- ICBA strongly supports the exemption contained in the CFPB’s final rule on payday, vehicle title and certain high-cost installment loans, commonly known as small-dollar loans.Any lender that makes 2,500 or fewer covered short-term or balloon-payment small-dollar loans per year and derives no more than 10 percent of its revenue from such loans is excluded from the rule’s full-payment test or the principal-payoff option.
- Any future reconsideration of the small-dollar loan rule should:
- at a minimum, retain this exemption to enable community banks the flexibility to continue providing safe and sustainable small-dollar loans to the customers who need them the most;
- improve the rule to ensure community banks continue to offer, underwrite, and service small-dollar loans on terms that work for them and their customers without new and onerous regulatory burden; and
- recognize community banks as responsible lenders that do not engage in abusive lending practices and work with their customers to establish favorable loan terms that reflect their customers’ financial history and ability to repay.
On October 5, 2017, the CFPB issued a final rule covering payday, vehicle title, and similar loans designed to curb abuses or “debt traps” such as repeat short-term borrowing, default, vehicle seizure, penalty fees and closure of bank accounts. The rule requires lenders to determine whether a consumer has the ability to repay a loan before extending credit.
The rule exempts thousands of community banks from the onerous full-payment test or the principal-payoff option, consistent with ICBA’s recommendation. Any lender that makes 2,500 or fewer covered short-term or balloon-payment small-dollar loans per year and derives no more than 10 percent of its revenue from such loans is excluded from these requirements.
On January 17, 2018, the CFPB announced that it intends to engage in a new rulemaking so that it may reconsider the final rule which affords the opportunity to further improve the rule for community bank lenders
Community banks do not engage in abusive lending practices, such as steering consumers to unaffordable loan products. Community banks also have close relationships with their customers and, consequently, are familiar with their financial condition, history and ability to repay loans. It would be extremely detrimental to consumers if community banks were forced from the small-dollar loan marketplace by onerous new regulations.
Staff Contacts: Rhonda Thomas-Whitley