In 2017, the CFPB finalized regulations imposing underwriting requirements for short-term payday loans. The regulation applies to short-term loans that have terms of 45days or less, including typical 14-day and 30-day payday loans. The compliance date for the rule is August, 2019, but the CFPB is also proposing pushing back that date. The rule identifies it as an unfair and abusive practice for a lender to make covered short-term or longer-term balloon-payment loans without reasonably determining that the consumers will have the ability to repay the loans according to their terms. A lender, before making a covered short-term or longer-term balloon-payment loan, must make a reasonable determination that the consumer would be able to make the payments on the loan and be able to meet the consumer's basic living expenses and other major financial obligations without needing to re-borrow over the ensuing 30 days.
Specifically, a lender is required to:
•Verify the consumer’s net monthly income using a reliable record of income payment, unless a reliable record is not reasonably available;
•Verify the consumer’s monthly debt obligations using a national consumer report and a consumer report from a “registered information system”;
•Verify the consumer’s monthly housing costs using a national consumer report if possible, or otherwise rely on the consumer’s written statement of monthly housing expenses;
•Forecast a reasonable amount for basic living expenses, other than debt obligations and housing costs; and
•Determine the consumer’s ability to repay the loan based on the lender's projections of the consumer’s residual income or debt-to-income ratio. A lender is allowed to make a covered short-term loan without meeting all the specific underwriting criteria set out above, as long as the loan satisfies certain prescribed terms, the lender confirms that the consumer meets specified borrowing history conditions, and the lender provides required disclosures to the consumer.