Today, the Consumer Financial Protection Bureau (CFPB) announced that its so-called “Payday, Vehicle Title and Certain High-Cost Installment Loans” rule (Rule) will go into effect on March 30, 2025. While ostensibly aimed at higher-APR lending (e.g., loans with an APR above 36%), it also applies to most creditors, including banks, offering loans: (1) that are substantially repayable within 45 days or less; or (2) that have a bullet or balloon payment feature. It applies by its plain terms to a number of mainstream financial products and products marketed to high-net worth individuals, none of which the CFPB seems to have considered when promulgating the rule.
The general concepts of the Rule are somewhat basic: a creditor is prohibited from initiating additional payments from the same account after two consecutive failed payments and must provide various notices including in the event of an “unusual” payment. But in practice the Rule is byzantine in nature, difficult to parse and with critical gaps (e.g., it does not define “business day” despite multiple triggers based on business days, it makes it seemingly impossible for a consumer to make a payment on certain dates, etc.). All financial institutions should accordingly evaluate whether their products may be subject to the Rule and fully develop plans for compliance as applicable.
This Rule was initially set to take effect in 2019 but was delayed due to litigation initiated by an industry trade group. The trade group sought to block the Rule, arguing against its fairness and the CFPB’s authority. However, as discussed here, just last month in the case of Community Financial Services Association of America, Limited v. CFPB, what is likely the last obstacle to the Rule’s implementation was removed when the Supreme Court upheld the CFPB’s funding structure.
With the Supreme Court’s decision, the existing court order pausing the rule is set to expire 286 days after the judgment is entered, expected on June 17, 2024. The rule is thus slated to become effective on March 30, 2025.
Stay tuned for our upcoming podcast discussing the Rule to be released later this month.