Regulatory Compliance Update March 2015
By: Hickman Beckner, Vice President
The month of March had very little regulatory activity that directly impacts our clients. Congress will reconvene in April.
- August 1 – The new unified mortgage disclosures go into effect. The new disclosures combine the Truth in Lending disclosures and the RESPA disclosures.
There has been a lot of news coverage about the new rules the CFPB has proposed for payday loans. Payday lending is a $43 billion business with loan exceeding 300% APR. Many states have attempted to regulate payday lenders only to see the business morph into other types of short term lending or move to other states where the regulations are less stringent. The CFPB proposals will be the first tile Federal rules have been proposed for short term high interest lenders. The legislation that created the CFPB prohibits the agency from establishing a nationwide usury ceiling so the rules must limit other practices of the payday lenders. While none of our clients are making payday loans, the new CFPB rules may impact some loans. The prosed rules establish a standard of 36% APR above which the loans would be subject to the new regulations.
The new CFPB rules set out two options for payday lenders:
- Under one option the lender would have to assess the borrower’s ability to repay the loan. This is similar to the current requirements for credit cards and mortgages.
- The other option would allow the lender to forgo underwriting standards but would limit lender to rolling over the loan more than twice in a twelve month period. The lender would also be required to offer and extended payment plan to allow the consumer to pay off the loan.
The CFPB has also proposed rules on longer term loans such as car “title loans.” The new rules would limit the interest rates to an APR of 36% or structure the payment schedule so that the payments do not exceed 5% of the borrower’s income. Car title loans are not loans made to purchase a car. These are loans where the borrower uses their lien-free title as collateral for a short term loan. Lenders have been using this product to avoid stat level restrictions on payday loans. None of our clients currently offer title loans.
The CFPB is also exploring encouraging banks and credit unions to offer short term loans to their customers.
The new rules will not directly impact our clients. However, when new rules are adopted there is always the possibility that other forms of lending will be affected.