code tit. 38, sec. 110.370(a); Va. Code Ann. sec. 6.2-2215(1)(d); Wis. Stat. Ann. sec. 138.16(1)(c), (2)(a). Examples of States with no limits on loan amounts, limits of the amount of the value of the vehicle, or statutes that are silent about loan amounts include Arizona, Idaho, and Utah. Ariz. Rev. Stat. Ann. sec. 44-291(A); Idaho Code Ann. sec. 28-46-508(3); Utah Code Ann. sec. 7-24-202(3)(c).
See also
82 FR 54472, 54491.

74
Illinois requires 15 days between title loans. Ill. Admin. Code tit. 38, sec. 110.370(c). Delaware requires title lenders to offer a workout agreement after default but prior to repossession that repays at least 10 percent of the outstanding balance each month. Delaware does not cap fees on title loans and interest continues to accrue on workout agreements. Del. Code Ann. tit. 5, secs. 2255, 2258. New Hampshire law prohibits title lenders from making a title loan within 60 days of a prior payday or title loan and title loan renewals are permitted up to nine times with at least 10 percent amortization of the original balance owed. N.H. Rev. Stat. Ann. secs. 399-A:18.I(e), 399-A:19.II.
See also
82 FR 54472, 54491 & n.185.

75
For example, Georgia allows repossession fees and storage fees. Ga. Code Ann. sec. 44-12-131(a)(4)(C). Arizona, Delaware, Idaho, Missouri, South Dakota, Tennessee, Utah, Virginia, and Wisconsin specify that any surplus must be returned to the borrower. Ariz. Rev. Stat. Ann. sec. 47-9608(A)(4); Del. Code Ann. tit. 5, sec. 2260; Idaho Code Ann. sec. 28-9-615(d); Mo. Rev. Stat. sec. 408.553; S.D. Codified Laws sec. 54-4-72; Tenn. Code Ann. sec. 45-15-114(b)(2); Utah Code Ann. sec. 7-24-204(3); Va. Code Ann. sec. 6.2-2217(C); Wis. Stat. sec. 138.16(4)(e). Mississippi requires that 85 percent of any surplus be returned. Miss. Code Ann. sec. 75-67-411(5).
See also
82 FR 54472, 54491 & n.188.

As explained in the 2017 Final Rule, information about the vehicle title market is more limited than the storefront payday industry.
76

There are approximately 8,000 title loan storefront locations in the United States, about half of which also offer payday loans.
77

Of those locations that predominantly offer vehicle title loans, three privately held firms dominate the market and together account for approximately 3,000 stores in over 20 States.
78

In addition to the large title lenders, the Bureau estimated that there are about 800 vehicle title lenders that are small businesses as defined by the SBA.
79

76
82 FR 54472, 54491.

77

See id.
at 54491 & n.197,
citing
Pew Charitable Trusts,
Auto Title Loans—Market practices and borrowers' experiences
(2015),
https://www.pewtrusts.org/~/media/assets/2015/03/autotitleloansreport.pdf.

78
The largest vehicle title lender is TMX Finance, LLC, formerly known as Title Max Holdings, LLC, with about 1,200 stores.
See https://www.titlemax.com/store-locator/
and
https://www.titlebucks.com/store-locator/
(last visited Feb. 4, 2019) (TMX Finance has stores in 16 States and TitleBucks has stores in 6 States);
see also
Community Loans of America,
https://clacorp.com/about-us
(last visited Feb. 4, 2019) (over 1,000 locations in 25 States); Select Management Resources (roughly 600 stores) (Select Management Resources brands include LoanMax, LoanStar Title Loans, Midwest Title Loans, and North American Title Loans),
https://www.loanmaxtitleloans.net/SiteMap, https://www.loanstartitleloans.net/SiteMap, https://www.midwesttitleloans.net/SiteMap, https://www.northamericantitleloans.net/SiteMap
(all last visited Feb. 4, 2019). Store counts for these three firms may include States with stores that offer installment vehicle title loans.

79
82 FR 54472, 54492 & n.200, explaining that State reports have been supplemented with estimates from Center for Responsible Lending, revenue information from public filings, and from non-public sources.
See
Jean Ann Fox et al.,
Driven to Disaster: Car-Title Lending and Its Impact on Consumers,
at 7 (Consumer Fed'n of Am. and Ctr. for Responsible Lending, 2013),
https://www.responsiblelending.org/other-consumer-loans/car-title-loans/research-analysis/CRL-Car-Title-Report-FINAL.pdf.

The available evidence suggests that between 1.8 million households and 2 million adults use vehicle title loans annually, although these studies do not necessarily differentiate between single-payment and installment vehicle title loans.
80

The demographic profiles of vehicle title borrowers appear to be roughly comparable to the demographics of payday borrowers, which is to say that they tend to be lower and moderate income.
81

In one survey, 30 percent of vehicle title borrowers reported that they struggle to meet their expenses most or all months and another 20 percent said that was true half the time.
82

The Bureau is not aware of any published research regarding the credit profiles of single-payment vehicle title borrowers.

80
Fed. Deposit Ins. Corp.,
2017 FDIC National Survey of Unbanked and Underbanked Households,
at 41 (Oct. 2018),
https://www.fdic.gov/householdsurvey/2017/2017report.pdf.
The number of households using title loans in the FDIC survey rose from the 1.7 million households reported in the 2015 survey cited in the 2017 Final Rule.
See
Pew Charitable Trusts,
Auto Title Loans—Market practices and borrowers' experiences,
at 33 (2015),
https://www.pewtrusts.org/~/media/assets/2015/03/autotitleloansreport.pdf
; 82 FR 54472, 54491 & n.195.

81
Fed. Deposit Ins. Corp.,
2017 FDIC National Survey of Unbanked and Underbanked Households
(Oct. 2018),
https://www.fdic.gov/householdsurvey/2017/2017report.pdf
(calculations made using custom data tool).

82
Pew Charitable Trusts,
Auto Title Loans—Market practices and borrowers' experiences,
at 6 (2015),
https://www.pewtrusts.org/~/media/assets/2015/03/autotitleloansreport.pdf.

As with payday loans, understanding the factors that cause consumers to use vehicle title loans is challenging. In one survey, 25 percent of borrowers attributed their need for a vehicle title loan to an unexpected emergency expense, 52 percent attributed their need to recurring expenses, and the remainder pointed to other expenses or did not know.
83

83

Id.
at 7.

Vehicle title loans differ from payday loans in at least two important respects. First, these loans enable consumers to borrow larger amounts: The Bureau's research found that the median vehicle title loan amount was $694, or roughly double the size of the median payday loan amount.
84

Second, whereas a payday loan is only available to those with a bank account or other transaction account, unbanked consumers with clear vehicle title can obtain a vehicle title loan. Indeed, some vehicle title lenders do not require a copy of a pay stub or other evidence of current income in order to make a loan.
85

84
82 FR 54472, 54490 & n.182,
citing
Bureau of Consumer Fin. Prot.,
Single-Payment Vehicle Title Lending,
(May 2016),
https://files.consumerfinance.gov/f/documents/201605_cfpb_single-payment-vehicle-title-lending.pdf.

85
82 FR 54472, 54490 & n.174.

The Bureau's research found that roughly two-thirds of single-payment vehicle title borrowers repay their loans. Of borrowers who repaid, 12 percent of them did so when the initial loan was due and the remainder reborrowed one or more times before repaying.
86

Of borrowers who defaulted, roughly 30 percent did so when the loan was initially due, while the remainder defaulted after taking out one or more subsequent loans.
87

Borrowers end up taking out at least four loans in a row roughly 55 percent of the time, taking out at least seven loans roughly 35 percent of the time, and taking out at

least 10 loans slightly over 20 percent of the time.
88

86

Id.
at 54566 & n.531,
citing
Bureau of Consumer Fin. Prot.,
Single-Payment Vehicle Title Lending,
at 11 (May 2016),
https://files.consumerfinance.gov/f/documents/201605_cfpb_single-payment-vehicle-title-lending.pdf.

87
Bureau of Consumer Fin. Prot.,
Single-Payment Vehicle Title Lending,
at 11 (May 2016),
https://files.consumerfinance.gov/f/documents/201605_cfpb_single-payment-vehicle-title-lending.pdf.

88

Id.
at 12. The percentage of vehicle title borrowers in each of the categories described in the text does not appear to vary with different definitions of loan sequences as substantially all reborrowing occurs when the loan is due.

3. Longer-Term Balloon-Payment Loans

The third category of loans covered by the Mandatory Underwriting Provisions of the 2017 Final Rule is longer-term balloon-payment loans which generally involve a series of small, often interest-only, payments followed by a single larger lump sum payment.
89

In 2017, the Bureau noted that there did not appear to be a large market for such loans. However, the Bureau expressed the concern that the market for these longer-term balloon-payment loans, with structures similar to payday loans and that pose similar risks to consumers, might grow if only covered short-term loans were regulated under the 2017 Final Rule.
90

Because the market was relatively small, the Bureau supplemented its analysis with relevant information on related types of covered longer-term loans, such as hybrid payday loans, payday installment loans, and vehicle title installment loans.
91

The profile of borrowers in the market for longer-term balloon-payment loans is similar to those seeking covered short-term and vehicle title loans—they also generally have low average incomes, poor credit histories, and recent credit-seeking activity.
92

89
82 FR 54472, 54475. For examples of longer-term balloon-payment loans, see
id.
at 54486 & n.143, 54490 & n.179.

90

Id.
at 54472, 54527-28.

91

Id.
at 54580.

92

Id.
at 54581.

In analyzing the data that was available, the Bureau found that about 60 percent of longer-term balloon-payment loans resulted in refinancing, reborrowing, or default.
93

By contrast, nearly 60 percent of comparable fully-amortizing installment loans without a balloon-payment were repaid without refinancing or reborrowing.
94

93

Id.
at 54582.

94

Id.

B. The Mandatory Underwriting Provisions of the 2017 Final Rule

The
SUPPLEMENTARY INFORMATION
accompanying the 2017 Final Rule provides an explanation of the Mandatory Underwriting Provisions of the Rule. This part II.B provides a high-level summary of certain of those provisions that are most directly relevant to the Bureau's decision to propose their reconsideration. The Bureau's rationale for the Mandatory Underwriting Provisions, as set forth in the
SUPPLEMENTARY INFORMATION
accompanying the 2017 Final Rule, is discussed in part V.A below.

As noted above, the 2017 Final Rule contains, in § 1041.4, an identification provision which provides that it is an unfair and abusive practice for a lender to make covered short-term loans or covered longer-term balloon-payment loans without reasonably determining that the consumers will have the ability to repay the loans according to their terms.

Section 1041.5 contains a set of underwriting requirements adopted to prevent the unfair and abusive practice. Specifically, § 1041.5(c)(2) requires lenders making covered short-term or longer-term balloon-payment loans to obtain a written statement from the consumer with respect to the consumer's net income and major financial obligations; obtain verification evidence of the consumer's income, if reasonably available, and major financial obligations; obtain a report from a national consumer reporting agency and a report from a registered information system with respect to the consumer; and review its own records and the records of its affiliates for evidence of the consumer's required payments under any debt obligations. Using these inputs, the lender is generally required pursuant to § 1041.5(b) and (c)(1) to make a reasonable projection of the consumer's net income and payments for major financial obligations over the ensuing 30 days; calculate either the consumer's debt-to-income ratio or the consumer's residual income; estimate the consumer's basic living expenses; and determine based upon the debt-to-income or residual income calculations whether the consumer will be able to make the payments for his or her payment obligations and the payments under the covered loan and still meet the consumer's basic living expenses during the term of the loan and for a period of 30 days thereafter.
95

95
The Rule defines “basic living expenses” and “major financial obligations.”
See
12 CFR 1041.5(a)(1) and (3).

This determination is required each time a consumer returns to take out a new loan, although pursuant to § 1041.5(c)(2)(ii)(D) the lender generally need not obtain a new national credit report if one was obtained within the prior 90 days. If a consumer has obtained three loans each within 30 days of the prior loan, pursuant to § 1041.5(d)(2) the lender cannot make another covered short-term or longer-term balloon-payment loan for a period of 30 days.

As also noted above, the 2017 Final Rule contains a conditional exemption in § 1041.6 which allows lenders to make covered short-term loans without an ability-to-repay determination under § 1041.5. In order to qualify for the conditional exemption, pursuant to § 1041.6(b)(1)(i), the principal cannot exceed $500 for the first in a sequence of covered short-term loans, and pursuant to § 1041.6(b)(3) the conditional exemption is not available for vehicle title loans. A lender may not make more than three loans in succession under this conditional exemption and the loans must provide for a “principal step-down” over the sequence pursuant to § 1041.6(b)(1)(ii) and (iii) such that the second loan in a sequence can be for only two-thirds of the amount of the initial loan and the third loan in a sequence for one-third of the initial loan amount.

Pursuant to § 1041.6(c)(1), a lender cannot make a loan under the conditional exemption to a consumer who has had an outstanding covered short-term or longer-term balloon-payment loan in the preceding 30 days. Pursuant to § 1041.6(c)(3), the lender also cannot make a loan that would result in the consumer having more than six covered short-term loans outstanding during any consecutive 12-month period or result in the consumer being in debt on any covered short-term loans for longer than 90 days in any consecutive 12-month period. To verify the consumer's eligibility, before making a conditionally exempt covered short-term loan pursuant to § 1041.6(a), the lender must review the consumer's borrowing history in its own records and those of its affiliates and obtain a report from a Bureau-registered information system to determine a potential loan's compliance with § 1041.6(b) and (c).

Lenders making covered short-term and longer-term balloon-payment loans—including conditionally exempt covered short-term loans—generally are required to furnish certain information on those loans to every registered information system that has been registered with the Bureau for 180 days or more. Pursuant to § 1041.10(c)(1), certain information must be furnished no later than the date on which the loan is consummated or as close in time as feasible thereafter; pursuant to § 1041.10(c)(2), updates to such information must be furnished within a reasonable period after the event that requires the update.

In adopting the Mandatory Underwriting Provisions, the Bureau considered and rejected a number of alternatives to the Mandatory

Underwriting Provisions, including requiring disclosures, adopting a payment-to-income ratio requirement, adopting one of the various State law approaches to regulating short-term loans (such as rollover caps, less detailed ability-to-repay frameworks, complete bans on short-term lending products), and other suggestions from commenters.
96

96

See
82 FR 54472, 54636-40.

C. The Estimated Impacts of the Mandatory Underwriting Provisions of the 2017 Final Rule

The
SUPPLEMENTARY INFORMATION
accompanying the 2017 Final Rule contains regulatory impact analyses, including an analysis of the benefits and costs to consumers and covered persons
97

as required by section 1022(b)(2)(A) of the Dodd-Frank Act (also referred to as the “section 1022(b)(2) analysis”),
98

and the final Regulatory Flexibility Act analysis (FRFA)
99

as required by that Act.
100

The Bureau does not here repeat all of that information and those findings. Rather, this part summarizes the estimates and conclusions from those analyses that the Bureau views as most relevant to its decision to propose rescinding the Mandatory Underwriting Provisions.

97

See id.
at 54814-53.

98
12 U.S.C. 5512(b)(2)(A).

99

See
82 FR 54472, 54853-70.

100
5 U.S.C. 601 through 612.

In the section 1022(b)(2) analysis for the 2017 Final Rule, the Bureau observed that the primary impacts of the Rule on covered persons derived mainly from the restrictions on who could obtain payday and single-payment vehicle title loans and the number of such loans that could be obtained. In order to simulate the impacts of the Mandatory Underwriting Provisions, the Bureau assumed, after reviewing a number of studies by the Bureau, Bureau staff, and outside researchers concerning payday borrowers, that only 33 percent of current payday and vehicle title borrowers would be able to satisfy the Rule's ability-to-pay requirement when initially applying for a loan and that for each succeeding loan in a sequence only one-third of borrowers would satisfy the mandatory underwriting requirement (
i.e.,
11 percent of current borrowers for a second loan and 3.5 percent for a third loan).
101

Applying these assumptions to data with respect to current patterns of borrowing and reborrowing, the Bureau estimated that, absent the conditional exemption in § 1041.6, the Mandatory Underwriting Provisions of the Rule would reduce payday loan volume and lender revenue by approximately 92 to 93 percent relative to lending volumes in 2017 and vehicle title volume and lender revenue by between 89 and 93 percent.
102

Factoring in the expected effects of the conditional exemption, and assuming that payday lenders would endeavor to take full advantage of that exemption before seeking to qualify consumers for a loan under the mandatory underwriting requirements of § 1041.5, the Bureau estimated that the Mandatory Underwriting Provisions would result in a decrease in the number of payday loans of 55 to 62 percent and, because of the step-down feature of the conditional exemption, a decrease in payday lender revenue of between 71 and 76 percent.
103

Given that short-term vehicle title loans are not eligible for the conditional exemption, the Bureau estimated that the Mandatory Underwriting Provisions would result in a decrease in the number of short-term vehicle title loans of between 89 and 93 percent, with an equivalent reduction in loan volume and revenue.
104

101
82 FR 54472, 54826-34.

102

Id.
at 54826, 54834.

103

Id.
at 54826.

104

Id.
at 54834.

The Bureau, in its section 1022(b)(2) analysis, determined that these revenue impacts would have a substantial effect on the market. The Bureau projected that unless lenders were able to replace their reduction in revenue with other products, there would be a contraction in the number of storefronts of similar magnitude to the contraction in revenue,
i.e.,
a contraction of between 71 and 76 percent for storefront payday lenders and of between 89 and 93 percent for vehicle title lenders.
105

105

Id.
at 54835.

In the section 1022(b)(2) analysis, the Bureau identified a number of impacts that the Mandatory Underwriting Provisions would have on consumers' ability to access credit. Specifically, the Bureau estimated that approximately 6 percent of existing payday borrowers would be unable to initiate a new loan because they would have exhausted the loans permitted under the conditional exemption and would not be able to satisfy the ability-to-repay requirement.
106

Vehicle title borrowers would be more likely to be unable to obtain an initial loan because the conditional exemption does not extend to such loans;
107

the Bureau noted that while those borrowers could pursue a payday loan, there are two States that permit vehicle title loans but not payday loans and that 15 percent of vehicle title borrowers do not have a checking account and thus may not be eligible for a payday loan.
108

106

Id.
at 54840.

107

Id.

108

Id.

In the section 1022(b)(2) analysis the Bureau identified, but did not quantify, certain other potential impacts of the Mandatory Underwriting Provisions on consumers' access to credit. Consumers seeking to borrow more than $500 after the 2017 Final Rule's compliance date may find their ability to do so limited because of the cap on the initial loan amount under the conditional exemption and because of the impact of the Rule on vehicle title loans, which tend to be for larger amounts.
109

Additionally, because of the principal step-down feature of the conditional exemption, consumers obtaining loans under that exemption would be forced to repay their loans more quickly than they do today. The Bureau believed that 40 percent of the reduction in payday revenue estimated to result from the Mandatory Underwriting Provisions would be the result of the cap on loan sizes under the conditional exemption and the remainder would be the result of the restriction on the number of loans available to consumers under that exemption coupled with the mandatory underwriting requirement for any additional loans.
110

Finally, the Bureau concluded, based on research concerning the implementation of various State regulations, that although the reduction in the number of storefronts would not substantially affect consumers' geographic access to payday locations in most areas, a small share of potential borrowers will lose easy access to stores.
111

109

Id.
at 54841.

110

Id.

111

Id.
at 54842 & n.1224. Research conducted by the Bureau had found that in one State where regulatory restrictions resulted in a substantial contraction of payday stores, the median distance between stores in counties outside of metropolitan areas increased from 0.2 miles to 13.9 miles. Supplemental Findings at 87.

The Bureau, in the section 1022(b)(2) analysis, went on to observe that consumers who are unable to obtain a new loan because they cannot satisfy the Rule's mandatory underwriting requirement and have exhausted or cannot qualify for a loan under the conditional exemption will have reduced access to credit. They may be forced at least in the short term to forgo certain purchases, incur high costs from delayed payment of existing obligations, incur high costs and other negative impacts by simply defaulting on bills, or they may choose to borrow from sources

that are more expensive or otherwise less desirable.
112

Some borrowers may overdraft their checking accounts; depending on the amount borrowed, an overdraft on a checking account may be more expensive than taking out a payday or single-payment vehicle title loan.
113

Similarly, “borrowing” by paying a bill late may lead to late fees or other negative consequences like the loss of utility service.
114

Other consumers may turn to friends or family when they would rather borrow from a lender.
115

The Bureau concluded, however, that to the extent the 2017 Final Rule's Mandatory Underwriting Provisions curbed extended borrowing sequences by consumers who did not expect such lengthy sequences, those provisions would have a positive effect on consumer welfare.
116

112

See
82 FR 54472, 54841.

113

Id.

114

Id.

115

Id.

116

Id.
at 54846.

III. Outreach

The Bureau has engaged in efforts to monitor and support industry implementation since the 2017 Final Rule was issued. As a part of those efforts, the Bureau has received input from a number of stakeholders regarding various aspects of the 2017 Final Rule. This input has included both concerns about lenders' ability to comply with the Rule and about the broader effects of various substantive provisions of the Rule on covered loans.

In developing this proposal, the Bureau has taken into account both the input it has received from stakeholders through its efforts to monitor and support industry implementation of the 2017 Final Rule as well as comments received in response to other Bureau initiatives, including the Bureau's Call for Evidence series of RFIs issued in spring 2018. The issues that the Bureau has determined are appropriate to revisit are discussed in detail below.

Some of the concerns stakeholders have raised to the Bureau are outside of the scope of this proposal. For example, the Bureau received a rulemaking petition to exempt debit card payments from the Rule's Payment Provisions. The Bureau has also received informal requests related to various aspects of the Payment Provisions or the Rule as a whole, including requests to exempt certain types of lenders or loan products from the Rule's coverage and to delay the compliance date for the Payment Provisions. The Bureau intends to examine these issues and if the Bureau determines that further action is warranted, the Bureau will commence a separate rulemaking initiative (such as by issuing an RFI or an advance notice of proposed rulemaking).

Interagency Consultation.
As discussed in connection with section 1022(b)(2) of the Dodd-Frank Act below, the Bureau's outreach included consultation with other Federal consumer protection and prudential regulators. The Bureau has provided other regulators with information about the Bureau's proposals, and received feedback that has assisted the Bureau in preparing this proposal.

Consultation with State and Local Officials.
The Bureau's outreach also included calls with State Attorneys General, State financial regulators, and organizations representing the officials charged with enforcing applicable Federal, State, and local laws on small-dollar loans.

Tribal Consultations.
The Bureau has engaged in consultation with Indian tribes about this proposal. The Bureau held a consultation on December 19, 2018, at the Bureau's headquarters. All Federally-recognized Indian tribes were invited to this consultation, which generated frank and valuable input from Tribal leaders to Bureau senior leadership and staff about the effects such a proposal could have on Tribal nations and lenders.

In the meantime, the Bureau expects to release a small entity compliance guide to aid compliance with the Payment Provisions of the 2017 Final Rule. The guide will be published on the Bureau's regulatory implementation website for the Rule at
https://www.consumerfinance.gov/policy-compliance/guidance/payday-lending-rule/.

IV. Legal Authority

Part IV of the
SUPPLEMENTARY INFORMATION
that accompanied the 2017 Final Rule discussed the legal authorities for the Rule.
117

Commenters may refer to that discussion for information about the legal background relating to the Rule. Each of the legal authorities that the Bureau relied upon in the 2017 Final Rule provides the Bureau with discretion to issue rules, and the Bureau preliminarily interprets these authorities to permit the Bureau to exercise that discretion to rescind a previously issued rule. This part IV summarizes the legal authorities that the Bureau views as most relevant to consideration of this proposal to rescind the Mandatory Underwriting Provisions.

117
82 FR 54472, 54519-24.

The Bureau adopted the Mandatory Underwriting Provisions of the 2017 Final Rule in principal reliance on the Bureau's authority under section 1031(b) of the Dodd-Frank Act.
118

Section 1031(b) of the Dodd-Frank Act provides that the Bureau “may prescribe rules applicable to a covered person or service provider identifying as unlawful unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service.” Section 1031(b) of the Dodd-Frank Act further provides that rules under section 1031 may include requirements for the purpose of preventing such acts or practices.

118
12 U.S.C. 5531(b).

Section 1031(c)(1) of the Dodd-Frank Act provides that the Bureau shall have no authority under section 1031 to declare an act or practice in connection with a transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service, to be unlawful on the grounds that such act or practice is unfair, unless the Bureau has a reasonable basis to conclude that: The act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers; and such substantial injury is not outweighed by countervailing benefits to consumers or to competition.
119

As the 2017 Final Rule explained, the unfairness provisions of the Dodd-Frank Act are similar to the unfairness provisions under the Federal Trade Commission Act (FTC Act), and the meaning of the Bureau's authority under section 1031(b) is informed by the FTC Act unfairness standard and FTC and other Federal agency rulemakings.
120

When applying section 1031(c) of the Dodd-Frank Act, the Bureau also considers the Federal Trade Commission's “Commission Statement

of Policy on Scope of Consumer Unfairness Jurisdiction” (FTC Policy Statement), the principles of which Congress generally incorporated into section 5 of the FTC Act.
121

119
12 U.S.C. 5531(c)(1). Additionally, section 1031(c)(2) of the Dodd-Frank Act provides that in determining whether an act or practice is unfair, the Bureau may consider established public policies as evidence to be considered with all other evidence. Such public policy considerations may not serve as a primary basis for such determination. 12 U.S.C. 5531(c)(2).

120
82 FR 54472, 54520.
See also
15 U.S.C. 41
et seq.
Section 5(n) of the FTC Act, as amended in 1994, provides that the Federal Trade Commission (FTC) shall have no authority to declare unlawful an act or practice on the grounds that such act or practice is unfair unless the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition. In determining whether an act or practice is unfair, the FTC may consider established public policies as evidence to be considered with all other evidence. Such public policy considerations may not serve as a primary basis for such determination. 15 U.S.C. 45(n).

121

See
Letter from the FTC to Hon. Wendell Ford and Hon. John Danforth, Committee on Commerce, Science and Transportation, United States Senate, Commission Statement of Policy on the Scope of Consumer Unfairness Jurisdiction (Dec. 17, 1980),
reprinted in In re Int'l Harvester Co.,
104 F.T.C. 949, 1070-88 (1984);
see also
S. Rep. No. 103-130, at 12-13 (1993) (legislative history to FTC Act amendments indicating congressional intent to codify the principles of the FTC Policy Statement).

Under section 1031(d) of the Dodd-Frank Act, the Bureau “shall have no authority . . . . to declare an act or practice abusive in connection with the provision of a consumer financial product or service” unless the act or practice meets at least one of several enumerated conditions.
122

Section 1031(d)(2) of the Dodd-Frank Act provides, in pertinent part, that an act or practice is abusive when it takes unreasonable advantage of (1) a consumer's lack of understanding of the material risks, costs, or conditions of the product or service; or (2) a consumer's inability to protect the interests of the consumer in selecting or using a consumer financial product or service.

122
12 U.S.C. 5531(d).

The Bureau's reasons for proposing to rescind its use of unfairness and abusiveness authority in the Mandatory Underwriting Provisions are discussed in parts V.B and V.C below.

In addition to section 1031 of the Dodd-Frank Act, the Bureau relied on other legal authorities for certain aspects of the Mandatory Underwriting Provisions of the 2017 Final Rule.
123

These include the conditional exemption for certain loans in § 1041.6; two provisions (§§ 1041.10 and 1041.11) that facilitate lenders' ability to obtain certain information about consumers' borrowing history from information systems that have registered with the Bureau; and certain recordkeeping requirements in § 1041.12.

123

See
82 FR 54472, 54522.

In adopting each of these provisions, the Bureau relied on one or more of the following authorities. Section 1022(b)(3)(A) of the Dodd-Frank Act authorizes the Bureau, by rule, to conditionally or unconditionally exempt any class of covered persons, service providers, or consumer financial products or services from any rule issued under Title X, which includes a rule issued under section 1031, as the Bureau determines is necessary or appropriate to carry out the purposes and objectives of Title X. In doing so, the Bureau must take into consideration the factors set forth in section 1022(b)(3)(B) of the Dodd-Frank Act.
124

Section 1022(b)(3)(B) specifies three factors that the Bureau shall, as appropriate, take into consideration in issuing such an exemption.
125

The Bureau also relied, in adopting certain provisions, on its authority under section 1022(b)(1) of the Dodd-Frank Act to prescribe rules as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws.
126

The term Federal consumer financial law includes rules prescribed under Title X of the Dodd-Frank Act, including those prescribed under section 1031.
127

Additionally, in the 2017 Final Rule, the Bureau relied, for certain provisions, on other authorities, including those in sections 1021(c)(3), 1022(c)(7), 1024(b)(7), and 1032 of the Dodd-Frank Act.
128

124
12 U.S.C. 5512(b)(3)(A).

125
12 U.S.C. 5512(b)(3)(B).

126
12 U.S.C. 5512(b)(1). The Bureau also interprets section 1022(b)(1) of the Dodd-Frank Act as authorizing it to rescind or amend a previously issued rule if it determines such rule is not necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, including a rule issued to identify and prevent unfair, deceptive, or abusive acts or practices.

127
12 U.S.C. 5481(14).

128
12 U.S.C. 5511(c)(3), 12 U.S.C. 5512(c)(7), 12 U.S.C. 5514(b)(7), and 12 U.S.C. 5522.

The Bureau's decisions to use these authorities were premised on its decision to use its authority under section 1031 of the Dodd-Frank Act. If the Bureau decides to rescind its use of section 1031 authority in the Mandatory Underwriting Provisions, the Bureau preliminarily concludes that it should also rescind its uses of these other authorities in the Mandatory Underwriting Provisions. The specific provisions of the 2017 Final Rule that the Bureau is proposing to rescind are discussed further in the section-by-section analysis in part VI below.

V. Explanation of the Bases for This Proposal To Rescind the Mandatory Underwriting Provisions of the 2017 Final Rule

This part explains the Bureau's reasons for proposing to rescind the use of its unfairness and abusiveness authority under section 1031 of the Dodd-Frank Act in the Mandatory Underwriting Provisions of the 2017 Final Rule. Part V.A reviews certain of the factual predicates and legal conclusions underlying this use of authority. Part V.B sets forth the Bureau's reasons for preliminarily concluding that the Bureau should require more robust and reliable evidence than it supplied in the 2017 Final Rule to support those factual predicates. Part V.C sets forth the Bureau's additional reasons for preliminarily determining that, under sections 1031(c) and (d) of the Dodd-Frank Act, the Bureau no longer identifies an unfair and abusive practice as set out in § 1041.4 of the 2017 Final Rule.
129

In part V.D, the Bureau discusses its consideration of alternatives. In part V.E, the Bureau concludes its analysis and requests comments.

129
The Bureau notes that, alongside covered short-term loans, the 2017 Final Rule included covered longer-term balloon-payment loans within the scope of the identified unfair and abusive practice. The Bureau stated that it was concerned that the market for covered longer-term balloon-payment loans, which is currently quite small, could expand dramatically if lenders were to circumvent the Mandatory Underwriting Provisions by making these loans without assessing borrowers' ability to repay. 82 FR 54472, 54583-84. The Bureau did not separately analyze the elements of unfairness and abusiveness for covered longer-term balloon-payment loans.
See id.
at 54583 n.626. Because the Bureau's identification in the Rule as to covered longer-term balloon-payment loans was predicated on its identification as to covered short-term loans, the Bureau preliminarily believes that if the latter is rescinded the former should also be rescinded.

Before addressing these factual and legal issues, the Bureau offers a few preliminary observations to place this rulemaking in its proper context.

Consumers living paycheck to paycheck and with little to no savings to fall back on face challenging financial lives. The Bureau's research has demonstrated that liquid savings and the ability to absorb a financial shock are closely tied to financial well-being.
130

A major focus of the Bureau's consumer education efforts has been, and continues to be, on encouraging savings among consumers. The Bureau also continues to conduct research to understand the efficacy of alternative methods of promoting savings
131

and, more generally, to better understand the specific events that can cause consumers to struggle to make ends meet and the choices consumers face in these circumstances.
132

130
Bureau of Consumer Fin. Prot.,
Financial well-being in America,
at 48-49 (2017),
https://files.consumerfinance.gov/f/documents/201709_cfpb_financial-well-being-in-America.pdf.

131
The Bureau has published a study of a randomized control trial testing alternative means of encouraging consumers with a prepaid card to place some of their income into a savings vehicle.
See
Bureau of Consumer Fin. Prot.,
Tools for saving: Using prepaid accounts to set aside funds
(2016),
https://files.consumerfinance.gov/f/documents/092016_cfpb_ToolsForSavingPrepaidAccounts.pdf.
The Bureau also is studying alternative means of encouraging savings of tax refunds in a research partnership with a major tax preparer.

132
Bureau of Consumer Fin. Prot.,

Making Ends Meet Survey, https://www.consumerfinance.gov/

data-research/making-ends-meet-survey/

(“Many households run out of money at one time or another and this survey is designed to help us understand consumer experiences and decisions when money gets tight. Since people's experiences can vary widely, please fill out the survey even if you have not borrowed or run out of money. The information you provide will help shape federal policies to ensure that everyone is treated fairly and respectfully when they borrow money to make ends meet.”).

At the same time, the Bureau recognizes that a substantial number of households do not have the ability to withstand financial shocks without the use of credit or other alternatives, such as obtaining money from friends or relatives, cutting back on expenses, or pawning personal property. The Bureau is committed to ensuring that all consumers have access to consumer financial products and services and that the market for “liquidity loan products” is fair, transparent, and competitive.
133

For example, the Bureau continues to exercise supervisory and enforcement authority over lenders in this market and the Bureau has brought a number of enforcement actions in the past year against payday lenders that the Bureau determined were engaged in deceptive or other unlawful conduct.
134

The Bureau also continues to monitor this market for risks to consumers and to consider ways of assuring that consumers receive timely and understandable information to make responsible decisions regarding their use of these products.
135

Further, the Bureau has expressed its support for the efforts of other regulators to encourage depository institutions to offer credit products for consumers struggling to make ends meet,
136

and the Bureau's newly-created Office of Innovation plans to work with financial technology (fintech) firms seeking to enter the market for liquidity lending and enhance the competitiveness of the market.

133

See
12 U.S.C. 1021(a).

134

See, e.g., In the Matter of Cash Express, LLC,
Consent Order, CFPB No. 2018-BCFP-0007 (Oct. 24, 2018),
https://files.consumerfinance.gov/f/documents/bcfp_cash-express-llc_consent-order_2018-10.pdf;
Stipulated Final Judgment and Order,
CFPB
v.
Moseley,
Case No. 4:14-cv-00789-SRB (W.D. Mo. Aug. 10, 2018),
https://files.consumerfinance.gov/f/documents/bcfp_hydra_stipulated-final-judgment-order_2018-08.pdf; In the Matter of Triton Management Group, Inc., et al.,
Consent Order, CFPB No. 2018-BCFP-0005 (July 19, 2018),
https://files.consumerfinance.gov/f/documents/bcfp_triton-management-group_consent-order_2018-07.pdf; In the Matter of Enova Int'l, Inc.,
Consent Order, CFPB No. 2019-BCFP-0003 (Jan. 25, 2019),
https://files.consumerfinance.gov/f/documents/cfpb_enova-international_consent-order_2019-01.pdf.

135

See
12 U.S.C. 5512(c) and 5511(b)(1).

136

See
Press Release, Bureau of Consumer Fin. Prot.,
Bureau Acting Director Mulvaney Statement on the OCC Short-Term, Small-Dollar Lending Announcement
(May 23, 2018),
https://www.consumerfinance.gov/about-us/newsroom/bureau-acting-director-mulvaney-statement-occ-short-term-small-dollar-lending-announcement/.

The Mandatory Underwriting Provisions in the 2017 Final Rule, in contrast to the Bureau's efforts discussed above to increase credit access and competition in credit markets, would have the effect of restricting access to credit and reducing competition for these products. Moreover, the Mandatory Underwriting Provisions would impose requirements that would have the effect of reducing credit access and competition in the States which have determined it is in their citizens' interest to be able to use such products, subject to State-law limitations. For the reasons that follow, the Bureau preliminarily believes that neither the evidence cited nor legal reasons provided in the 2017 Final Rule support its determination that the identified practice is unfair and abusive, thereby eliminating the basis for the 2017 Final Rule's Mandatory Underwriting Provisions to address that conduct.

The Bureau notes that, even if it were to finalize the proposed revocation of the Mandatory Underwriting Provisions, doing so would not preclude the agency in the future from imposing one or more alternatives to these provisions, provided that the Bureau has the necessary and appropriate factual and legal bases for doing so.

A. Overview of the Factual Predicates and Legal Conclusions Underlying the Mandatory Underwriting Provisions of the 2017 Final Rule

1. Unfairness

As noted above, section 1031(c)(1)(A) of the Dodd-Frank Act states that the Bureau has no authority to declare an act or practice to be unfair unless the Bureau has a reasonable basis to conclude that the act or practice causes or is likely to cause substantial injury which is not reasonably avoidable by consumers and that such substantial injury is not outweighed by countervailing benefits to consumers or to competition.
137

137
12 U.S.C. 5531(c)(1).

In the 2017 Final Rule, the Bureau found that the practice of making covered short-term or longer-term balloon-payment loans to consumers without determining if the consumers have the ability to repay causes or is likely to cause substantial injury to consumers. The Bureau reasoned that where lenders were engaged in this identified practice and the consumer in fact lacks the ability to repay, the consumer will face choices—default, delinquency, and reborrowing, as well as the negative collateral consequences of being forced to forgo major financial obligations or basic living expenses to cover the unaffordable loan payment—each of which the Bureau found in the 2017 Final Rule leads to injury for many of these consumers.
138

138
82 FR 54472, 54590-94.

The Bureau went on to address the issue of whether the substantial injury that the Bureau had found was reasonably avoidable by consumers. The Bureau stated that under section 1031(c)(1)(A) of the Dodd-Frank Act for an injury to be reasonably avoidable consumers must “have reasons generally to anticipate the likelihood and severity of the injury and the practical means to avoid it.”
139

The Bureau added: “[t]he heart of the matter here is consumer perception of risk, and whether borrowers are in [a] position to gauge the likelihood and severity of the risks they incur by taking out covered short-term loans in the absence of any reasonable assessment of their ability to repay those loans according to their terms.”
140

139

Id.
at 54594.

140

Id.
at 54597.

In applying this standard, the 2017 Final Rule focused on borrowers' ability to predict their individual outcomes prior to taking out loans. The Bureau acknowledged that “is possible that many borrowers accurately anticipate their debt duration.”
141

However, the Bureau stated that its “primary concern is for those longer-term borrowers who find themselves in extended loan sequences” and that for those borrowers “the picture is quite different, and their ability to estimate accurately what will happen to them when they take out a payday loan is quite limited.”
142

That led the Bureau to conclude that “many consumers do not understand or perceive the probability that certain harms will occur”
143

and that therefore it would not be reasonable to expect consumers to take steps to avoid injury.
144

141

Id.

142

Id.

143

Id.

144

Id.
at 54594.

The Bureau based that finding in the 2017 Final Rule primarily on its interpretation of limited data from a study by Professor Ronald Mann (Mann Study), which compared consumers' predictions when taking out a payday loan about how long they would be in debt with administrative data from lenders showing the actual time consumers were in debt.
145

The Bureau

stated that its interpretation of the limited data from this study “provides the most relevant data describing borrowers' expected durations of indebtedness with payday loan products.”
146

The Mann Study is discussed further in part V.B.1 below.
147

145
Ronald Mann,
Assessing the Optimism of Payday Loan Borrowers,
21 Supreme Court Econ.

Rev. 105 (2013),
discussed at
82 FR 54472, 54568-70, 54592, 54597;
see also id.
at 54816-17, 54836-37 (section 1022(b)(2) analysis discussion of the Mann Study).

146
82 FR 54472, 54816.

147
The Bureau also referenced two academic studies, one of which compared borrowers' belief about the average borrower with data about the average outcome of borrowers and the other of which compared borrowers' predictions of their own borrowing with average outcomes of borrowers in another State. These studies found that borrowers appear, on average, somewhat optimistic about the length of their indebtedness.
See
82 FR 54472, 54568, 54836. However, the Bureau noted the weaknesses of these studies,
id.
at 54568, and, as discussed, relied primarily on the Mann Study.

In further support of the finding in the 2017 Final Rule that some consumers were not in a position to evaluate the likelihood and severity of these risks and therefore it would not be reasonable to expect consumers to take steps to avoid the injury, the Bureau in the 2017 Final Rule relied on other findings, including those related to the marketing and servicing practices of providers of short-term loans,
148

and on the Bureau's own expertise and experience in supervisory matters and enforcement actions concerning covered lenders in the markets for covered short-term and longer-term balloon-payment loans.
149

These additional factors are discussed in detail in part V.B.2 below.

148

See, e.g., id.
at 54616.

149

Id.
at 54505-07.

2. Abusiveness

Section 1031(d)(2) of the Dodd-Frank Act states in pertinent part that the Bureau shall have no authority to declare an act or practice abusive unless the act or practice “takes unreasonable advantage” of either (A) “a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service”; or (B) “the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service.”
150

The Bureau, in imposing the Mandatory Underwriting Provisions of the 2017 Final Rule, relied on both of these prongs of the abusiveness definition.

150
12 U.S.C. 5531(d)(2)(A), (B). Section 1031(d)(1) and (d)(2)(C) of the Dodd-Frank Act provide alternative grounds on which a practice may be deemed to be abusive but the Bureau did not rely on either of those grounds for the Mandatory Underwriting Provisions of the 2017 Final Rule.

With respect to the “lack of understanding” prong set forth in section 1031(d)(2)(A) of the Dodd-Frank Act, the Bureau acknowledged in the 2017 Final Rule that consumers who take out covered short-term or longer-term balloon-payment loans “typically understand that they are incurring a debt which must be repaid within a prescribed period of time and that if they are unable to do so they will either have to make other arrangements or suffer adverse consequences.”
151

However, in the 2017 Final Rule the Bureau interpreted “understanding” to require more than a general awareness of possible negative outcomes. Rather, the Bureau stated that consumers lack the requisite level of understanding if they do not understand both their own individual “likelihood of being exposed to the risks” of the product or service in question and “the severity of the kinds of costs and harms that may occur.”
152

The Bureau in the 2017 Final Rule found that “a substantial portion of borrowers, and especially those who end up in extended loan sequences, are not able to predict accurately how likely they are to reborrow.”
153

This finding also was based primarily on the Bureau's interpretation of limited data from the Mann Study and is discussed further below.
154

151
82 FR 54472, 54615 (summarizing the Bureau's rationale for the 2016 Proposal).

152

Id.
at 54617.

153

Id.
at 54615.

154

See id.

With respect to the alternative “inability to protect” prong of abusiveness set forth in section 1031(d)(2)(B) of the Dodd-Frank Act, the Bureau began by finding in the 2017 Final Rule that consumers who lack an understanding of the material costs and risks of a product often will be unable to protect their interests.
155

The Bureau's analysis found that consumers who use short-term loans “are financially vulnerable and have very limited access to other sources of credit” and that they have an “urgent need for funds, lack of awareness or availability of better alternatives, and no time to shop for such alternatives.”
156

The Bureau also found in the 2017 Final Rule that consumers who take out an initial loan without the lender's reasonably assessing the borrower's ability to repay were generally unable to protect their interests in selecting or using further loans.
157

According to the Bureau, consumers who obtain loans without an ability-to-pay determination and who in fact lack the ability to repay may have to choose between competing injuries—default, delinquency, reborrowing, and default avoidance costs, including forgoing essential living expenses.
158

The Bureau concluded that, “though borrowers of covered loans are not irrational and may generally understand their basic terms, these facts do[ ] not put borrowers in a position to protect their interests.”
159

155

Id.
at 54618.

156

Id.
at 54618-20.

157

Id.
at 54619.

158

Id.

159

Id.
at 54620.

In support of the conclusion that consumers with payday loans could not protect their own interests, the Bureau relied in the 2017 Final Rule primarily on a survey of payday borrowers conducted by the Pew Charitable Trusts (Pew Study).
160

In the Pew Study, 37 percent of borrowers reported that at some point in their lives they had been in such financial distress that they would have taken a payday loan on “any terms offered.”
161

The Bureau viewed this study as showing that borrowers of short-term loans “may determine that a covered loan is the only option they have.”
162

The Pew Study is discussed further below in part V.B.3.

160
Pew Charitable Trusts,
How Borrowers Choose and Repay Payday Loans
(2013),
http://www.pewtrusts.org/~/media/assets/2013/02/20/pew_choosing_borrowing_payday_feb2013-(1).pdf.

161

See id.,
citing the Pew Study at 20;
see also
82 FR 54472, 54618-19 (further discussing the Pew Study).

162
82 FR 54472, 54619.

After determining that consumers lack understanding of the material risks, costs, or conditions of covered short-term and longer-term balloon-payment loans and that consumers are unable to protect their interests in selecting or using such products, the Bureau went on to conclude in the 2017 Final Rule that by making such loans to consumers without first assessing the consumers' ability to repay, lenders took unreasonable advantage of these consumer vulnerabilities. In reaching this conclusion, the Bureau acknowledged that section 1031(d) of the Dodd-Frank Act “does not prohibit financial institutions from taking advantage of their superior knowledge or bargaining power” and that “in a market economy, market participants with such advantages generally pursue their self-interests.”
163

The Bureau reasoned, however, that section 1031(d) of the Dodd-Frank Act “makes plain that there comes a point at which a financial institution's conduct in leveraging its superior information or bargaining power becomes unreasonable advantage-taking” and the Bureau understood the statute to delegate to the Bureau “the responsibility for

determining when that line has been crossed.”
164

The Bureau in the 2017 Final Rule did not identify any specific threshold but nonetheless found that “many lenders who make such loans have crossed the threshold.”
165

163

Id.
at 54621.

164

Id.

165

Id.
at 54622.

In support of its conclusion that lenders take unreasonable advantage of consumers of covered short-term and longer-term balloon-payment loans, the Bureau in the 2017 Final Rule pointed to a range of lender practices including the design of the loan products, the way they are marketed, the absence of underwriting, the limited repayment options and the way those are presented to consumers, and the collection tactics used when consumers fail to repay.
166

The Bureau stated that “the ways lenders have structured their lending practices here fall well within any reasonable definition” of what it means to take unreasonable advantage under section 1031(d) of the Dodd-Frank Act.
167

The Bureau then singled out specifically the failure to underwrite and concluded that lenders take unreasonable advantage in circumstances if they make covered short-term loans or covered longer-term balloon-payment loans without reasonably assessing the consumer's ability to repay the loan according to its terms.
168

166

Id.
at 54622-23.

167

Id.
at 54623.

168

Id.

B. Reconsidering the Evidence for the Factual Findings in Light of the Impacts of the Mandatory Underwriting Provisions

In questioning here whether the evidence is sufficient for the Bureau's factual findings necessary to support the determinations that the identified practice was unfair and abusive and thereby warrants the imposition of the Mandatory Underwriting Provisions of the 2017 Final Rule, the Bureau is not addressing whether the evidence supporting the factual findings in the 2017 Final Rule would be sufficient to withstand judicial review under the Administrative Procedure Act (APA).
169

Here, even if the evidence is sufficient for the factual findings necessary to support the Bureau's unfairness and abusiveness determinations on which the Mandatory Underwriting Provisions are based, the Bureau believes it is prudent as a policy matter to require a more robust and reliable evidentiary basis to support key findings in a rule that would eliminate most covered short-term and longer-term balloon-payment loans and providers from the marketplace, thus restricting consumer access to these products.

169
5 U.S.C. 500
et seq.

As explained in part II.C, in the regulatory impact analyses accompanying the 2017 Final Rule, the Bureau estimated that the Mandatory Underwriting Provisions would have dramatic effects on the market for payday and single-payment vehicle title loans and on consumers who use those products. The Bureau estimated that the Mandatory Underwriting Provisions would result in a large (55 to 62 percent) contraction of the storefront payday industry—an industry that includes over 2,400 small businesses—and the virtually complete elimination of the single-payment vehicle title industry—an industry that includes over 800 small businesses.
170

The Bureau further estimated in the 2017 Final Rule that, of the current set of payday borrowers, 6 percent would not be able to initiate a payday loan sequence to meet a borrowing need and that 15 percent or more of vehicle title borrowers would not be able to obtain short-term loans.
171

The Bureau further acknowledged that additional borrowers who could obtain loans might nevertheless be unable to borrow the amount of money they needed, and that many borrowers would likely be required to repay their loans more quickly than prior to the Rule—a requirement that could create financial hardship for such consumers.
172

In short, the Mandatory Underwriting Provisions of the Rule would impose substantial burdens on industry, significantly constrain lenders' offering of products, and substantially restrict consumer choice and access to credit. All this would occur notwithstanding the judgments that the various States have made to permit lenders to offer and consumers to choose such products subject to certain limitations.

170
82 FR 54472, 54479, 54492.

171

Id.
at 54609. Specifically, the Bureau noted in the 2017 Final Rule that two States that permit vehicle title lending do not permit payday lending. In addition, 15 percent of vehicle title borrowers do not have a checking account, and thus may not be eligible for a payday loan.
Id.
at 54840.

172

Id.
at 54840-41.

The Bureau preliminarily believes that the dramatic effects on consumers' ability to choose credit and on lenders' ability to offer them such credit that would follow from prohibiting the identified practice has significant implications for how the Bureau ought to assess the evidentiary support for the predicate factual findings. For purposes of this rulemaking proposal, the Bureau need not reconsider that the 2017 Final Rule found that the identified practice causes or is likely to cause substantial injury. However, the Bureau is concerned about whether the evidence in this instance provides a “reasonable basis” to find that (1) the identified injury “is not reasonably avoidable by consumers” for purposes of an unfairness analysis; (2) that there is either a “lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service” or an “inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service” for purposes of an abusiveness analysis.
173

The FTC Policy Statement explained that reasonable avoidability for purposes of unfairness analysis is premised on the fact that “[n]ormally we expect the marketplace to be self-correcting, and we rely on consumer choice—the ability of individual consumers to make their own private purchasing decisions without regulatory intervention—to govern the market.”
174

173
12 U.S.C. 5531(c), (d).

174

See
FTC Policy Statement,
Int'l Harvester,
104 F.T.C. 949, 1074.

If a rule could have such dramatic impacts on consumer choice and access to credit, the Bureau preliminarily believes that it would be reasonable under the Dodd-Frank Act and prudent to have robust and reliable evidence to support the key finding that consumers cannot reasonably avoid that injury. Similarly, the Bureau preliminarily believes that it would be reasonable under the Dodd-Frank Act and prudent to have robust and reliable evidence to support key findings of about “lack of understanding” and an “inability to protect” as needed to establish abusiveness.

Accordingly, the Bureau preliminarily concludes that it should have a robust and reliable evidentiary basis for key findings with respect to “reasonable avoidability,” “lack of understanding,” and “inability to protect” that are essential to the Mandatory Underwriting Provisions in the 2017 Final Rule. For the reasons discussed below, the Bureau preliminarily believes that the evidence on which the Mandatory Underwriting Provisions of the 2017 Final Rule rests is not sufficiently robust and reliable to support such findings regardless of whether it would be sufficient to withstand judicial review under the APA, and that rescission of the Mandatory Underwriting Provisions is therefore appropriate.

1. The Mann Study and the Findings Based on It

As discussed in part V.A.1, in determining that the identified practice is unfair, in the 2017 Final Rule the Bureau concluded, as required by section 1031(c)(1)(A) of the Dodd-Frank Act, that the practice causes or is likely to cause substantial injury to consumers and that this injury is not reasonably avoidable by consumers.
175

That latter determination rested on the Bureau's finding that many consumers do not have a specific understanding of their personal risks and cannot accurately predict how long they will be in debt after taking out covered short-term or longer-term balloon-payment loans.
176

That finding was based primarily on the Bureau's interpretation of limited data from the Mann Study, which the Bureau described in the 2017 Final Rule as providing the most relevant data describing borrowers' expected durations of indebtedness with payday loan products.
177

175
82 FR 54472, 54596.

176

Id.
at 54597.

177

Id.
at 54816.

Similarly, as discussed in part V.A.2, in determining that the practice of making covered short-term or longer-term balloon-payment loans without assessing consumers' ability to repay is abusive under section 1031(d)(2)(A) of the Dodd-Frank Act, the Bureau found in the 2017 Final Rule that many consumers do not understand the material risks, cost, or conditions of such loans, because they do not have a specific understanding of their individualized risk and cannot accurately predict how long they will be in debt after taking out these loans.
178

That finding, too, was based primarily on the Bureau's interpretation of limited data from the Mann Study.
179

178

Id.
at 54597.

179

Id.

In the Mann Study, a set of consumers, when applying for a loan, completed a survey that asked for their expectations as to the length of time they would be in debt after taking out the loan. Professor Mann compared those answers to administrative data from lenders showing the total length of time it took for the borrower to pay off the loan and not reborrow from the same lender for a full pay period.
180

Based on his analysis of the data, Professor Mann concluded that most borrowers anticipate that they will not be free of debt at the end of the initial loan term and instead will need to reborrow.
181

He also concluded that borrowers' estimates of an ultimate repayment date “are realistic.”
182

Professor Mann further concluded that this evidence indicates that most borrowers “have a good understanding of their own use of the product.”
183

180

See
Mann Study at 117.

181

Id.
at 128.

182

Id.
at 109.

183

Id.

In the 2017 Final Rule, the Bureau acknowledged Professor Mann's quantitative findings but “dispute[d] his interpretation of those findings.”
184

Professor Mann provided the Bureau with certain charts and graphs from his study, including scatterplots of borrowers' reborrowing expectations and outcomes.
185

The Bureau analyzed these materials and concluded based on them that borrowers who experienced very long reborrowing sequences do not anticipate these outcomes and that, in general, borrowers' predictions of their outcomes were uncorrelated with their outcomes.
186

The Bureau noted, for example, that based on the limited materials it received from Professor Mann, none of the borrowers who experienced sequences of longer than 140 days (10 biweekly loans) predicted that outcome, and that none of the borrowers who predicted such an outcome actually experienced it.
187

The Bureau further stated in the 2017 Final Rule that its analysis of these limited materials found no correlation between individual consumers' predictions of their outcomes and their actual outcomes.
188

184
82 FR 54472, 54836. The Bureau specifically relied on a scatterplot provided by Professor Mann depicting his respondents' predicted durations of indebtedness vs. the time they actually spent in debt, and the corresponding regression line. Professor Mann also provided the Bureau with other data, including histograms of his respondents' days to clearance, prediction errors, borrowing experience, etc. However, the Bureau did not have access to the complete data from Professor Mann's study, including individual-level survey responses that would allow the data provided in the figures to be linked to the other information collected in the Mann Study.

185

See
82 FR 54472, 54836 nn.1190-91.

186

Id.
at 54836-37;
see also id.
at 54569.

187

Id.
at 54569.

188

Id.
at 54570.

The Bureau initially offered its interpretation of limited data from the Mann Study in its 2016 Proposal.
189

In response, Professor Mann submitted a comment taking issue with the Bureau's analysis. In his comment, Professor Mann observed that the Bureau had made “substantial use” of his study but described the Bureau's use of the work as “inaccurate and misleading,” and deemed the Bureau's summary of his work “unrecognizable.”
190

In issuing the Rule, the Bureau discussed Professor Mann's comment and concluded that his objections “reflect more of a difference in emphasis than a disagreement over the facts.”
191

189

See
81 FR 47864, 47928-29.

190
Comment submitted by Ronald Mann, Docket No. CFPB-2016-0025-141822, at 1.

191
82 FR 54472, 54569.

Upon further consideration, there are clear limitations to the Mann Study which the Bureau now believes undermine the reliability and probative value of the Bureau's interpretation of the limited data it received from Professor Mann as the main basis for the Bureau to make findings concerning consumer awareness of potential outcomes from taking out payday loans from payday lenders throughout the United States. The Mann Study involved a single payday lender in just five States and was administered at a limited number of locations.
192

A study focusing on a single lender or limited number of lenders may not necessarily be representative of the variety of payday lenders across the United States. In addition, these five States also are not necessarily representative of payday lending nationally.
193

Thus, the Mann Study's findings and the Bureau's interpretation of limited data from that study are most informative about what prospective customers of this single lender at these locations in these States understood about how long they would need to borrow. While the Mann Study may provide useful insights as to these potential customers, consumers using other lenders or in other places might or might not have the same understanding as those in the Mann Study. Because consumer understandings and expectations may be informed by the information consumers are provided—and because that information can vary from lender to lender and State to State
194

—the Bureau preliminarily concludes the Mann Study and the Bureau's interpretation of limited data from that study are not a sufficiently robust and representative basis to make general findings about all lenders making payday loans to all borrowers in all States, let alone to generalize about borrowers using short-term vehicle title

loans or other types of covered short-term or longer-term balloon-payment loans, which the Mann Study and the Bureau's interpretation of limited data from that study did not even address.

192

See
Mann Study at 116.

193
The Mann Study noted that rollover loans are technically prohibited in all five of the States in which payday borrowers were surveyed. Mann Study at 114. Further, same-day rollover transactions are not possible in Florida, which has a 24-hour cooling-off period, and are limited in Louisiana, which permitted rollovers only upon partial payment of the principal.
Id.
Over half of the survey participants were in Florida and Louisiana alone.
Id.
at 117 & tbl. 1.

194
82 FR 54472, 54486 (identifying detailed disclosures required of payday lenders under Texas law), and
id.
at 54577 (noting that some jurisdictions require lenders to provide specific disclosures in order to alert borrowers of potential risks).

For all of these reasons, the Bureau is now reconsidering its decision to rely so heavily on its interpretation of limited data from a study with such a narrow focus as the basis for a rule with effects of the magnitude of those estimated to arise from the Mandatory Underwriting Provisions of the 2017 Final Rule. In this case, more research asking consumers about their
ex ante
understanding of their own, or others', expected outcomes, and possibly various measures of these distributions, would increase the evidentiary base. Without additional research involving more lenders and more locations, it is difficult to be confident that the conclusions that the Bureau drew in the 2017 Final Rule from its interpretations of the limited data from the Mann Study can be applied generally to payday lenders and payday loans across the United States. Consequently, the Bureau preliminarily believes that, especially given the dramatic market impacts of the 2017 Final Rule's Mandatory Underwriting Provisions on the future ability of consumers who want to do so to choose these products, the Mann Study's findings and the Bureau's interpretation of limited data from that study were not adequately robust and representative to serve as the primary basis of the Bureau's findings. Additionally, the Bureau notes that in two industry-sponsored surveys conducted of consumers who had successfully paid off a payday loan, the overwhelming majority of respondents reported that when they took out their first loan they understood well or quite well how long it would take to “completely repay the loan” and that they were able to repay their loan in the amount of time expected.
195

195

See id.
at 54570 (discussing studies). The 2017 Final Rule noted a number of limitations in these studies, including a sampling bias resulting from surveying only successful repayers and the fact that these were
ex post
surveys asking about expectations at an earlier point in time.
Id.
Despite these limitations, these studies tend to corroborate concerns about the robustness and representativeness of the Bureau's key findings based on its interpretation of limited data from the Mann Study.

Finally, the Bureau notes that, in two academic papers based upon surveys of payday borrowers, only a small portion—around 11 or 12 percent of borrowers—reported that they were somewhat or very dissatisfied with their most recent payday loan experience.
196

While the Bureau notes there are concerns about the representativeness of the samples surveyed, if it took consumers longer to pay off payday loans than they thought it would, one might expect consumers to be dissatisfied with their payday loans. They were not. These results thus add to the Bureau's preliminary conclusion that its interpretation in the 2017 Final Rule of limited data from the Mann Study provides an insufficiently robust and representative foundation for the findings on which the Bureau relied in concluding that its identified practice was unfair and abusive.

196

See
Gregory Elliehausen & Edward Lawrence,
Payday Advance Credit in America: An Analysis of Customer Demand,
at 52 (2001),
http://citeseerx.ist.psu.edu/viewdoc/download;jsessionid=F5246C700D90651E3340EF590C686B41?doi=10.1.1.200.7740&rep=rep1&type=pdf
; Gregory Elliehausen,
An Analysis of Consumers' Use of Payday Loans,
at 41 (2009),
https://www.researchgate.net/publication/237554300_AN_ANALYSIS_OF_CONSUMERS'_USE_OF_PAYDAY_LOANS; see also
Christy A. Bronson & Daniel J. Smith,
Swindled or Served?: A Survey of Payday Lending Customers in Southeast Alabama,
40 S. Bus. & Econ J. 16 (2016) (finding general satisfaction with payday lending in non-random survey of 48 people in Southeast Alabama).

For all these reasons and as discussed further below, the Bureau preliminarily believes the limited data from the Mann Study was not sufficiently robust and representative, in light of the Rule's dramatic impacts in restricting consumer access to payday loans, to be the linchpin for a series of key findings, including that (1) consumers who use covered short-term or longer-term balloon-payment loans lack the understanding needed to reasonably avoid injury from lenders' failure to assess consumers' ability to repay those loans; (2) consumers lack understanding of the material risks, costs, or conditions of such loans; and (3) consumers' lack of understanding contributes to their inability to protect their interests in the selection or use of such loans. The Bureau also preliminarily believes that it cannot, in a ti

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2019-01906. Public record. Not legal advice.