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

Citation84 FR 4252
Record Number2019-01906
Published date14 February 2019
CourtConsumer Financial Protection Bureau
Federal Register, Volume 84 Issue 31 (Thursday, February 14, 2019)
[Federal Register Volume 84, Number 31 (Thursday, February 14, 2019)]
                [Proposed Rules]
                [Pages 4252-4298]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2019-01906]
                [[Page 4251]]
                Vol. 84
                Thursday,
                No. 31
                February 14, 2019
                Part IVBureau of Consumer Financial Protection-----------------------------------------------------------------------12 CFR Part 1041Payday, Vehicle Title, and Certain High-Cost Installment Loans and
                Delay of Compliance Date; Proposed Rules
                Federal Register / Vol. 84 , No. 31 / Thursday, February 14, 2019 /
                Proposed Rules
                [[Page 4252]]
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                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.
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                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.
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                 \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/.
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                 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.
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                 \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.
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                 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
                [[Page 4253]]
                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.
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                 \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).
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                 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.
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                 \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).
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                 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\
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                 \18\ 12 CFR 1041.9(b)(1)(ii).
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                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.
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                 \19\ See 82 FR 54472, 54474-96.
                 \20\ Id. at 54555-60.
                 \21\ Id. at 54814-46.
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                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.''
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                 \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.
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                 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\
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                 \25\ 82 FR 54472, 54475.
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                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
                [[Page 4254]]
                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\
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                 \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).
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                 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.
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                 \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
                [[Page 4255]]
                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
                [[Page 4256]]
                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
                [[Page 4257]]
                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
                [[Page 4258]]
                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 Sec. 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, Sec.
                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 Sec. 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 Sec. 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 Sec.
                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 Sec. 1041.6 which allows lenders to make covered short-
                term loans without an ability-to-repay determination under Sec.
                1041.5. In order to qualify for the conditional exemption, pursuant to
                Sec. 1041.6(b)(1)(i), the principal cannot exceed $500 for the first
                in a sequence of covered short-term loans, and pursuant to Sec.
                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 Sec.
                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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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
                Sec. 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
                [[Page 4259]]
                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 Sec. 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 Sec. 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
                [[Page 4260]]
                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
                [[Page 4261]]
                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 Sec. 1041.6; two provisions
                (Sec. Sec. 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 Sec. 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 Sec.
                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.'').
                ---------------------------------------------------------------------------
                [[Page 4262]]
                 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
                [[Page 4263]]
                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
                [[Page 4264]]
                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.
                [[Page 4265]]
                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
                [[Page 4266]]
                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=10.1.1.200.7
                740&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
                timely and cost-effective manner for itself and for lenders and
                borrowers, develop evidence that might or might not corroborate the
                Mann Study results that the Bureau relied upon to support the key
                findings the Bureau set forth in the 2017 Final Rule.\197\ The Bureau
                invites comment on the robustness and representativeness of the
                evidence supporting these findings, including comment on the weight the
                Bureau placed on its interpretation of limited data from the Mann Study
                and on any other evidence that may bear on these findings.
                ---------------------------------------------------------------------------
                 \197\ As the Bureau noted in the 2017 Final Rule, ``[m]easuring
                consumers' expectations about re-borrowing is inherently
                challenging.'' 82 FR 54472, 54568.
                ---------------------------------------------------------------------------
                2. Other Evidence on the Consumer Understanding of Risk
                 The Bureau, in the 2017 Final Rule, pointed to other evidence and
                made a number of additional factual findings in support of its key
                finding, also principally based on the Mann Study, that consumers were
                not able to predict accurately the specific likelihood of their
                individual risk of entering a long reborrowing sequence from taking out
                a covered short-term or longer-term balloon-payment loan.
                 For instance, the Bureau stated in the 2017 Final Rule that the way
                in which covered short-term and longer-term balloon-payment loans are
                structured and marketed, in addition to lenders' practices in
                encouraging consumers to reborrow, are factors that exacerbate and
                contribute to consumer confusion and lack of understanding as to
                whether they will end up in long reborrowing sequences.\198\ Further,
                the Bureau relied on its expertise and experience in supervisory
                matters and enforcement actions concerning covered lenders in making
                judgments about the covered short-term and longer-term balloon-payment
                loan markets.\199\ That is, the Bureau determined on the basis of its
                expertise and experience that the available data--primarily its
                interpretation of limited data from the Mann Study--corroborated its
                belief that ``a large number of consumers do not understand even
                generally the likelihood and severity of [the] risks'' associated with
                taking out a short-term loan.\200\
                ---------------------------------------------------------------------------
                 \198\ See, e.g., id. at 54555; see also id. at 54561 (explaining
                that ``[v]arious lender practices exacerbate the problem by
                marketing to borrowers who are particularly likely to wind up in
                long sequences of loans, by failing to screen out borrowers who are
                likely to wind up in long-term debt or to establish guardrails to
                avoid long-term indebtedness, and by actively encouraging borrowers
                to continue to reborrow when their single-payment loans come
                due.''). The Bureau, in the 2017 Final Rule, pointed to a host of
                lender practices before, during, and after origination that the
                Bureau said tend to diminish consumers' ability to avoid or mitigate
                harms and protect their own interests in selecting or using covered
                products. Id. at 54560-61. These included marketing that portrays
                the product as a short-term financial fix rather than emphasizing
                the substantial risks of reborrowing, screening only for immediate
                default risk at origination rather than conducting more vigorous
                underwriting, various practices in connection with taking account
                access and vehicle title, the presentation of repayment options as
                only allowing for full repayment or rollovers, and failing to inform
                consumers of ``off-ramp'' payment options. Id. at 54561-65.
                 \199\ See id. at 54506-07.
                 \200\ Id. at 54597-98. The Bureau also interpreted one survey of
                payday borrowers, about how long the average borrower would have a
                payday loan outstanding, to suggest that borrowers were ``somewhat
                optimistic'' about reborrowing behavior generally. See id. at 54568
                & n.542 (citing Marianne Bertrand & Adair Morse, Information
                Disclosures, Cognitive Biases and Payday Borrowing, 66 J. of Fin.
                1865 (2011)). The survey asked the question: ``What's your best
                guess of how long it takes the average person to pay back in full a
                $300 payday loan?'' (quoted at 82 FR 54568). However, the Bureau did
                not address the overall findings from the survey that, though
                responses varied widely, the mean response to the survey was ``close
                to [the] range'' of other data indicating how long borrowers
                actually took to pay back their loans. See Bertrand & Morse at 1878.
                ---------------------------------------------------------------------------
                [[Page 4267]]
                 These additional findings,\201\ in essence, supplemented and were
                ultimately subordinate to the Bureau's interpretation of limited data
                from the Mann Study, which was the linchpin for the Bureau's findings
                in the 2017 Final Rule that consumers lacked an understanding of the
                possible risks and consequences associated with taking out payday
                loans. The Bureau does not believe that this additional evidence and
                other findings suffice to compensate for the insufficient robustness
                and representativeness of the limited data from the Mann Study.
                ---------------------------------------------------------------------------
                 \201\ The Bureau in the 2017 Final Rule cited research stating
                that certain consumer behaviors may make it difficult for them to
                predict accurately the future implications of taking out a covered
                short-term or longer-term balloon-payment loan. As the Bureau made
                clear, however, this research helped to explain the Bureau's
                findings from the Mann Study but was not in itself an independent
                basis to conclude that consumers do not predict whether they will
                remain in reborrowing sequences. 82 FR 54472, 54571 (explaining that
                ``[r]egardless of the underlying explanation, the empirical evidence
                indicates that many borrowers who find themselves ending up in
                extended loan sequences did not expect that outcome.''). Other data
                cited in the 2017 Final Rule to support consumers' underestimation
                of the cost and timing of repaying payday loans appears to be cited
                out of context. See, e.g., id. at 54571 (citing 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). The Bureau suggested that users of
                payday and vehicle title loan products were more likely to
                underestimate the cost of their loans compared to users of other
                credit products. On further review, the Bureau does not believe that
                this statement presents a complete picture, because the cited study
                asked for predictions on cost and timing regarding small dollar loan
                products only, not more common credit products like credit cards.
                See 82 FR 54472, 54571; Levy & Sledge at 21. The Bureau also did not
                address the study's findings identifying many users of payday and
                title loan products who found the loans less costly than expected,
                and found themselves in debt for less time than expected. See Levy &
                Sledge at 21.
                ---------------------------------------------------------------------------
                3. The Pew Study and the Finding Based on It
                 As discussed in part V.A.2 above, the Bureau in the 2017 Final Rule
                also found that consumers who use covered short-term or longer-term
                balloon-payment loans lack the ability to protect their interests in
                selecting or using these loans, and that lenders' practice of making
                such loans without assessing consumers' ability to repay took
                unreasonable advantage of that vulnerability.\202\ The predicate
                finding that these consumers lack the ability to protect themselves
                relied heavily on a survey of payday borrowers conducted by the Pew
                Charitable Trusts, discussed above, in which 37 percent of borrowers
                answered in the affirmative to the question ``Have you ever felt you
                were in such a difficult situation that you would take [a payday loan]
                on pretty much any terms offered?'' \203\ The Bureau interpreted the
                survey results as demonstrating that these consumers, if faced with an
                immediate need for cash, lack the ability to ``effectively identify or
                develop alternatives that would vitiate the need to borrow [or] allow
                them to borrow on terms within their ability to repay.'' \204\
                ---------------------------------------------------------------------------
                 \202\ 82 FR 54472, 54614.
                 \203\ Pew Study at 6, 21, 60.
                 \204\ 82 FR 54472, 54619.
                ---------------------------------------------------------------------------
                 The Bureau preliminarily believes that the Pew Study is an
                inadequate basis for the Bureau in the 2017 Final Rule to have drawn
                broad conclusions about consumers' ability to take actions to protect
                their own interests. To begin with, the survey asked respondents about
                their feelings, not about their actions. Respondents were not asked
                whether they had, in fact, taken out a payday loan at a time when they
                said they would have done so on ``pretty much any terms.'' That some
                respondents at some time felt they had been at some point willing to
                take a payday loan on any terms does not indicate what they actually
                did at that time or how often they took out payday loans in general.
                Further, the Pew Study itself contains a number of other findings that
                cast doubt on whether, as the Bureau found, payday borrowers cannot
                explore available alternatives that would protect their interests. For
                example, the Pew Study found that 58 percent of respondents had trouble
                meeting their regular monthly bills half the time or more, suggesting
                that these borrowers are, in fact, accustomed to exploring alternatives
                to deal with cash shortfalls.\205\ Similarly, in a prior survey, the
                Pew Charitable Trusts found that if payday loans were not available,
                borrowers would cut back on expenses (81 percent), delay paying some
                bills (62 percent), borrow from friends or family (57 percent), or pawn
                personal property (57 percent) \206\--further raising questions with
                respect to the Bureau's reliance in the 2017 Final Rule on the Pew
                Study to find that consumers cannot explore other alternatives and thus
                cannot protect their interests. These results indicate that consumers
                are familiar with mechanisms other than payday loans to deal with cash
                shortfalls.
                ---------------------------------------------------------------------------
                 \205\ Pew Study at 9.
                 \206\ Pew Charitable Trusts, Payday Lending in America: Who
                Borrows, Where They Borrow, and Why, at 16 (2012), http://
                www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_assets/2012/
                pewpaydaylendingreportpdf.pdf.
                ---------------------------------------------------------------------------
                 Other research casts further doubt on the weight the Bureau placed
                in the 2017 Final Rule on the Pew Study and on the robustness and
                reliability of the evidence to support the Bureau's finding that
                consumers who use payday or other covered short-term or longer-term
                balloon-payment loans lack the ability to explore alternatives. One
                study suggests that, precisely because they are financially vulnerable,
                payday borrowers are accustomed to facing cash shortfalls and have used
                a variety of different approaches for dealing with such situations.
                Some involve juggling of expenses, while others involve accessing
                alternative sources of cash, including overdraft, pawn loans, and
                informal borrowing. Research released since the 2017 Final Rule
                underscores the point. In a recent report issued by the Board regarding
                the economic well-being of U.S. households, consumers who reported that
                they would have difficulty covering a $400 emergency expense were asked
                how they would cope were such an emergency to arise. These consumers
                pointed to a variety of potential mechanisms including borrowing from a
                friend or family member (26 percent) or selling something (19 percent).
                Only 5 percent reported that they would use a payday loan or similar
                product.\207\ Although it is possible that those who said they would
                use a payday loan are systematically different from other respondents
                and do not have other options available to them, this Board report at
                least raises significant questions as to whether that is so.
                ---------------------------------------------------------------------------
                 \207\ Bd. of Governors of the Fed. Reserve Sys., Report on the
                Economic Well-Being of U.S. Households in 2017, at 21 (2018),
                https://www.federalreserve.gov/publications/files/2017-report-economic-well-being-us-households-201805.pdf.
                ---------------------------------------------------------------------------
                 The Bureau also suggested in the 2017 Final Rule that consumers who
                take out a covered short-term or longer-term balloon-payment loan may
                do so because of the ``lack of . . . availability of better
                alternatives.'' \208\ Here, too, the Pew Study is inconclusive. It
                found that many borrowers repaid their loans using methods they could
                have used instead of taking out a payday loan in the first instance,
                suggesting that these borrowers may have had other alternatives at the
                time they took out the
                [[Page 4268]]
                loan.\209\ Other recent research has emphasized the extent to which
                borrowing among friends and families is common among the most
                financially vulnerable.\210\ Moreover, in the 2017 Final Rule, the
                Bureau itself reviewed a range of options that it believed would be
                available and accessible to consumers if they were unable to obtain a
                covered short-term or longer-term balloon-payment loan as a result of
                the ability-to-repay determination required by the Rule.\211\ These
                include installment loans offered by payday and vehicle title lenders
                and other providers which are replacing short-term products,\212\ as
                well as emerging fintech products such as wage advances and no-cost
                advances.
                ---------------------------------------------------------------------------
                 \208\ 82 FR 54472, 54620.
                 \209\ Alternatives to borrowing identified by the Pew Study
                included receiving funds from family and friends, using tax refunds,
                pawning or selling items, using credit cards, and taking out a loan
                from a bank or credit union. Pew Study at 36-38.
                 \210\ See, e.g., Jonathan Morduch and Julie Siwicki, In and Out
                of Poverty: Episodic poverty and income volatility in the U.S.
                Financial Diaries, at 17 (2017), https://www.usfinancialdiaries.org/paper2.
                 \211\ 82 FR 54472, 54609-11.
                 \212\ See, e.g., John Hecht, Short Term Lending Update: Moving
                Forward with Positive Momentum (2018) (Jefferies LLC, slide
                presentation) (on file); see also 82 FR 54472, 54609.
                ---------------------------------------------------------------------------
                 Finally, the Bureau notes that in 17 States and the District of
                Columbia, payday loans are prohibited. Consumers in these States that
                find themselves in difficult financial circumstances rely primarily on
                options other than covered short-term and longer-term balloon-payment
                loans,\213\ raising questions about the Bureau's finding that consumers
                in States in which payday loans are not prohibited cannot do so.
                ---------------------------------------------------------------------------
                 \213\ 82 FR 54472, 54485 (noting that at least 11 States and
                jurisdictions that previously permitted payday lending took steps to
                restrict or eliminate such lending altogether).
                ---------------------------------------------------------------------------
                 For all the reasons set forth above, the Bureau preliminarily
                believes that the Pew Study does not provide a sufficiently robust and
                reliable basis for the Bureau's finding in the 2017 Final Rule that
                consumers who use covered short-term or longer-term balloon-payment
                loans lack the ability to protect themselves in selecting or using
                these products. And as with the Mann Study, as discussed above, the
                Bureau preliminarily believes that it cannot, in a timely and cost-
                effective manner for itself and for lenders and borrowers, develop
                sufficiently robust and reliable evidence that might or might not
                corroborate the Pew Study results. The Bureau seeks comment on the
                robustness and reliability of the evidence supporting this key finding,
                including comment on the weight the Bureau placed on the Pew Study, and
                on any other evidence that may bear on this finding.
                4. Other Evidence Pertaining to Inability To Protect
                 In addition to the Pew Study, and as set out in part V.B.2 above,
                the Bureau pointed in the 2017 Final Rule to the structure of the loans
                themselves, expressing the belief that their short repayment periods
                and balloon payments may make it substantially harder for consumers to
                work themselves out of debt than if they were subject to a longer,
                slower repayment schedule.\214\ As support for the findings in the 2017
                Final Rule that the identified practice was abusive, the Bureau also
                pointed to a host of lender practices before, during, and after
                origination that the Bureau said tend to diminish consumers' ability to
                avoid or mitigate harms and protect their own interests in selecting or
                using covered products.\215\
                ---------------------------------------------------------------------------
                 \214\ Id. at 54561.
                 \215\ Id. at 54560-61.
                ---------------------------------------------------------------------------
                 As set forth in part V.B.2 above, the data identified in the 2017
                Final Rule suggests that many consumers do use short-term loans as
                marketed--that is, as short-term or stop-gap measures, without
                initiating a prolonged sequence of reborrowing.\216\ Further, evidence
                in the 2017 Final Rule showed that, while some lenders may discourage
                the use of repayment plans or off-ramps or otherwise encourage extended
                reborrowing, many consumers nevertheless avoid long reborrowing
                sequences and pay off their covered short-term and longer-term balloon-
                payment loans with no, or minimal, renewals.\217\
                ---------------------------------------------------------------------------
                 \216\ Id. at 54570-71.
                 \217\ Id. at 54704.
                ---------------------------------------------------------------------------
                5. Conclusion
                 Based on its analysis in parts V.B.1 through V.B.4 above, the
                Bureau believes that the key evidentiary grounds relied upon in the
                2017 Final Rule were insufficiently robust and reliable to support the
                findings of an unfair and abusive practice as identified in Sec.
                1041.4. The Bureau preliminarily concludes that neither the Bureau's
                interpretation of limited data from the Mann Study nor other sources on
                which the Bureau relied provide a sufficiently robust and
                representative evidentiary basis, in light of the expected impacts of
                the 2017 Final Rule, to conclude that consumers do not have a specific
                understanding of their personal risks and cannot accurately predict
                whether they will remain in long reborrowing sequences after taking out
                covered short-term and longer-term balloon-payment loans. The Bureau
                also preliminarily concludes that the Pew Study, and other evidence
                cited in support of the Pew Study, do not provide a sufficiently robust
                and reliable basis to conclude that consumers who use covered short-
                term or longer-term balloon-payment loans lack the ability to protect
                themselves in selecting or using these products. The Bureau further
                preliminarily concludes that the weaknesses in the evidentiary record
                on which the Bureau relied for the Mandatory Underwriting Provisions in
                the 2017 Final Rule is particularly problematic as a policy matter
                because these provisions will have dramatic effects, including
                eliminating many lenders and decreasing consumer access to financial
                products that they may want. Accordingly, the Bureau preliminarily
                believes that these conclusions are sufficient to rescind Sec. 1041.4.
                C. The Legal Findings Under Section 1031 of the Dodd-Frank Act
                 In addition to, and independent from, its preliminary determination
                that the evidence relied upon in the 2017 Final Rule was insufficiently
                robust and reliable to support the Bureau's key findings underlying the
                unfairness and abusiveness determinations, the Bureau also
                preliminarily determines that the standards for unfairness and
                abusiveness used in the 2017 Final Rule were problematic for the
                reasons discussed below.
                 Specifically, as to the Bureau's unfairness findings in the 2017
                Final Rule, the Bureau is making this preliminary conclusion about how
                the 2017 Final Rule applied: (1) Section 1031(c)(1)(A) of the Dodd-
                Frank Act relating to determining whether injuries are reasonably
                avoidable, and (2) section 1031(c)(1)(B) about whether substantial
                injury is outweighed by countervailing benefits. The Bureau is also
                making this preliminary conclusion, as to the Bureau's abusiveness
                findings in the 2017 Final Rule, about how the 2017 Final Rule applied:
                (1) Section 1031(d)(2)(A) relating to determining whether consumers
                lack understanding of the material costs, risks, or conditions of a
                consumer financial product or service; and (2) section 1031(d)(2)
                relating to the determination that lenders took unreasonable advantage
                of consumers by making covered short-term and balloon-payment loans
                without reasonably assessing borrowers' ability to repay such loans
                according to their terms.
                 Accordingly, as discussed further below, the Bureau preliminarily
                [[Page 4269]]
                believes that the 2017 Final Rule should not have concluded that the
                identified practice was unfair and abusive. This preliminary conclusion
                is independent from the Bureau's preliminary conclusions regarding the
                evidentiary basis for the 2017 Final Rule. In other words, even if the
                evidence on which the 2017 Final Rule was based was sufficiently robust
                and reliable, the Bureau preliminarily believes that the Bureau should
                not have concluded in the 2017 Final Rule that the identified practice
                was unfair and abusive because the agency used problematic approaches,
                as discussed below, in applying the standards for unfairness and
                abusiveness.
                1. Reasonable Avoidability
                 The Bureau determined in the 2017 Final Rule that making covered
                short-term or longer-term balloon-payment loans without reasonably
                assessing a borrower's ability to repay the loan according to its terms
                is an unfair act or practice. In making this determination, the Bureau
                concluded that this practice: (1) Caused or was likely to cause
                substantial injury to consumers; (2) that that injury was not
                reasonably avoidable by consumers; and (3) that the injury was not
                outweighed by countervailing benefits to consumers or competition.\218\
                The Bureau believes the approach it used to reach these conclusions was
                problematic, as discussed below, and it now preliminarily proposes a
                better approach to applying the reasonable avoidability standard,
                incorporating the lessons of relevant precedent by the FTC. The Bureau
                preliminarily concludes that, even assuming that the factual findings
                in the 2017 Final Rule were correct and sufficiently supported, those
                findings did not establish that consumers could not reasonably avoid
                harm under the best interpretation of the statute, informed by relevant
                precedent.
                ---------------------------------------------------------------------------
                 \218\ Id. at 554588.
                ---------------------------------------------------------------------------
                As discussed in part V.A.1, the Bureau, in the Mandatory
                Underwriting Provisions of the 2017 Final Rule, interpreted section
                1031(c)(1)(A) of the Dodd-Frank Act to mean that for an injury to be
                reasonably avoidable consumers must ``have reason generally to
                anticipate the likelihood and severity of the injury and the practical
                means to avoid it.'' \219\ As discussed above, the Bureau interpreted
                this standard in the 2017 Final Rule context as requiring consumers to
                have a specific understanding of the magnitude and severity of their
                personal risks such that they could accurately predict how long they
                would be in debt after taking out a covered short-term or longer-term
                balloon-payment loan.\220\ The Bureau acknowledged that such borrowers
                ``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.'' \221\ The Bureau also acknowledged that the
                Mann Study on which the Bureau so heavily relied found that most payday
                borrowers expected some repeated sequences of loans.\222\ Nonetheless,
                the Bureau stated that ``[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.'' \223\
                Because it found that consumers are not in a position to evaluate the
                risks, the Bureau found that consumers could not reasonably avoid the
                injuries.\224\
                ---------------------------------------------------------------------------
                 \219\ Id. at 54594.
                 \220\ Id. at 54594-96.
                 \221\ Id.at 54615.
                 \222\ Id. at 54569.
                 \223\ Id. at 54597.
                 \224\ Id. at 54594; see also id. at 54597.
                ---------------------------------------------------------------------------
                 The Bureau is concerned that in the 2017 Final Rule it applied a
                problematic standard for reasonable avoidability under section
                1031(c)(1)(A) of the Dodd-Frank Act.
                 In applying unfairness principles, the FTC and courts have long
                recognized that for an injury to be reasonably avoidable consumers must
                not only ``know the physical steps to take in order to prevent it'' but
                also ``understand the necessity of actually taking those steps.'' \225\
                Put differently, ``an injury is reasonably avoidable if consumers have
                reason to anticipate the impending harm and the means to avoid it.''
                \226\ The FTC Policy Statement emphasizes the importance of consumer
                choice in unfairness analysis. As the FTC Policy Statement explains,
                unfairness authority is not intended to ``second-guess the wisdom of
                particular consumer decisions'' and consumers are expected to ``survey
                the available alternatives, choose those that are most desirable, and
                avoid those that are inadequate or unsatisfactory.'' \227\ Unfairness
                matters typically are brought to halt ``some form of seller behavior
                that unreasonably creates or takes advantage of an obstacle to the free
                exercise of consumer decisionmaking.'' \228\ The Bureau finds these
                precedents informative as the Bureau considers how to apply section
                1031(c)(1)(A) of the Dodd-Frank Act.
                ---------------------------------------------------------------------------
                 \225\ See Int'l Harvester, 104 F.T.C. at 1066.
                 \226\ Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1168 (9th
                Cir. 2012), quoting Orkin Exterminating Co., Inc. v. F.T.C., 849
                F.2d 1354, 1365-66 (11th Cir. 1988).
                 \227\ FTC Policy Statement, Int'l Harvester, 104 F.T.C. 1074.
                 \228\ Id. The FTC Policy Statement offers examples of such
                misbehavior, including withholding critical information, engaging in
                overt coercion, or exercising undue influence over susceptible
                classes of purchasers.
                ---------------------------------------------------------------------------
                 In assessing whether consumers could reasonably avoid harm, the
                Bureau in the 2017 Final Rule concluded that they could not without a
                specific understanding of their individualized risk, as determined by
                their ability to accurately predict how long they would be in debt
                after taking out a covered short-term or longer-term balloon-payment
                loan.\229\ Even though the Bureau used this interpretation in the 2017
                Final Rule, the Bureau now preliminarily concludes that consumers need
                not have a specific understanding of their individualized likelihood
                and magnitude of harm such that they could accurately predict how long
                they would be in debt after taking out a covered short-term or longer-
                term balloon-payment loan for the injury to be reasonably avoidable. To
                require that consumers know their individualized likelihood and
                magnitude of harm from an act or practice to reasonably avoid their
                effects inflates the injury from them, would practically speaking shift
                the burden to lenders to make such determinations, thereby deterring
                lenders from offering products or product features, which effectively
                suppresses rather than facilitates consumer choice.
                ---------------------------------------------------------------------------
                 \229\ 82 FR 54472, 54597-98.
                ---------------------------------------------------------------------------
                 This particular problem with the 2017 Final Rule is illustrated by
                how the Bureau responded to several comments that urged the Bureau to
                mandate consumer disclosures instead of imposing an ability-to-repay
                requirement. In rejecting that suggestion, the Bureau stated that
                ``generalized or abstract information'' about the attendant risks would
                ``not inform the consumer of the risks of the particular loan in light
                of the consumer's particular financial situation.'' \230\ The Bureau
                went on to state that ``[t]he only disclosure that the Bureau could
                envision that could come close to positioning consumers to mitigate the
                unfair and abusive practice effectively would be an individualized
                forecast'' and that such ``an individualized disclosure might require
                more compliance burden than the
                [[Page 4270]]
                [Mandatory Underwriting Provisions in the Final Rule] to the extent
                that it would require a lender to forecast how many rollovers or how
                much re-borrowing might be required in the event that a consumer is not
                likely to repay the entire balance during the initial loan term.''
                \231\
                ---------------------------------------------------------------------------
                 \230\ Id. at 54637 (emphasis added).
                 \231\ Id. (emphasis added).
                ---------------------------------------------------------------------------
                 Thus, according to the 2017 Final Rule, many consumers are unable
                to reasonably avoid injury because they are unable to examine their own
                circumstances, the loan terms, and the typical loan performance in
                these markets, and determine from this information both their personal
                likelihood of timely repayment and the seriousness of the consequences
                if they fail to repay. The application of reasonable avoidability in
                the 2017 Final Rule contemplates that consumers cannot reasonably avoid
                harm even though they have a general knowledge that difficulty repaying
                (either temporarily or permanently) could occur and could lead them
                either to reborrow or default and experience adverse credit reporting,
                collections efforts, and even repossessions, liens, and garnishment of
                wages. Indeed, under the 2017 Final Rule's interpretation, consumers
                cannot reasonably avoid injury even if they recognize that they will be
                unable to repay the loan when initially due and will need to borrow but
                are uncertain as to precisely how long it will take them to be able to
                fully pay off the debt. Rather than consider whether consumers have
                reason to anticipate the impending harm and the means to avoid it, the
                Bureau interpreted the standard as requiring consumers to understand
                the specific likelihood and severity of potential harm to them.
                 Upon further consideration, the Bureau now preliminarily believes
                that using this reasonable avoidability standard was problematic.
                Whether through disclosure or through underwriting, the logic the
                Bureau applied in the 2017 Final Rule requires providers of covered
                short-term and longer-term balloon-payment loans to engage in extremely
                detailed, specific action with regard to particular consumers to
                correct for the consumers' individualized understanding--or lack of
                understanding--about their own finances and likely experiences with
                such loans.
                 As discussed in part IV, FTC Act precedent informs the Bureau's
                understanding of the unfairness standard under section 1031(c)(1)(A) of
                the Dodd-Frank Act. Accordingly, the Bureau considers FTC precedents
                when evaluating whether an act or practice causes harm or is likely to
                cause harm that is reasonably avoidable by consumers pursuant to
                section 1031(c)(1)(A) of the Dodd-Frank Act. When analyzing unfairness
                under the FTC Act, the FTC and courts have held that ``an injury is
                reasonably avoidable if consumers have reason to anticipate the
                impending harm and the means to avoid it,'' \232\ meaning that ``people
                know the physical steps to take in order to prevent'' injury,\233\ but
                ``also . . . understand the necessity of actually taking those steps.''
                \234\ Under this approach, whether a consumer can anticipate and avoid
                injury through consumer choice informs whether that injury is
                reasonably avoidable.\235\ In some cases, consumer injury was not
                reasonably avoidable because a potential harm was not disclosed and
                consumers could not anticipate that harm from prior experience.\236\ In
                other cases, firms have engaged in deception or outright coercion to
                prevent the exercise of free consumer choice.\237\ However, the Bureau
                has not identified relevant precedent suggesting that consumers must
                understand their own specific individualized likelihood and magnitude
                of harm to reasonably avoid injury or requiring the disclosure of such
                information to prevent injury. A disclosure that generally alerts
                consumers to the likelihood and magnitude of harm generally has been
                sufficient to avoid a finding that consumers did not appreciate the
                value of taking steps to avoid that harm.\238\
                ---------------------------------------------------------------------------
                 \232\ See Davis, 691 F.3d at 1168.
                 \233\ See Int'l Harvester, 104 F.T.C. at 1066.
                 \234\ Id.
                 \235\ See Orkin, 849 F.2d at 1365.
                 \236\ See id. (``consumer choice was impossible'' when company
                raised annual fees without a contractual basis for lifetime termite
                protection services); Int'l Harvester, 104 F.T.C. at 1066.
                (``Farmers may have known that loosening the fuel cap was generally
                a poor practice, but they did not know from the limited disclosures
                made, nor could they be expected to know from prior experience, the
                full consequences that might follow from it.'').
                 \237\ See F.T.C. v. Wyndham Worldwide Corp., 799 F.3d 236, at
                245-46 (3rd Cir. 2015) (injury from data breaches was not reasonably
                avoidable because of misleading privacy policy that overstated the
                company's data security practices); Holland Furnace Co. v. F.T.C.,
                295 F.2d 302 (7th Cir. 1961) (company representatives dismantled
                furnaces without permission and refused to reassemble them until
                consumers agreed to buy services or parts).
                 \238\ See, e.g., Int'l Harvester, 104 F.T.C. 949, at *46 (noting
                that the dissemination of the disclosure --``AVOID FIRES. TIGHTEN
                cap securely, Do not open when engine is RUNNING or HOT''--would
                have made the injury from fuel geysering reasonably avoidable).
                ---------------------------------------------------------------------------
                 The Bureau's approach to reasonable avoidability is also consistent
                with trade regulation rules promulgated by the FTC over several decades
                to address unfair or deceptive practices that occur on industry-wide
                bases.\239\ To prevent such conduct, the FTC has routinely established
                disclosure requirements that mandate businesses provide to consumers
                general information about material terms, conditions, or risks related
                to products or services.\240\ However, no FTC trade regulation rule
                based on unfairness has required businesses to provide individualized
                forecasts or disclosures of each customer's or prospective customer's
                own specific likelihood and magnitude of potential harm.\241\
                ---------------------------------------------------------------------------
                 \239\ Section 18 of the FTC Act provides that the FTC is
                authorized to prescribe ``rules which define with specificity acts
                or practices which are unfair or deceptive acts or practices in or
                affecting commerce'' within the meaning of section 5 of the FTC Act.
                15 U.S.C. 57a. The FTC's trade regulation rules are codified at 16
                CFR part 400.
                 \240\ See, e.g., Use of Prenotification Negative Option Plans
                Rule, 16 CFR 425.1(a)(1) (promotional material must clearly and
                conspicuously disclose material terms); Funeral Industry Practices
                Rule, 16 CFR 453.2(b) (requiring itemized price disclosures of
                funeral goods and services and other non-consumer specific
                disclosures); Credit Practices Rule, 16 CFR 444.3 (prohibiting
                certain practices and requiring disclosures about cosigner
                liability).
                 \241\ For example, the Credit Practices Rule requires that a
                covered creditor to provide a ``Notice to Cosigner'' disclosure
                prior to a cosigner becoming obligated on a loan. This notice
                advises in a concise and general manner consumers who cosign
                obligations about their potential liability. This notice is not
                individually-tailored and does not require a covered creditor to
                disclose information about the severity or likelihood of risks
                related to cosigner liability. See 16 CFR 444.3.
                ---------------------------------------------------------------------------
                 The Bureau preliminarily believes that it should interpret the
                reasonable avoidability standard as not necessarily requiring payday
                borrowers to have a specific understanding of their personal risks such
                that they can accurately predict how long they will be in debt after
                taking out a covered short-term or longer-term balloon-payment loan.
                Indeed, by virtue of the fact that many payday borrowers experience
                income and debt volatility, the 2017 Final Rule effectively presupposed
                that payday borrowers per se cannot reasonably avoid injury. The Bureau
                now preliminarily believes that the injury is reasonably avoidable if
                payday borrowers have an understanding of the likelihood and magnitude
                of risks of harm associated with payday loans sufficient for them to
                anticipate those harms and understand the necessity of taking
                reasonable steps to prevent resulting injury. Specifically, this means
                consumers need only to understand that a significant portion of payday
                borrowers experience difficulty repaying and that if such borrowers do
                not make other arrangements they either end up in extended loan
                sequences, default, or struggle to pay other bills after repaying their
                payday loan. The Bureau now preliminarily concludes
                [[Page 4271]]
                that this approach, consistent with the FTC's longstanding approach on
                informed consumer decision-making in its interpretation of the
                unfairness standard, is the best interpretation of section
                1031(c)(1)(A) as a legal and policy matter. In the Bureau's preliminary
                judgment, this approach appropriately emphasizes informed consumer
                decision-making.\242\
                ---------------------------------------------------------------------------
                 \242\ As the FTC stated in the FTC Policy Statement: ``[W]e
                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. We anticipate that consumers will survey the
                available alternatives, choose those that are most desirable, and
                avoid those that are inadequate or unsatisfactory.'' FTC Policy
                Statement, Int'l Harvester, 104 F.T.C. at 1074. See also Orkin, 849
                F.2d at 1365 (``The Commission's focus on a consumer's ability to
                reasonably avoid injury `stems from the Commission's general
                reliance on free and informed consumer choice at the best regulator
                of the market.''') (quoting Am. Fin. Serv. Ass'n v. F.T.C., 767 F.2d
                957, 976 (D.C. Cir. 1985)).
                ---------------------------------------------------------------------------
                 Applying an interpretation consistent with FTC precedent, the
                Bureau preliminarily believes that, assuming for present purposes that
                the identified practice causes or is likely to cause substantial
                injury, consumers can reasonably avoid that injury. As noted above, in
                the 2017 Final Rule, the Bureau expressly found that payday loan
                borrowers ``typically understand 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.'' \243\ Payday loans are advertised as
                products designed to assist consumers who are in financial distress,
                which tends to create general awareness that payday borrowers may not
                necessarily be in a position to readily obtain cheaper forms of credit.
                In light of their limited options and financial volatility, payday
                borrowers may infer that there are risks associated with taking the
                loans. Indeed, as previously noted, the Bureau expressly acknowledged
                that the Mann Study on which the Bureau so heavily relied found that
                most payday borrowers expected some repeated sequences of loans. The
                Bureau also notes that a significant portion of longer-term borrowers--
                who were the Bureau's primary concern in the 2017 Final Rule--have
                previously used covered short-term and longer-term balloon-payment
                loans and personally experienced extended loan sequences.\244\
                Consumers who have reborrowed in the past would seem particularly
                likely to have an understanding that such reborrowing is relatively
                common even if they cannot predict specifically how long they will need
                to borrow. Further, a Bureau analysis of a study of State-mandated
                payday loan disclosures--which inform consumers about repayment and
                reborrowing rates--found that such disclosures had a limited impact on
                reducing payday loan use and, in particular, reborrowing.\245\ The
                majority of consumers in the study continued to take out payday loans
                despite the disclosures. A plausible explanation for the limited effect
                of disclosures on consumer behavior in this study is that payday loan
                users were already aware that such loans can result in extended loan
                sequences.
                ---------------------------------------------------------------------------
                 \243\ 82 FR 54472, 54615.
                 \244\ Id. at 54597.
                 \245\ Id. at 54577-78; see Tex. Office of Consumer Credit
                Comm'r, Credit Access Businesses, http://occc.texas.gov/industry/cab.
                ---------------------------------------------------------------------------
                 The Bureau in the 2017 Final Rule did not offer evidence that would
                support the conclusion that consumers cannot reasonably avoid
                substantial injury from taking out payday loans when applying a
                standard that focuses on a more generalized understanding of likelihood
                and magnitude of harm from taking out such loans. The Bureau also found
                in the 2017 Final Rule that consumers who would not be offered a payday
                loan under either Sec. 1041.5 or Sec. 1041.6 would have alternatives
                to payday loans.\246\ Accordingly, the Bureau preliminarily believes
                that there is not a sufficient evidentiary basis on which to find that
                consumers cannot reasonably avoid substantial injury caused or likely
                to be caused by lenders making covered short-term and longer-term
                balloon-payment loans without assessing borrowers' ability to repay.
                ---------------------------------------------------------------------------
                 \246\ 82 FR 54472, 54840-41.
                ---------------------------------------------------------------------------
                 The Bureau seeks comments on this issue, including comment on the
                Bureau's proposed revised interpretation of reasonable avoidability
                under section 1031(c)(1) of the Dodd-Frank Act. The Bureau requests
                comment about the types or sources of information with respect to
                consumer understanding about covered short-term and longer-term
                balloon-payment loans that would be pertinent to a determination of
                whether consumers can reasonably avoid the substantial injury caused or
                likely to be caused by the identified practice.
                2. Countervailing Benefits to Consumers and to Competition
                 After determining in the 2017 Final Rule that the identified
                practice causes or is likely to cause substantial injury to consumers
                which is not reasonably avoidable by them, the Bureau went on to
                determine that such substantial injury is not outweighed by
                countervailing benefits to consumers or to competition. This is a
                necessary element of an unfairness determination under section
                1031(c)(1)(B) of the Dodd-Frank Act. The Bureau now revisits this
                latter determination and believes certain countervailing benefits from
                the identified practice were greater than the Bureau found in the 2017
                Final Rule. Even assuming arguendo that the identified practice causes
                or is likely to cause substantial injury to consumers which is not
                reasonably avoidable, the Bureau now revalues and determines that the
                countervailing benefits under the unfairness analysis were greater than
                the Bureau found in the 2017 Final Rule, and now preliminarily believes
                that the benefits to consumers and competition from the practice
                outweigh any such injury.
                a. Reconsideration of the Dependence of the Unfairness Identification
                on the Principal Step-Down Exemption
                 Section 1031(b) of the Dodd-Frank Act authorizes the Bureau to
                prescribe rules ``identifying as unlawful unfair, deceptive, or abusive
                acts or practices'' if the Bureau makes the requisite findings with
                respect to such acts or practices.\247\ The Bureau exercised this
                authority in Sec. 1041.4 to determine that it is unfair and abusive
                for a lender to make covered loans ``without reasonably determining
                that the consumers will have the ability to repay the loans according
                to their terms.'' \248\ The Bureau also exercised its authority under
                section 1031(b) of the Dodd-Frank Act to impose ``requirements for the
                purpose of preventing such acts or practices'' by adopting requirements
                in Sec. 1041.5 for how lenders should go about making such an ability-
                to-repay determination.\249\
                ---------------------------------------------------------------------------
                 \247\ 12 U.S.C. 5531(b).
                 \248\ 12 CFR 1041.4 (emphasis added).
                 \249\ 12 U.S.C. 5531(b); 12 CFR 1041.5.
                ---------------------------------------------------------------------------
                 In the section 1022(b)(2) analysis of the 2017 Final Rule, the
                Bureau estimated that if lenders ceased to engage in the identified
                practice and instead followed the mandatory underwriting requirements
                designed to prevent that practice, only one-third of current borrowers
                would be able to obtain any loans and, of those who obtained a loan,
                only one-third would be able to obtain a subsequent loan.\250\ The end
                result, the Bureau estimated, would be to eliminate between 89 and 93
                percent of all loans.\251\
                ---------------------------------------------------------------------------
                 \250\ 82 FR 54472, 54833.
                 \251\ Id. at 54826 (storefront payday), 54834 (vehicle title).
                ---------------------------------------------------------------------------
                [[Page 4272]]
                 In conducting its countervailing benefits analysis, however, the
                Bureau in the 2017 Final Rule did not address the benefits to consumers
                or competition from lenders making covered short-term and longer-term
                balloon-payment loans without an ability-to-repay determination. Rather
                than focusing on the effects of the identified practice itself, the
                Bureau interjected into its analysis the effect of Rule provisions that
                were intended to mitigate the general effects of the requirement that
                lenders make an ability-to-repay determination. Specifically, the
                Bureau included in its countervailing benefits analysis the principal
                step-down exemption in Sec. 1041.6. The principal step-down exemption
                permits a certain number of covered short-term and longer-term balloon-
                payment loans to be made without assessing the consumer's ability to
                repay so long as the loans meet a series of other conditions, including
                a requirement that the loan amount is amortized over successive loans
                by stepping down the principal over such loans. None of these
                conditions involve any ability-to-repay determination by the lender.
                Rather, the conditions generally focus on whether the loan amount is
                amortized (stepped down) over successive loans. The Bureau anticipated
                that the principal step-down exemption would actually be the
                predominant approach that payday lenders would use to comply with the
                Mandatory Underwriting Provisions, because of the substantial burdens
                the Mandatory Underwriting Provisions would impose on lenders.
                 The principal step-down exemption was not part of the identified
                practice. Rather, the exemption was added pursuant to the Bureau's
                authority to create exemptions which the Bureau deems ``necessary or
                appropriate to carry out the purposes and objectives of'' Title X of
                the Dodd-Frank Act.\252\
                ---------------------------------------------------------------------------
                 \252\ 12 U.S.C. 5512(b)(3).
                ---------------------------------------------------------------------------
                 The Bureau in the 2017 Final Rule did not consider in the
                countervailing benefits analysis the full benefits to consumers and
                competition from the identified practice of lenders making covered
                loans without making an ability-to-repay determination. In the words of
                the Bureau, the combination of the mandatory underwriting requirements
                plus the principal step-down exemption meant that only a ``relatively
                limited number of consumers'' would face a ``restriction on covered
                loans'' which ``reduces the weight on this [the countervailing
                benefits] side of the scale.'' \253\ This weight would have been much
                greater had the Bureau properly considered the full benefits from
                lenders engaging in the identified practice.
                ---------------------------------------------------------------------------
                 \253\ 82 FR 54472, 54609, 54603.
                ---------------------------------------------------------------------------
                 The Bureau preliminarily believes that the approach taken by the
                Bureau in the 2017 Final Rule puts the proverbial cart before the
                horse. The principal step-down exemption is a carve-out from
                requirements adopted to prevent an identified unfair and abusive
                practice. Thus, a predicate for the exemption, as pertinent here, is
                the existence of an act or practice which is unfair--which is to say,
                the existence of an act or practice for which the substantial injury
                outweighs countervailing benefits to consumers or to competition. It
                follows that an exemption predicated on the existence of an unfair
                practice should not be taken into account in determining whether a
                particular act or practice is unfair, i.e., in assessing the
                countervailing benefits of the act or practice at issue.
                 As the FTC Policy Statement explains, ``[m]ost business practices
                entail a mixture of economic and other costs and benefits for
                purchasers. . . . The [FTC] is aware of these tradeoffs and will not
                find that a practice unfairly injures consumers unless it is injurious
                in its net effects.'' \254\ In the 2017 Final Rule, the Bureau declared
                a practice unfair based on its aggregate costs to consumers, but in
                doing so it relied analytically on a large-scale exemption to avoid
                fully considering the practice's benefits, thereby inflating the costs
                of the practice relative to its benefits. Because the Bureau did not
                confront the total tradeoffs between the benefits and costs of the
                identified practice, the Bureau now preliminarily believes that the
                2017 Final Rule undervalued countervailing benefits. Doing so may brand
                business practices as unfair when they are beneficial on net to
                consumers or competition.
                ---------------------------------------------------------------------------
                 \254\ See FTC Policy Statement, Int'l Harvester, 104 F.T.C. at
                1073.
                ---------------------------------------------------------------------------
                 Accordingly, the Bureau preliminarily believes that when evaluating
                the countervailing benefits of the identified practice, the Bureau
                should have accounted for the complete benefits from that practice. The
                complete benefits to consumers and competition should reflect the
                benefits to consumers that would be lost if the identified practice
                were prohibited. Otherwise, it is not possible to accurately assess (as
                the Bureau now preliminarily interprets the unfairness test as
                requiring) whether the benefits of making such loans without
                determining ability to repay outweigh the injury from doing so.
                b. Effect of Undervaluing Countervailing Benefits
                 The Bureau also preliminarily believes that after fully accounting
                for the countervailing benefits--including benefits it disregarded in
                the 2017 Final Rule because of its reliance on the principal step-down
                exemption and also other benefits that it acknowledged but, in the
                Bureau's current view, undervalued--any aggregate injury to consumers
                caused by the identified practice is outweighed by the aggregate
                countervailing benefits to consumers and competition of that practice.
                 As the Bureau noted in the 2017 Final Rule, the relevant question
                under section 1031(c)(1)(B) of the Dodd-Frank Act is whether the
                countervailing benefits ``outweigh the substantial injury that
                consumers are unable reasonably to avoid and that stems from the
                identified practice.'' The Bureau approaches this determination by
                first weighing the relevant injury in the aggregate (taking the
                findings of the 2017 Rule as a given because it need not reconsider
                them here), then weighing countervailing benefits in the aggregate, and
                then assessing which of the two predominates.\255\
                ---------------------------------------------------------------------------
                 \255\ 82 FR 54472, 54602. ``Injury is weighed in the aggregate,
                rather than simply on a consumer-by-consumer basis,'' and conversely
                ``the countervailing benefits to consumers are also measured in the
                aggregate, and the Bureau includes the benefits even to those
                consumers who, on net, were injured.'' Id. at 54591.
                ---------------------------------------------------------------------------
                i. Countervailing Benefits to Consumers
                 In the 2017 Final Rule, the Bureau analyzed the countervailing
                benefits separately for three segments of consumers, defined by their
                ex post behavior: Repayers (those who repay a covered short-term or
                longer-term balloon-payment loan when due without the need to reborrow
                within 30 days); reborrowers (those who eventually repay the loan but
                after one or more instances of reborrowing); and defaulters (those who
                default either on an initial loan or on a subsequent loan that is part
                of a sequence of loans).\256\ The Bureau follows the same framework
                here. At the same time, the Bureau requests comment on whether these
                are the appropriate categories within which to analyze the existence of
                countervailing benefits.
                ---------------------------------------------------------------------------
                 \256\ Id. at 54599-600.
                ---------------------------------------------------------------------------
                 Repayers. In between 22 percent and 30 percent of payday loan
                sequences \257\
                [[Page 4273]]
                and a smaller slice of vehicle title sequences,\258\ borrowers obtain a
                single loan, repay it in full when first due, and do not reborrow again
                for a period of 14 to 30 days thereafter. In conducting the
                countervailing benefits analysis in the 2017 Final Rule with respect to
                repayers, the Bureau did not suggest that the identified practice was
                without benefit to these repayers. Rather, the Bureau's countervailing
                benefits analysis in the 2017 Final Rule effectively acknowledged the
                identified practice had benefits for some repayers because the Rule
                recognized that it was important to avoid ``false negatives,'' i.e.,
                consumers who in fact have the ability to repay but who could not
                establish it ex ante.\259\ However, the Bureau determined that these
                countervailing benefits were ``minimal,'' in part because the Bureau
                anticipated that lenders would make substantially all the loans
                permitted by the Mandatory Underwriting Provisions of the 2017 Final
                Rule and in part because the Bureau believed that the principal step-
                down exemption would mitigate any false negative concerns.\260\
                ---------------------------------------------------------------------------
                 \257\ See Supplemental Findings at 120. The higher number uses a
                14-day definition of loan sequence and thus includes consumers who
                repay their first loan and do not borrow within the ensuing two
                weeks. The lower number uses a 30-day definition and thus counts
                only those who do not reborrow within 30 days after repayment.
                 \258\ See 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 (11
                to 13 percent).
                 \259\ See 82 FR 54472, 54603-04.
                 \260\ Id.
                ---------------------------------------------------------------------------
                 The Bureau now believes that in the 2017 Final Rule it understated
                the risk that, under the mandatory underwriting requirements, some
                consumers who would be repayers and would benefit from receiving a loan
                would nonetheless be denied a loan. This risk arises in part from the
                difficulty some borrowers may have in proving their ability to repay
                and in part from that the fact that some lenders may choose to ``over-
                comply'' in order to reduce their legal exposure. Although the 2017
                Final Rule minimized the possibility that lenders would take a
                ``conservative approach . . . due to concerns about compliance risk,''
                \261\ the Bureau now preliminarily believes that somewhat greater
                weight should be placed on this risk. The Bureau's experience in other
                markets indicates that some lenders generally seek to take steps to
                avoid pressing the limits of the law.
                ---------------------------------------------------------------------------
                 \261\ Id. at 54603.
                ---------------------------------------------------------------------------
                 Moreover, from the perspective of the repayers, there may also be
                significant effects of requiring lenders to make ability-to-repay
                determinations that might be termed ``system'' effects. As previously
                noted, the 2017 Final Rule's assessment of benefits and costs estimated
                that, if covered short-term or longer-term balloon-payment loans could
                be made only to those consumers with an ability to repay in a single
                installment without reborrowing, lenders would not make upwards of 90
                percent of all loans and of course not receive revenue from loans that
                are not made. At a minimum, that would lead to a vast constriction of
                supply. The Bureau believes that a 90 percent reduction in revenue
                would produce at least a corresponding reduction in supply \262\ and
                could have even a more profound effect if the remaining revenue were
                insufficient to sustain the business model. In other words, the Bureau
                preliminarily believes that one of the countervailing benefits of
                permitting lenders to engage in the identified practice is that it
                makes it possible to offer loans on a wide-scale basis to the repayers.
                Prohibiting such lending will necessarily decrease the ability of the
                repayers to obtain covered short-term and longer-term balloon-payment
                loans.
                ---------------------------------------------------------------------------
                 \262\ See id. at 54817, 54842 (estimating that the 2017 Final
                Rule as a whole, including the principal step-down exemption, would
                reduce loan volume by between 62 and 68 percent and would result in
                a corresponding reduction in the number of retail outlets).
                ---------------------------------------------------------------------------
                 Reborrowers. As the Bureau noted in the 2017 Final Rule, over 55
                percent of both payday and vehicle title sequences result in the
                consumer reborrowing one or more times before finally repaying and not
                borrowing again for 30 days.\263\ The Bureau acknowledged that some of
                these borrowers who are unable to repay in a single installment (i.e.,
                without reborrowing) may nonetheless benefit from having access to
                covered short-term and longer-term balloon-payment loans because the
                borrowers may be income-smoothing across a longer time span. These
                borrowers also may benefit because they may face eviction, overdue
                utility bills, or other types of expenses, with paying such expenses
                sometimes creating benefits for consumers that outweigh the costs
                associated with the payday loan sequence. But the Bureau stated that
                the principal step-down exemption--which it said is ``worth
                emphasizing'' in this context--would ``reduc[e] the magnitude'' of the
                countervailing benefits flowing from the identified practice.\264\
                After taking into account this reduction, the Bureau concluded,
                however, that the remaining countervailing benefits were outweighed by
                the injury to those reborrowers who find themselves ``unexpectedly
                trapped in extended loan sequences.'' \265\
                ---------------------------------------------------------------------------
                 \263\ Id. at 54605.
                 \264\ Id. at 54606.
                 \265\ Id. at 54605.
                ---------------------------------------------------------------------------
                 On its own terms, this reasoning has no applicability with respect
                to vehicle title reborrowers for whom the principal step-down exemption
                would not be available and who thus would lose the ability to income
                smooth over more than one vehicle title loan or deal with the expenses
                referenced above. This reasoning similarly does not apply to payday
                loan reborrowers who cannot qualify for the principal step-down
                exemption, for example, borrowers who find that they have a new need
                for funds but have already exhausted the various borrowing limits
                imposed by the exemption.\266\ Moreover, as explained above, the Bureau
                believes that this reliance on the principal step-down exemption was
                misplaced.
                ---------------------------------------------------------------------------
                 \266\ 12 CFR 1041.6.
                ---------------------------------------------------------------------------
                 The Bureau preliminarily believes that the consequences of this
                reliance on the exemption are profound. Under an ability-to-repay
                regime, assuming the systemic effects did not eliminate the industry
                completely, most of the 58 percent of payday borrowers or 55 percent of
                vehicle title borrowers would lose access to covered short-term and
                longer-term balloon-payment loans on the grounds that reborrowers lack
                the ability to repay the loans according to their terms. To the extent
                some consumers passed an ability-to-repay assessment and needed to
                reborrow, most would be precluded from taking out a second loan. In
                other words, the practice of making covered short-term or longer-term
                balloon-payment loans to consumers who cannot satisfy the mandatory
                underwriting requirement is the linchpin of enabling the reborrowers to
                access these type of loans.
                 The Bureau acknowledges that among reborrowers there is a sizable
                segment of consumers who end up in extended loan sequences before
                repaying and thus incur significant costs. But even for these
                borrowers, there is some countervailing benefit in being able to obtain
                access to credit, typically through the initial loan, that is used to
                meet what the Bureau acknowledged in the 2017 Final Rule to be an
                ``urgent need for funds'' \267\--for example, to pay rent and stave off
                an eviction or a utility bill and avoid a shutdown, or to pay for
                needed medical care or food for their family.\268\ Moreover, over 35
                percent of the reborrowers required only between one and three
                additional loans before being able to repay and stop borrowing
                [[Page 4274]]
                for 30 days and an additional almost 20 percent of the reborrowers
                required between four and six additional loans before being able to
                repay.\269\ These shorter-term reborrowers would forgo any benefits
                associated with these additional loans if lending was limited to those
                who can demonstrate an ability to repay in a single installment.
                ---------------------------------------------------------------------------
                 \267\ 82 FR 54472, 54620.
                 \268\ As discussed in the Rule, id. at 54538, surveys which ask
                borrowers about the reasons for borrowing may elicit answers
                regarding the immediate use to which the loan proceeds are put or
                about a past expense shock that caused the need to borrow, making
                interpretation of the survey results difficult. But what seems
                beyond dispute is that these borrowers have a pressing need for
                additional money.
                 \269\ See Supplemental Findings at 122 (fig. 36).
                ---------------------------------------------------------------------------
                 In sum, the Bureau preliminarily believes that there are
                substantial countervailing benefits for reborrowers that flow from the
                identified practice that the Bureau now preliminarily believes should
                not have been discounted in the 2017 Final Rule by relying on the
                principal step-down exemption.
                 Defaulters. The third group of borrowers discussed in the 2017
                Final Rule were those whose sequences end in default. As to this group,
                representing 20 percent of payday borrowers \270\ and 32 percent of
                vehicle title borrowers,\271\ the Bureau acknowledged that ``these
                borrowers typically would not be able to obtain loans under the terms
                of the final rule'' (and thus the Bureau did not rely on the principal
                step-down exemption in assessing the effects on these consumers).\272\
                The Bureau went on to note that ``losing access to non-underwritten
                credit may have consequences for some consumers, including the ability
                to pay for other needs or obligations'' and the Bureau stated that this
                is ``not an insignificant countervailing benefit.'' \273\ But the
                Bureau went on to state that these borrowers ``are merely substituting
                a payday lender or title lender for a preexisting creditor'' and
                obtaining ``a temporary reprieve.'' \274\
                ---------------------------------------------------------------------------
                 \270\ See id. at 120 (tbl. 23).
                 \271\ See 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.
                 \272\ 82 FR 54472, 54604.
                 \273\ Id.
                 \274\ Id. at 54604, 54590.
                ---------------------------------------------------------------------------
                 Of course, it is not necessarily true that all defaulters use their
                loan proceeds to pay off other outstanding loans; at least some use the
                money to purchase needed goods or services, such as medical care or
                food. Moreover, the Bureau is now concerned that in the 2017 Final Rule
                it may have minimized the value to consumers of substituting a payday
                lender for other creditors, such as a creditor with the power to
                initiate an eviction or shut off utility services or refuse medical
                care. The Bureau is also concerned that the 2017 Final Rule may have
                minimized the value of a ``temporary reprieve'' which may enable
                defaulters to stave off more dire consequences than the consequences of
                defaulting on a payday loan.
                 Conclusion. In sum, the Bureau now preliminarily believes that the
                2017 Final Rule's approach to its countervailing benefits analysis
                caused it to underestimate the countervailing benefits in terms of
                access to credit that flows from the identified practice. It is not
                just the benefit of access to credit for those payday loan consumers
                who would lose access under the principal step-down exemption that
                should be weighed; rather the systemic effects of ending the identified
                practice and eliminating over 90 percent of all payday and vehicle
                title loans would adversely affect the interests of all borrowers--
                including even those with the ability to repay. Furthermore, the Bureau
                now preliminarily believes that it underestimated the benefits of
                access to credit for a large segment of reborrowers and even for some
                defaulters--including the benefits of a temporary reprieve, of
                substituting a payday or vehicle title lender for some other creditor
                and, for the reborrowers, the benefit of smoothing income over a period
                longer than a single two-week or 30-day loan. The Bureau preliminarily
                believes that after giving full and appropriate weight to the interests
                of all affected consumers, the countervailing benefits to consumers
                that flow from the practice of making covered short-term and longer-
                term balloon-payment loans without making an ability-to-repay
                determination outweigh the substantial injury that the Bureau
                considered in the 2017 Final Rule to not be reasonably avoidable by
                consumers. The Bureau invites comment on these preliminary conclusions.
                ii. Countervailing Benefits to Competition
                 As with its discussion of the countervailing benefits to consumers,
                the 2017 Final Rule analyzed the countervailing benefits to competition
                through the lens of the principal step-down exemption. Specifically,
                the 2017 Final Rule acknowledged that ``a certain amount of market
                consolidation may impact . . . competition'' but asserted that this
                effect would be modest and would not reduce meaningful access to credit
                because of the principal step-down exemption.\275\ For the reasons
                previously discussed, the Bureau now preliminarily believes that the
                Bureau should not have factored into its analysis this exemption but
                rather should have analyzed the effect on competition from the
                identified practice under which lenders would be able to make upwards
                of 90 percent of the loans they would not be able to make if the
                identified practice were determined to be unfair. The Bureau
                preliminarily believes that the loss of revenue from these loans and in
                the corresponding reduction in supply would have a dramatic effect on
                competition, especially if lenders cannot stay in business in the face
                of such decreases in revenue.
                ---------------------------------------------------------------------------
                 \275\ 82 FR 54472, 54611-12.
                ---------------------------------------------------------------------------
                 The Bureau recognizes that because of State-law regulation of
                interest rates, the effect of reduced competition may not manifest
                itself in higher prices. However, payday and vehicle title lenders
                compete on non-price dimensions and a rule which caused at least a 90
                percent reduction in revenue and supply would likely materially impact
                such competition.
                 The Bureau also notes that, as the 2017 Final Rule recognized, a
                number of innovative products are seeking to compete with traditional
                short-term lenders by assisting consumers in finding ways to draw on
                the accrued cash value of wages they have earned but not yet paid, and
                that some of these products take the form of extensions of credit.\276\
                Other innovators are providing emergency assistance at no cost to
                consumers through a tip model.\277\ The 2017 Final Rule included
                exclusions to accommodate these emerging products, thereby recognizing
                that providers offering these products were doing so without assessing
                the consumers' ability to repay without reborrowing. The Bureau
                therefore preliminarily believes that a prohibition of making short-
                term or balloon-payment loans without assessing consumers' ability to
                repay would constrain innovation in this market.
                ---------------------------------------------------------------------------
                 \276\ 12 CFR 1041.3(d)(7).
                 \277\ 12 CFR 1041.3(d)(8).
                ---------------------------------------------------------------------------
                 The Bureau preliminarily believes that these countervailing
                benefits to competition provide an additional reason to conclude that
                the countervailing benefits to consumers and to competition outweigh
                the substantial injury that the Bureau considered in the 2017 Final
                Rule to not be reasonably avoidable by consumers. The Bureau invites
                comment on these preliminary conclusions.
                3. Lack of Understanding of Material Risks, Costs, or Conditions
                 As discussed in part V.A.2 above, under section 1031(d)(2)(A) of
                the Dodd-Frank Act it is an abusive practice to take unreasonable
                advantage of a lack of understanding on the part of the consumer of the
                material risks, costs, or
                [[Page 4275]]
                conditions of a consumer financial product or service. In the Mandatory
                Underwriting Provisions of the 2017 Final Rule, the Bureau took a
                similar approach to interpreting this provision as it took with respect
                to the reasonable avoidability element of unfairness. The Bureau
                interpreted the statute to mean that consumers lack understanding if
                they fail to understand either their personal ``likelihood of being
                exposed to the risks'' of the product or service in question or ``the
                severity of the kinds of costs and harms that may occur.'' \278\
                ---------------------------------------------------------------------------
                 \278\ 82 FR 54472, 54617.
                ---------------------------------------------------------------------------
                 Unlike the elements of unfairness specified in section 1031(c) of
                the Dodd-Frank Act, the elements of abusiveness do not have a long
                history or governing precedents. Rather, the Dodd-Frank Act marked the
                first time that Congress defined ``abusive acts or practices'' as
                generally unlawful in the consumer financial services sphere. The
                Bureau preliminarily believes that this element of the abusiveness test
                for this proposal should be treated as similar to reasonable
                avoidability. That is, the Bureau now preliminarily believes that the
                approach taken in the 2017 Final Rule was problematic, as discussed
                below, and now applies an approach under which ``lack of
                understanding'' would not require payday borrowers to have a specific
                understanding of their personal risks such that they can accurately
                predict how long they will be in debt after taking out a covered short-
                term or longer-term balloon-payment loan. Rather, the Bureau
                preliminarily believes that consumers have a sufficient understanding
                under section 1031(d)(2)(A) of the Dodd-Frank Act if they appreciate
                the general risks of harm associated with the products sufficient for
                them to consider taking reasonable steps to avoid that harm. The Bureau
                in the 2017 Final Rule did not offer evidence that consumers lack such
                an understanding with respect to the material risks, costs or
                conditions on covered short-term and longer-term balloon-payment loans.
                In the absence of such evidence, the Bureau preliminarily believes it
                should not have concluded in the 2017 Final Rule that the identified
                practice was an abusive act or practice pursuant to section
                1031(d)(2)(A) of the Dodd-Frank Act.
                 For these reasons, which are set forth in more detail in part V.C.1
                above regarding reasonable avoidability, the Bureau has preliminarily
                determined that its interpretation of ``lack of understanding on the
                part of the consumer of the material risks, costs, or conditions of the
                product or service'' in the 2017 Final Rule was too broad. The Bureau
                seeks comment on this issue, including comment on how the Bureau should
                interpret section 1031(d)(2)(A) of the Dodd-Frank Act.
                4. Taking Unreasonable Advantage
                 The Bureau is also reconsidering how the 2017 Final Rule applied
                section 1031(d)(2) of the Dodd-Frank Act, which proscribes abusive
                conduct that takes ``unreasonable advantage'' of certain consumer
                vulnerabilities enumerated in the statute. As described above, the
                Bureau focused on two such vulnerabilities in connection with
                evaluating lenders making covered loans without making an ability-to-
                repay determination--both lack of consumer understanding and inability
                to protect their own interests. The Bureau stated that there comes a
                point at which a financial institution's conduct in leveraging its
                superior information or bargaining power relative to consumers becomes
                unreasonable advantage-taking, and that the Dodd-Frank Act delegates to
                the Bureau the responsibility for determining when advantage-taking has
                become unreasonable.\279\ The Bureau's unreasonable advantage analysis
                applied a multi-factor analysis, concluding that:
                ---------------------------------------------------------------------------
                 \279\ Id. at 554621.
                At a minimum lenders take unreasonable advantage of borrowers
                when they [1] develop lending practices that are atypical in the
                broader consumer financial marketplace, [2] take advantage of
                particular consumer vulnerabilities, [3] rely on a business model
                that is directly inconsistent with the manner in which the product
                is marketed to consumers, and [4] eliminate or sharply limit
                feasible conditions on the offering of the product (such as
                underwriting and amortization, for example) that would reduce or
                mitigate harm for a substantial population of consumers.\280\
                ---------------------------------------------------------------------------
                 \280\ Id. at 54623 (bracketed numbers added).
                 The Bureau has decided to reassess this application of section
                1031(d)(2) of the Dodd-Frank Act. This inquiry is inherently a question
                of judgment in light of the factual, legal, and policy factors that can
                inform what is reasonable or unreasonable in particular circumstances.
                Upon further consideration, the Bureau preliminarily concludes that the
                factors cited in the 2017 Final Rule do not constitute unreasonable
                advantage-taking.
                 First, insofar as the Bureau in the 2017 Final Rule focused on the
                atypicality of granting credit without assessing ability to repay, the
                Bureau now questions whether this practice is an appropriate indicator
                of unreasonable advantage-taking. Although the Bureau pointed to the
                fact that the practice of extending credit without assessing ability to
                repay is an unusual one, it is actually common with regard to credit
                products for consumers who lack traditional indicia of
                creditworthiness--for example, credit products for consumers with
                little or no credit history, loans for students, or reverse mortgages
                for the elderly. Further, the Bureau believes that innovators and new
                entrants into product markets often engage in practices that deviate
                from established industry norms and conventions. Many such practices
                are by definition atypical. Thus, to presume that atypicality is
                inherently suggestive of unreasonable advantage-taking would risk
                stifling innovation. These all suggest that even if the lack of
                underwriting were atypical, it still should not be viewed as inherently
                suggestive of unreasonable advantage-taking, given differences between
                particular consumer financial markets and the needs of their respective
                consumers.
                 Second, on taking advantage of particular consumer vulnerabilities,
                as discussed above, the Bureau preliminarily believes that limitations
                in the Rule's evidentiary record, including issues related to the Mann
                Study and the Pew Study, call into question the Bureau's findings
                regarding the degree of vulnerabilities of covered short-term and
                longer-term balloon-payment loan users. But even if the Bureau's
                findings in the 2017 Final Rule regarding user vulnerabilities are
                valid, the Bureau now preliminarily does not believe that they would
                independently support an unreasonable advantage-taking determination.
                The ``takes unreasonable advantage of'' element in section 1031(d)(2)
                of the Dodd-Frank Act requires that an act or practice take advantage
                of a vulnerability specified by, as relevant here, section
                1031(d)(2)(A) (lack of understanding) or section 1031(d)(2)(B)
                (inability to protect). The Bureau now believes that the 2017 Final
                Rule did not adequately explain how the practice of not reasonably
                assessing a consumer's ability to repay a loan according to its terms
                leveraged particular consumer vulnerabilities. On the contrary, covered
                short-term and longer-term balloon-payment loans are made available to
                the general public on standard terms, and the 2017 Final Rule did not
                conclude, for example, that lenders had the ability to identify
                consumers with particular vulnerabilities prior to lending and use that
                information to treat some consumers differently than others, for
                example, by charging them different
                [[Page 4276]]
                prices or including different terms in contracts for them.\281\
                ---------------------------------------------------------------------------
                 \281\ As previously noted, due to similarities between the
                unfairness provisions in the Dodd-Frank Act and the FTC Act, FTC Act
                precedent informs the Bureau's understanding of unfairness under the
                Dodd-Frank Act. Although Dodd-Frank Act abusiveness authority is
                distinct, FTC Act precedent provides some factual examples that may
                help illustrate leveraging particular vulnerabilities of consumers.
                See, e.g., FTC Policy Statement, Int'l Harvester, 104 F.T.C. at 1074
                (unfair practices may include exercising ``undue influence over
                highly susceptible classes of purchasers, as by promoting fraudulent
                `cures' to seriously ill cancer patients''); Ideal Toy, 64 F.T.C.
                297, 310 (1964) (``False, misleading and deceptive advertising
                claims beamed at children tend to exploit unfairly a consumer group
                unqualified by age or experience to anticipate or appreciate the
                possibility that representations may be exaggerated or untrue.'').
                ---------------------------------------------------------------------------
                 Third, the Bureau is concerned that the Rule conflated the
                significance of a consumer's understanding of a company's business
                model with the consumer's understanding of that company's products or
                services. The Bureau stated that lenders' ``business model--unbeknownst
                to borrowers--depends on repeated re-borrowing.'' \282\ However,
                whether or not consumers understand the lender's revenue structure does
                not in itself determine whether they lack understanding about the
                features of the loan that they choose to take out. But the Bureau
                asserted that the two are connected, because lenders' business models
                are ``directly inconsistent with the manner in which the product is
                marketed to consumers.'' \283\ The Bureau nevertheless did not have
                evidence, for example, that consumers erroneously believe or are
                misinformed by lenders that loans are offered only to those consumers
                who have the ability to repay without reborrowing. The Bureau doubts
                that an inconsistency between a company's business model and its
                marketing of a product or service is a pertinent factor in assessing
                whether the method of deciding to extend credit constitutes
                unreasonable advantage-taking. The Bureau noted that ``covered short-
                term loans are marketed as being intended for short-term or emergency
                use,'' \284\ but that appears to be a statement about how most
                consumers use these loans, not a statement about the lenders' revenue
                structures.\285\
                ---------------------------------------------------------------------------
                 \282\ 82 FR 54472, 54621.
                 \283\ Id. at 54623.
                 \284\ Id. at 54616.
                 \285\ Moreover, to the extent that certain lenders are using
                particular language to mislead consumers regarding either the
                features of loans or the lenders' own revenue structures, it is not
                clear that this is related to a failure to make an ability-to-repay
                determination. Rather, that would appear to be a fact-specific
                problem that is already unlawful under the Dodd-Frank Act's
                prohibition on deceptive acts or practices. See 12 U.S.C. 5531(a).
                ---------------------------------------------------------------------------
                 Fourth, on eliminating or sharply limiting feasible conditions that
                would reduce harm for a substantial portion of consumers, the Bureau
                questions whether a lender's decision not to offer such conditions
                constitutes unreasonable advantage-taking in this context. As discussed
                above with respect to atypicality, the Bureau does not believe that a
                lender's forgoing underwriting in this context necessarily indicates
                unreasonable advantage-taking.\286\ Further, a lender's decision not to
                offer a short-term, non-amortizing product may be reasonable given that
                some States constrain the offering of longer-term products and, even if
                State law were not a constraint, longer-term, amortizing products would
                require lenders to assume credit risk over a longer period of time. The
                Bureau therefore now preliminarily does not believe this factor is of
                significant probative value concerning whether the identified practices
                takes unreasonable advantage of consumer vulnerabilities.
                ---------------------------------------------------------------------------
                 \286\ Further, the Bureau notes that this factor, which suggests
                that a lender takes unreasonable advantage by not assessing ability
                to repay because, inter alia, the lender does not underwrite, relies
                to a significant extent on circular logic. By presuming the
                unreasonable advantage-taking determination in this manner, the
                Bureau in the 2017 Final Rule neglected to offer a meaningful
                rationale for the weight that it placed on the failure to underwrite
                in the fourth factor of the analysis, and the Bureau preliminarily
                believes that it should not be given this weight.
                ---------------------------------------------------------------------------
                 For these reasons, the Bureau preliminarily believes that it does
                not have a sufficient basis to find that lenders take unreasonable
                advantage of consumers under section 1031(d)(2) of the Dodd-Frank Act
                by making 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.
                 The Bureau seeks comment on this issue, including how the Bureau
                should interpret ``taking unreasonable advantage'' and the appropriate
                test for distinguishing between reasonable and unreasonable conduct
                under section 1031(d)(2) of the Dodd-Frank Act. The Bureau also seeks
                comment about the extent to which firms make loans for other consumer
                financial products without engaging in traditional underwriting, such
                as what a bank would do to underwrite an automobile loan or consumer
                finance lender would do for a small business loan.
                5. Conclusion
                 Based on its analysis in parts V.C.1 through V.C.4 above, the
                Bureau preliminarily believes that the findings of an unfair and
                abusive practice as identified in Sec. 1041.4 rested on applications
                of sections 1031(c) and (d) of the Dodd-Frank Act that the Bureau
                should no longer use. Specifically, the Bureau preliminarily concludes
                that the Bureau should no longer rely upon the 2017 Final Rule's: (1)
                Application of the reasonable avoidability element of unfairness under
                section 1031(c)(1)(A) of the Dodd-Frank Act by finding that consumers
                could not reasonably avoid injury; (2) application of the
                countervailing benefits element under section 1031(c)(1)(B) of the
                Dodd-Frank Act and valuation of certain countervailing benefits under
                that section; (3) application of the lack of consumer understanding
                prong of abusiveness under section 1031(d)(2)(A) of the Dodd-Frank Act;
                and (4) application of the taking unreasonable advantage element of
                abusiveness under section 1031(d)(2) of the Dodd-Frank Act.
                 Based on these preliminary findings, the Bureau now proposes to
                rescind Sec. 1041.4, which identifies the failure to conduct an
                ability-to-repay assessment in connection with making a covered short-
                term or longer-term balloon-payment loan as an unfair and abusive
                practice. The identification of an unfair and abusive practice as set
                out in Sec. 1041.4 was predicated on certain factual findings
                established in the 2017 Final Rule as well as a particular application
                of section 1031(c) and (d) of the Dodd-Frank Act adopted in the 2017
                Final Rule. The Bureau's preliminary conclusions here mean that neither
                factual nor legal grounds sustain the identification of an unfair and
                abusive practice as set out in Sec. 1041.4.
                 The Bureau requests comment on these legal conclusions, the
                application and understanding of these specific provisions of section
                1031(c) and (d) of the Dodd-Frank Act, and the application of the
                factual findings in part V.B above to these sections that would be
                pertinent to the Bureau's preliminary determination that there are no
                grounds to identify an unfair or abusive practice in Sec. 1041.4,
                which identifies the failure to conduct an ability-to-repay analysis in
                connection with a covered short-term or longer-term balloon-payment
                loan as an unfair and abusive practice.
                D. Consideration of Alternatives
                 The Bureau generally considers alternatives in its rulemakings.
                Here, the context for the consideration of alternatives is that the
                Bureau is proposing to rescind the Mandatory Underwriting Provisions of
                the 2017 Final Rule, which were based on the Bureau's discretionary
                authority, not a
                [[Page 4277]]
                specific statutory directive.\287\ The Bureau has preliminarily
                concluded as a matter of policy, as outlined in part V.B above, that a
                more robust and reliable evidentiary record is needed to support a rule
                that would have such dramatic impacts on the viability of payday
                lenders, competition among payday lenders, and the availability of
                payday loans to consumers who want one, and that the findings of an
                unfair or abusive practice as set out in Sec. 1041.4 rested on
                applications of the relevant standards that the Bureau should no longer
                use, as detailed in part V.C.
                ---------------------------------------------------------------------------
                 \287\ 12 U.S.C. 5531(b) (``The Bureau may prescribe rules
                applicable to a covered person or service provider identifying as
                unlawful unfair, deceptive, or abusive acts or practices.'')
                (emphasis added).
                ---------------------------------------------------------------------------
                 In light of this posture, the Bureau does not believe that the
                alternative interventions to the Mandatory Underwriting Provisions
                considered in the 2017 Final Rule are viable alternatives to the
                Bureau's proposed rescission of the Mandatory Underwriting Provisions.
                For example, one alternative analyzed in the 2017 Final Rule was a
                payment-to-income test, offered in lieu of the specific underwriting
                criteria established by the Mandatory Underwriting Provisions. In this
                context, the payment-to-income test, limits on the number of loans in a
                sequence, and other alternatives that would rely on authority under
                section 1031 of the Dodd-Frank Act are not viable alternatives to
                rescission, because the Bureau is proposing to rescind the underlying
                findings concerning the existence of an unfair and abusive
                practice.\288\
                ---------------------------------------------------------------------------
                 \288\ This includes, for instance, the payment-to-income
                alternative, the various State law regulatory approaches such as
                loan caps, and other interventions. See 82 FR 54472, 54636-40.
                ---------------------------------------------------------------------------
                 The Bureau also does not believe that the expenditure of
                substantial Bureau resources on the development of possible alternative
                theories of unfair or abusive practices and corollary preventative
                remedies is warranted given the likely complexity of such an endeavor.
                 Additionally, the Bureau is not choosing to exercise its rulemaking
                discretion in order to pursue new disclosure requirements pursuant to
                section 1032 of the Dodd-Frank Act. As explained in the Bureau's
                preliminary findings set out in parts V.B and V.C above, there are
                indications that consumers potentially enter into these transactions
                with a general understanding of the risks entailed, including the risk
                of reborrowing. It is thus not clear to the Bureau at this time what
                purpose would be served by requiring disclosures as to the general
                risks of reborrowing be provided to these consumers. Further, as
                previously noted, a Bureau analysis of a study of State-mandated payday
                loan disclosures found that such disclosures had a limited impact on
                reducing payday loan use and, in particular, reborrowing, which
                suggests that consumers already have the information they deem
                relevant. Moreover, developing the evidentiary basis for disclosure
                requirements would be challenging and the development of disclosures
                would likely require the dedication of resources that does not seem
                warranted given the above factors and given the value of those
                resources if used to protect consumers through other Bureau activities,
                such as law enforcement. However, the Bureau does intend, in the normal
                course of its market monitoring activities, to continue to review
                whether consumers have the information they need to make informed
                decisions in the selection and use of short-term and balloon-payment
                loans.
                 The Bureau requests comment on its consideration of alternatives to
                the rescission of the Mandatory Underwriting Provisions, including its
                preliminary conclusion that the alternatives to the Mandatory
                Underwriting Provisions, as articulated in the 2017 Final Rule, are not
                viable alternatives to the rescission of the Mandatory Underwriting
                Provisions in light of the Bureau's factual and legal findings set
                forth in parts V.B and V.C above.
                E. Conclusion
                 The Bureau believes that each of the concerns raised above are
                sufficiently serious in their own right to merit reconsideration of the
                2017 Final Rule, and even more so when considered in combination. As
                described above, the Bureau believes that, in light of the 2017 Final
                Rule's dramatic market impacts, the studies on which it primarily
                relied in the Rule do not provide a sufficiently robust and reliable
                basis for finding that consumers cannot reasonably avoid injury or
                protect their interests, and do not understand the material risks,
                costs, and conditions of the loans. The Bureau also now preliminarily
                believes that the 2017 Final Rule used a problematic approach in
                applying section 1031 of the Dodd-Frank Act in determining what level
                of individualized understanding would be necessary to make the findings
                necessary to support a determination that the identified practice was
                unfair and abusive; in evaluating the countervailing benefits to
                consumers and to competition of the identified practice; and in
                evaluating whether the factors set forth in the 2017 Final Rule are the
                appropriate standard for taking unreasonable advantage of consumers
                and, if so, whether the Bureau properly applied that standard. The
                Bureau preliminarily concludes that it is appropriate to propose
                rescinding the Mandatory Underwriting Provisions of the 2017 Final
                Rule. After many years of rulemaking, outstanding questions that the
                Bureau and other stakeholders have on whether the identified practice
                is unlawful and whether the Bureau intervention (i.e., the Mandatory
                Underwriting Provisions) is appropriate remain; the Bureau therefore
                preliminarily concludes that significantly more time, money, and other
                resources would be needed from the Bureau, industry, consumers, and
                other stakeholders to engage in the research and analysis required to
                develop specific evidence that might support determining that the
                identified practice is unfair and abusive and that imposing an ability-
                to-repay regulatory scheme is a necessary and appropriate response to
                that practice.
                 The Bureau seeks comment on these preliminary determinations that
                each of the concerns raised above (set out in parts V.B and V.C) are
                sufficiently serious in their own right to merit rescission of the
                Mandatory Underwriting Provisions.
                 Because the 2017 Final Rule's constellation of Mandatory
                Underwriting Provisions was premised on the existence of Sec. 1041.4,
                which identified that the failure to conduct an ability-to-repay
                assessment constitutes an unfair and abusive practice,\289\ the Bureau
                also preliminarily finds that rescinding Sec. 1041.4 would also
                require rescinding the provisions setting forth the interventions that
                constitute the remedy for the practice because the Bureau only has
                legal authority to promulgate the Mandatory Underwriting Provisions
                where it has specifically identified an unfair or abusive act or
                practice.\290\ The Bureau also seeks comment on rescission of the
                provisions in the 2017 Final Rule that
                [[Page 4278]]
                were predicated on the unfair and abusive practice identified in Sec.
                1041.4. These include the mandatory underwriting requirements in Sec.
                1041.5,\291\ a conditional exemption from those underwriting
                requirements in Sec. 1041.6,\292\ and related reporting and
                recordkeeping requirements in Sec. Sec. 1041.10 through 1041.12.\293\
                The technical aspects of the proposal to rescind and additional, more
                specific questions with regard to the specific amendments to the 2017
                Final Rule are discussed in more detail in part VI below.
                ---------------------------------------------------------------------------
                 \289\ See comment 4-1 (noting that lenders that comply with
                Sec. 1041.6 in making covered short-term loans have not committed
                unfair and abusive practices under Sec. 1041.4 and are not subject
                to Sec. 1041.5).
                 \290\ See 12 U.S.C. 5531(b) (``The Bureau may prescribe rules
                applicable to a covered person or service provider identifying as
                unlawful unfair, deceptive, or abusive acts or practices.''); see
                also id. at 5531(c) (stating that ``[t]he Bureau shall have no
                authority under this section to declare an act or practice . . .
                unlawful on the grounds that such act or practice is unfair'' unless
                the act or practice meets the elements of unfairness); id. at
                5531(d) (stating that ``[t]he Bureau shall have no authority under
                this section to declare an act or practice abusive . . . unless the
                act or practice'' meets one of two tests of abusiveness).
                 \291\ 12 CFR 1041.5 (requiring that providers 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 reborrow
                over the ensuing 30 days).
                 \292\ 12 CFR 1041.6 (permitting providers, in lieu of following
                Sec. 1041.5, 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).
                 \293\ 12 CFR 1041.10 (requiring providers to furnish certain
                information); 12 CFR 1041.11 (establishing requirements for
                registered information systems); 12 CFR 1041.12 (requiring providers
                to establish and follow a compliance program and retain certain
                records).
                ---------------------------------------------------------------------------
                 Finally, the Bureau invites comments on any other issues or factors
                not specifically identified above that may nonetheless be relevant to
                its proposal to rescind the Mandatory Underwriting Provisions of the
                2017 Final Rule.
                VI. Section-by-Section Analysis
                 As described in greater detail in part V above, the Bureau is
                proposing to rescind Sec. Sec. 1041.4 and 1041.5 of the 2017 Final
                Rule, which respectively identify the failure to reasonably determine
                whether consumers have the ability to repay certain covered loans as an
                unfair and abusive practice and establish certain underwriting
                requirements to prevent that practice. The Bureau is also proposing to
                rescind certain derivative provisions that are premised on these two
                core sections, including a conditional exemption for certain loans in
                Sec. 1041.6, two provisions (Sec. Sec. 1041.10 and 1041.11) that
                facilitate lenders' ability to obtain certain information about
                consumers' past borrowing history from information systems that have
                registered with the Bureau, and certain recordkeeping requirements in
                Sec. 1041.12. The Bureau preliminarily concludes that, if Sec. Sec.
                1041.4 and 1041.5 are rescinded, these derivative provisions would no
                longer serve the purposes for which they were included in the 2017
                Final Rule and should be rescinded as well.
                 This part VI describes the particular modifications the Bureau is
                proposing in order to effect the rescission of these various Mandatory
                Underwriting Provisions. Specifically, as discussed in more detail
                below, the Bureau is proposing to remove in their entirety the
                regulatory text and associated commentary for subpart B of the Rule
                (Sec. Sec. 1041.4 through 1041.6) and certain provisions of subpart D
                (Sec. Sec. 1041.10 and 1041.11, and parts of Sec. 1041.12). The
                Bureau is also proposing modifications to other portions of regulatory
                text and commentary in the 2017 Final Rule that refer to the Mandatory
                Underwriting Provisions or the requirements therein.
                 As this part VI is describing the specific modifications to
                regulatory text and commentary that the Bureau is proposing, it refers
                to ``removing'' text rather than ``rescinding'' it, consistent with the
                language agencies use to instruct the Office of the Federal Register as
                to changes to be made in the Code of Federal Regulations.\294\ In order
                to avoid confusion, the Bureau is not proposing to renumber the
                sections or paragraphs that it is not removing; rather, the Bureau is
                proposing that those section and paragraph numbers be marked as
                ``[Reserved]'' so that the remaining provisions would continue with the
                same numbering as they have currently.
                ---------------------------------------------------------------------------
                 \294\ As noted previously, while most of the 2017 Final Rule has
                a compliance date of August 19, 2019, the Rule became effective on
                January 16, 2018.
                ---------------------------------------------------------------------------
                 Due to changes in requirements by the Office of the Federal
                Register, when amending commentary the Bureau is now required to
                reprint certain subsections being amended in their entirety rather than
                providing more targeted amendatory instructions. The sections of
                commentary included in this document show the language of those
                sections if the Bureau adopts its changes as proposed. The Bureau is
                releasing an unofficial, informal redline to assist industry and other
                stakeholders in reviewing the changes that it is proposing to make to
                the regulatory text and commentary of the 2017 Final Rule.\295\
                ---------------------------------------------------------------------------
                 \295\ This redline can be found on the Bureau's regulatory
                implementation page for the Rule at https://www.consumerfinance.gov/policy-compliance/guidance/payday-lending-rule/. If any conflicts
                exist between the redline and the text of the 2017 Final Rule or
                this NPRM, the documents published in the Federal Register are the
                controlling documents.
                ---------------------------------------------------------------------------
                 The Bureau seeks comment on the changes to the regulatory text and
                commentary that it is proposing in this part VI, and in particular
                whether any of the changes would affect implementation of the Payment
                Provisions. The Bureau also seeks comment on whether any other
                modifications not identified herein would be necessary to effect
                rescission of the Mandatory Underwriting Provisions as proposed.
                Subpart A--General
                Section 1041.1 Authority and Purpose
                1(b) Purpose
                 Section 1041.1 sets forth the Rule's authority and purpose. The
                Bureau is proposing to remove the last sentence of Sec. 1041.1(b),
                which currently provides that part 1041 also prescribes processes and
                criteria for registration of information systems. The Bureau is
                proposing this change for consistency with the proposed removal of
                Sec. Sec. 1041.10 and 1041.11 discussed below.
                Section 1041.2 Definitions
                2(a) Definitions
                2(a)(5) Consummation
                 Section 1041.2(a)(5) defines the term consummation. Comment (a)(5)-
                2 describes what types of loan modifications trigger underwriting
                requirements pursuant to Sec. 1041.5. The Bureau is proposing to
                remove comment 2(a)(5)-1 for consistency with the proposed removal of
                Sec. 1041.5 discussed below.
                2(a)(14) Loan Sequence or Sequence
                 Section 1041.2(a)(14) defines the terms loan sequence and sequence
                to mean a series of consecutive or concurrent covered short-term loans,
                or covered longer-term balloon loans, or a combination thereof, in
                which each of the loans (other than the first loan) is made during the
                period in which the consumer has a covered short-term or longer-term
                balloon-payment loan outstanding and for 30 days thereafter. These
                terms are used in Sec. Sec. 1041.5, 1041.6, and 1041.12(b)(3), and
                related commentary. The Bureau is proposing to remove and reserve Sec.
                1041.2(a)(14) for consistency with the proposed removal of the
                provisions in which these terms appear, as discussed below.
                2(a)(19) Vehicle Security
                 Section 1041.2(a)(19) defines the term vehicle security to
                generally mean an interest in a consumer's motor vehicle obtained by
                the lender or service provider as a condition of the credit. This term
                is used in Sec. Sec. 1041.6 and 1041.12(b)(3) and in commentary
                accompanying Sec. Sec. 1041.5(a)(8) and 1041.6. The Bureau is
                proposing to remove and reserve Sec. 1041.2(a)(19) for consistency
                with the proposed removal
                [[Page 4279]]
                of the provisions in which this term appears, as discussed below.
                 The Bureau requests comment on whether there are any other
                definitional terms or portions thereof, in addition to the terms loan
                sequence or sequence and vehicle security, that it should similarly
                remove for consistency with the proposed rescission of the Mandatory
                Underwriting Provisions.
                Section 1041.3 Scope of Coverage; Exclusions; Exemptions
                3(e) Alternative Loan
                 Section 1041.3(e) provides a conditional exemption for alternative
                loans from the requirements of part 1041, which are covered loans that
                satisfy the conditions and requirements set forth in Sec. 1041.3(e).
                The Bureau is proposing to revise two comments accompanying Sec.
                1041.3(e) that reference the Mandatory Underwriting Provisions, as
                described below.
                3(e)(2) Borrowing History Condition
                 Section 1041.3(e)(2) addresses a consumer's borrowing history on
                other alternative loans. Comment 3(e)(2)-1 describes the relevant
                records a lender may use to determine that the consumer's borrowing
                history on alternative covered loans meets the criteria set forth in
                Sec. 1041.3(e)(2). The Bureau is proposing to revise the second
                sentence of this comment to remove language that refers to consumer
                reports obtained from information systems registered with the Bureau.
                The Bureau is proposing this change for consistency with the proposed
                removal of Sec. 1041.11 discussed below.
                3(e)(3) Income Documentation Condition
                 Section 1041.3(e)(2) requires a lender to maintain and comply with
                policies and procedures for documenting proof of recurring income.
                Comment 3(e)(3)-1 generally describes the income documentation policies
                and procedures that a lender must maintain to satisfy the income
                documentation condition of the conditional exemption. The Bureau is
                proposing to remove the second sentence of the comment, which
                distinguishes the income document condition of Sec. 1041.3(e)(3) from
                the income documentation procedures required by Sec. 1041.5(c)(2). The
                Bureau is proposing to revise this comment for consistency with the
                proposed removal of Sec. 1041.5 discussed below.
                Subpart B--Underwriting
                 Subpart B sets forth the rule's underwriting requirements in
                Sec. Sec. 1041.4 through 1041.6. The Bureau is proposing to remove and
                reserve the heading for subpart B; the removal of its contents is
                discussed below.
                Section 1041.4 Identification of Unfair and Abusive Practice
                 Section 1041.4 provides that it is 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. For the reasons
                set forth above, the Bureau is proposing to remove and reserve Sec.
                1041.4 and to remove the commentary accompanying Sec. 1041.4.
                Section 1041.5 Ability-to-Repay Determination Required
                 Section 1041.5 generally requires a lender to make a reasonable
                determination that a consumer has the ability to repay a covered short-
                term or a longer-term balloon-payment loan before making such a loan or
                increasing the credit available under such a loan. It also sets forth
                certain minimum requirements for how a lender may reasonably determine
                that a consumer has the ability to repay such a loan. For the reasons
                set forth above, the Bureau is proposing to remove and reserve Sec.
                1041.5 and to remove the commentary accompanying Sec. 1041.5.
                Section 1041.6 Conditional Exemption for Certain Covered Short-Term
                Loans
                 Section 1041.6 provides a conditional exemption for covered short-
                term loans that satisfy requirements set forth in Sec. 1041.6(b)
                through (e); Sec. Sec. 1041.4 and 1041.5 do not apply to such
                conditionally exempt loans. For the reasons set forth above and for
                consistency with the proposed removal of Sec. Sec. 1041.4 and 1041.5,
                the Bureau is proposing to remove and reserve Sec. 1041.6 and to
                remove the commentary accompanying Sec. 1041.6.
                Subpart D--Information Furnishing, Recordkeeping, Anti-Evasion, and
                Severability
                 Subpart D contains the rule's requirements regarding information
                furnishing (Sec. 1041.10), registered information systems (Sec.
                1041.11), and compliance programs and record retention (Sec. 1041.12);
                sets forth a prohibition against evasion (Sec. 1041.13); and addresses
                severability (Sec. 1041.14). The Bureau is proposing to remove the
                portion of the subpart's heading that refers to information furnishing
                for consistency with the proposed removal of Sec. Sec. 1041.10 and
                1041.11. Specific revisions to this subpart's contents are discussed
                below.
                Section 1041.10 Information Furnishing Requirements
                 Among other things Sec. Sec. 1041.5 and 1041.6, discussed above,
                require lenders when making covered short-term and longer-term balloon-
                payment loans to obtain consumer reports from information systems
                registered with the Bureau pursuant Sec. 1041.11. Section 1041.10, in
                turn, requires lenders to furnish certain information about each
                covered short-term and longer-term balloon-payment loan to each
                registered information system. For the reasons set forth above and for
                consistency with the other changes proposed herein, the Bureau is
                proposing to remove and reserve Sec. 1041.10 and to remove the
                commentary accompanying Sec. 1041.10.
                Section 1041.11 Registered Information Systems
                 Section 1041.11 sets forth processes for information systems to
                register with the Bureau, describes the conditions that an entity must
                satisfy in order to become a registered information system, addresses
                notices of material change, suspension and revocation of a
                registration, and administrative appeals. For the reasons set forth
                above and for consistency with the other changes proposed herein, the
                Bureau is proposing to remove and reserve Sec. 1041.11 and to remove
                the commentary accompanying Sec. 1041.11.
                Section 1041.12 Compliance Program and Record Retention
                12(a) Compliance Program
                 Section 1041.12 provides that a lender making a covered loan must
                develop and follow written policies and procedures that are reasonably
                designed to ensure compliance with the requirements of part 1041.
                Comment 12(a)-1, in part, lists the various sections of the rule that
                must be addressed in the compliance program. The Bureau is proposing to
                remove from that comment the references to the ability-to-repay
                requirements in Sec. 1041.5, the alternative requirements in Sec.
                1041.6, and the requirements on furnishing loan information to
                registered and preliminarily registered information systems in Sec.
                1041.10.
                 Comment 12(a)-2 explains that the written policies and procedures a
                lender must develop and follow under Sec. 1041.12(a) depend on the
                types of covered loans that the lender makes, and provides certain
                examples. The Bureau is proposing to remove this comment as its
                examples are largely focused on compliance with Sec. Sec. 1041.5,
                1041.6, and 1041.10. The Bureau does not believe that it is useful to
                retain the
                [[Page 4280]]
                remaining portion of this comment focusing solely on disclosures
                related to Sec. 1041.9, although of course it remains true pursuant to
                Sec. 1041.12(a) itself that a lender that makes a covered loan subject
                to the requirements of Sec. 1041.9 must develop and follow written
                policies and procedures to provide the required disclosures to
                consumers.
                 The Bureau is proposing to make these changes for consistency with
                the proposed removal of Sec. Sec. 1041.5, 1041.6, and 1041.10
                discussed above.
                12(b) Record Retention
                 Section 1041.12(b) provides that a lender must retain evidence of
                compliance with part 1041 for 36 months after the date on which a
                covered loan ceases to be an outstanding loan. Section 1041.12(b)(1)
                through (4) sets forth particular requirements for retaining specific
                records, including retention of the loan agreement and documentation
                obtained in connection with originating a covered short-term or longer-
                term balloon-payment loan (Sec. 1041.12(b)(1)); retention of
                electronic records in tabular format for covered short-term or longer-
                term balloon-payment loans regarding origination calculations and
                determinations under Sec. 1041.5 ((Sec. 1041.12(b)(2)) and as well as
                type, terms, and performance (Sec. 1041.12(b)(3)); and retention of
                records relating to payment practices for covered loans (Sec.
                1041.12(b)(4)). Proposed revisions to the regulatory text of Sec.
                1041.12(b)(1) through (3), and related commentary, are discussed in
                turn further below.
                 Comment 12(b)-1 addresses record retention requirements generally.
                The Bureau is proposing to remove the portion of this comment
                explaining that a lender is required to retain various categories of
                documentation and information specifically in connection with the
                underwriting and performance of covered short-term and longer-term
                balloon-payment loans, while retaining (with minor revisions for
                clarity) the reference to records concerning payment practices in
                connection with covered loans. The comment also explains that the items
                listed in Sec. 1041.12(b) are non-exhaustive as to the records that
                may need to be retained as evidence of compliance with part 1041. The
                Bureau is proposing to remove the remainder of this sentence, which
                specifically refers to loan origination and underwriting, terms and
                performance, and payment practices (the specific mention of which is no
                longer necessary if the other references are removed). The Bureau is
                proposing these changes for consistency with the proposed removal of
                Sec. Sec. 1041.4 through 1041.6 discussed above as well as the
                proposed changes to Sec. 1041.12(b)(1) discussed below.
                12(b)(1) Retention of Loan Agreement and Documentation Obtained in
                Connection With Originating a Covered Short-Term or Covered Longer-Term
                Balloon-Payment Loan
                 Section 1041.12(b)(1) requires that, in order to comply with the
                requirements in Sec. 1041.12(b), a lender must retain or be able to
                reproduce an image of the loan agreement and certain documentation
                obtained in connection with the origination of a covered short-term or
                longer-term balloon-payment loan. The Bureau is proposing to remove the
                language in the heading and in the introductory text for Sec.
                1041.12(b)(1) that refers to the certain documentation obtained in
                connection with a covered short-term or longer-term balloon-payment
                loan, as well as the entirety of Sec. 1041.12(b)(1)(i) through (iii)
                that specifies particular categories of such documentation. As
                proposed, the remainder of this provision would require a lender to
                retain or be able to reproduce an image of the loan agreement for each
                covered loan. Retaining a copy of the loan agreement is necessary for
                all lenders, pursuant to the requirement in Sec. 1041.12(b) that
                lenders retain evidence of compliance for covered loans, in order to
                determine covered loan status for purposes of determining compliance
                with the Payment Provisions; the Bureau is proposing to explicitly
                retain this requirement in Sec. 1041.12(b)(1), for all covered loans,
                to avoid potential confusion. The Bureau is also proposing to remove
                the commentary accompanying Sec. 1041.12(b)(1). The Bureau is
                proposing these changes for consistency with the other changes proposed
                herein.
                12(b)(2) Electronic Records in Tabular Format Regarding Origination
                Calculations and Determinations for a Covered Short-Term or Covered
                Longer-Term Balloon-Payment Loan Under Sec. 1041.5
                 Section 1041.12(b)(2) requires lenders to retain records regarding
                origination calculations and determinations for a covered short-term or
                longer-term balloon-payment loan, including specific required
                information listed in Sec. 1041.12(b)(2)(i) through (v). It requires
                lenders to retain these records in an electronic, tabular format. For
                consistency with the proposed removal of Sec. 1041.5, the Bureau is
                proposing to remove and reserve Sec. 1041.12(b)(2) and to remove the
                commentary accompanying Sec. 1041.12(b)(2).
                12(b)(3) Electronic Records in Tabular Format Regarding Type, Terms,
                and Performance for Covered Short-Term or Covered Longer-Term Balloon-
                Payment Loans
                 Section 1041.12(b)(3) requires lenders to retain records regarding
                the type, terms, and performance of a covered short-term or longer-term
                balloon-payment loan, including specific required information listed in
                Sec. 1041.12(b)(3)(i) through (vii). It requires lenders to retain
                these records in an electronic, tabular format. The Bureau is proposing
                to remove and reserve Sec. 1041.12(b)(3) and to remove the commentary
                accompanying Sec. 1041.12(b)(3), for consistency with the proposed
                removal of Sec. Sec. 1041.5 and 1041.6 discussed above.
                12(b)(5) Electronic Records in Tabular Format Regarding Payment
                Practices for Covered Loans
                 Section 1041.12(b)(5) requires lenders to retain records regarding
                the payment practices for covered loans, including specific required
                information listed in Sec. 1041.12(b)(5)(i) and (ii). It requires
                lenders to retain these records in an electronic, tabular format. For
                consistency with the other changes proposed herein, the Bureau is
                proposing to revise comment 12(b)(5)-1 by removing most of its content,
                which focuses on compliance with Sec. 1041.12(b)(2) and (3) in
                conjunction with Sec. 1041.12(b)(5), and in its place the Bureau is
                proposing to incorporate the description of how a lender complies with
                the requirement to retain records in a tabular format, which is
                currently set forth in comment 12(b)(2)-1. The Bureau is also proposing
                to revise comment 12(b)(3)-1 to reflect the proposed change to Sec.
                1041.12(b)(3) and to incorporate the description of how a lender
                complies with the requirement to retain records in a tabular format.
                This description is currently included in comment 12(b)(2)-1. The
                Bureau is also proposing to remove the cross-reference to Sec.
                1041.12(b)(2) in the description of how records must be retained, and
                to remove the final sentence of the commentary discussing association
                of records under Sec. 1041.12(b)(5) with unique loan and consumer
                identifiers in Sec. 1041.12(b)(3) as the Bureau is proposing to remove
                those recordkeeping requirements from Sec. 1041.12(b)(3).
                Appendix A to Part 1041--Model Forms
                A-1 Model Form for First Sec. 1041.6 Loan
                 Section 1041.6(e)(2)(i) requires a lender that makes a first loan
                in sequence of loans under the conditional
                [[Page 4281]]
                exemption in Sec. 1041.6 to provide a consumer with a notice that
                includes certain information and statements, using language that is
                substantially similar to the language set forth in Model Form A-1. For
                the reasons sets forth above and for consistency with the proposed
                removal of Sec. 1041.6, the Bureau is proposing to remove and reserve
                Model Form A-1.
                A-2 Model Form for Third Sec. 1041.6 Loan
                 Section 1041.6(e)(2)(ii) requires a lender that makes a third loan
                in sequence of loans under the conditional exemption in Sec. 1041.6 to
                provide a consumer with a notice that includes certain information and
                statements, using language that is substantially similar to the
                language set forth in Model Form A-2. For the reasons sets forth above
                and for consistency with the proposed removal of Sec. 1041.6, the
                Bureau is proposing to remove and reserve Model Form A-2.
                VII. Compliance and Effective Dates
                 The Bureau is proposing that the final rule take effect 60 days
                after publication in the Federal Register.\296\ As discussed above, the
                current compliance date for the Mandatory Underwriting Provisions of
                the 2017 Final Rule is August 19, 2019, which the Bureau has separately
                proposed elsewhere in this issue of the Federal Register to delay by 15
                months, to November 19, 2020. After considering comments received on
                that proposal, the Bureau intends to publish a final rule with respect
                to the compliance date for the Mandatory Underwriting Provisions of the
                2017 Final Rule. Likewise, after considering comments received on this
                proposal, the Bureau expects to publish a final rule with respect to
                the Mandatory Underwriting Provisions themselves. The Bureau seeks
                comment on this aspect of the proposal.
                ---------------------------------------------------------------------------
                 \296\ Section 553(d) of the APA generally requires that the
                effective date of a final rule be at least 30 days after publication
                of that final rule, except for (1) a substantive rule which grants
                or recognizes an exemption or relieves a restriction; (2)
                interpretive rules or statements of policy; or (3) as otherwise
                provided by the agency for good cause found and published with the
                rule. 5 U.S.C. 553(d). If finalized, this proposal would not
                establish any requirements; instead, it would rescind the relevant
                provisions of the 2017 Final Rule. Accordingly, if finalized this
                proposal would be a substantive rule which relieves a restriction
                that is exempt from section 553(d) of the APA.
                ---------------------------------------------------------------------------
                VIII. Dodd-Frank Act Section 1022(b)(2) Analysis
                A. Overview
                 In developing this proposal, the Bureau has considered the
                potential benefits, costs, and impacts as required by section
                1022(b)(2)(A) of the Dodd-Frank Act.\297\ Specifically, section
                1022(b)(2)(A) of the Dodd-Frank Act calls for the Bureau to consider
                the potential benefits and costs of a regulation to consumers and
                covered persons, including the potential reduction of access by
                consumers to consumer financial products or services, the impact on
                depository institutions and credit unions with $10 billion or less in
                total assets as described in section 1026 of the Dodd-Frank Act, and
                the impact on consumers in rural areas.
                ---------------------------------------------------------------------------
                 \297\ 12 U.S.C. 5512(b)(2)(A).
                ---------------------------------------------------------------------------
                 In advance of issuing this proposal, the Bureau has consulted with
                the prudential regulators and the Federal Trade Commission, including
                consultation regarding consistency with any prudential, market, or
                systemic objectives administered by such agencies.
                1. The Need for Federal Regulatory Action
                 As explained above, the Bureau now preliminarily believes that, in
                light of the 2017 Final Rule's dramatic market impacts as detailed in
                the section 1022(b)(2) analysis accompanying the 2017 Final Rule, its
                evidence is insufficient to support the findings that are necessary to
                conclude that the identified practices were unfair and abusive. The
                Bureau also now preliminarily believes that the finding of an unfair
                and abusive practice as identified in Sec. 1041.4 of the 2017 Final
                Rule rested on applications of sections 1031(c) and (d) of the Dodd-
                Frank Act that the Bureau should no longer use. The Bureau therefore is
                proposing to rescind the Mandatory Underwriting Provisions of the 2017
                Final Rule because it preliminarily believes the facts and the law do
                not adequately support the conclusion that the identified practice
                meets the standard for unfairness or abusiveness under section 1031(c)
                and (d) of the Dodd-Frank Act.\298\
                ---------------------------------------------------------------------------
                 \298\ The 2017 Final Rule stated that the existence of a market
                failure supported the need for Federal regulatory action. As the
                Bureau now believes that there is not a need for the Federal
                regulatory action described in the 2017 Final Rule, it is not
                necessary for the Bureau here in the section 1022(b)(2) analysis to
                identify or address a market failure.
                ---------------------------------------------------------------------------
                2. Data and Evidence
                 In the section 1022(b)(2) analysis that accompanied the 2017 Final
                Rule, the Bureau endeavored to consider comprehensively the economic
                benefits and costs that were likely to result from that Rule. These
                benefits and costs included direct pecuniary impacts, as well as non-
                pecuniary impacts that the available evidence indicated were likely to
                result from the Rule, if the proposal were to be adopted. The Bureau
                relied on the then-available evidence to analyze the potential
                benefits, costs, and impacts of the Rule.
                 In this section 1022(b)(2) analysis, the Bureau endeavors to
                consider comprehensively the economic benefits and costs that are
                likely to result from the proposal to rescind the Mandatory
                Underwriting Provisions of the 2017 Final Rule, possibly including some
                indirect effects.\299\
                ---------------------------------------------------------------------------
                 \299\ Note that, in considering these ``second-order'' impacts,
                the Bureau focuses on those effects where research has established a
                plausible, causal link between the intervention and the benefits or
                costs.
                ---------------------------------------------------------------------------
                 Since the issuance of the 2017 Final Rule, the body of evidence
                bearing on benefits and costs has only slightly expanded. As such, with
                the exception of the new studies discussed below, the Bureau has
                considered the same information as it considered in the section
                1022(b)(2) analysis of the 2017 Final Rule, although as discussed in
                part V.B, the Bureau has altered its conclusion as to the weight to be
                accorded to the key evidence in finding an unfair and abusive act or
                practice as well as warranting regulatory intervention.\300\ The new
                research that has become available after the drafting of the 2017 Final
                Rule have relatively little impact on the Bureau's analysis compared to
                the evidence cited in the 2017 Final Rule, as the implications of this
                new evidence for total surplus and consumer welfare are less clear or
                probative than those of the previously considered evidence.
                ---------------------------------------------------------------------------
                 \300\ The same evidence may be evaluated differently for
                purposes of legal and economic analysis.
                ---------------------------------------------------------------------------
                 The Bureau invites submission of additional data and studies that
                can supplement those relied on in the 2017 Final Rule's analysis which
                form the predicate for the estimates here as well as comments on the
                analyses of benefits and costs contained in that Rule and relied on
                here. Specifically, in some instances the data to perform quantitative
                analyses of particular issues or effects are not available, or are
                quite limited, and submissions that would augment the current analysis
                are especially welcome. Absent these data, portions of the analysis to
                follow rely, at least in part, on qualitative evidence provided to the
                Bureau in previous comments, responses to RFIs, and academic papers;
                general economic principles; and the Bureau's experience and expertise
                in consumer financial markets. As such, many of the benefits, costs,
                and impacts in this proposal are presented in general terms or ranges
                (as
                [[Page 4282]]
                they were in the section 1022(b)(2) analysis of the 2017 Final Rule),
                rather than as point estimates.
                 The Bureau also requests comment on potential alternatives.
                3. Major Provisions and Coverage of the Proposed Rule
                 In this analysis, the Bureau focuses on the benefits, costs, and
                impacts of the three major elements of the proposal: (1) The revocation
                of the 2017 Final Rule's requirement to reasonably determine borrowers'
                ability to repay covered short-term and longer-term balloon-payment
                loans according to their terms (along with the conditional exemption
                allowing for a principal step-down approach to issuing a limited number
                of short-term loans); (2) the revocation of the recordkeeping
                requirements associated with (1); and (3) the revocation of the 2017
                Final Rule's requirements concerning furnishing provisions and their
                associated requirements for registered information systems.
                 In the 2017 Final Rule, the Bureau delineated two major classes of
                short-term lenders it expected to be affected by the Mandatory
                Underwriting Provisions: Payday/unsecured short-term lenders, both
                storefront and online, and short-term vehicle title lenders.\301\ The
                Bureau also noted that at least one bank that was offering a deposit
                advance product was likely to be affected by the Rule's
                provisions.\302\ Similarly, any depository institution that might have
                considered offering a deposit advance product was likely to be affected
                by the Rule's provisions.\303\ The Bureau also recognized that some
                community banks and credit unions occasionally make short-term secured
                or unsecured loans, but noted the Bureau believed that those loans
                generally fall within the conditional exemption for alternative loans
                or the conditional exemption for accommodation loans under Sec.
                1041.3(e) and (f), respectively.\304\ Similarly, the Bureau recognized
                that some firms in the financial technology space are seeking to offer
                products designed to enable consumers to better cope with liquidity
                shortfalls, but the Bureau believed that those products, to a
                significant extent, fall within the exclusion for wage advance programs
                under Sec. 1041.3(d)(7) or the exclusion for no-cost advances under
                Sec. 1041.3(d)(8).\305\
                ---------------------------------------------------------------------------
                 \301\ 82 FR 54472, 54814.
                 \302\ Id.
                 \303\ Id. at 54815. Notably, on October 5, 2017, the Office of
                the Comptroller of the Currency (OCC) rescinded guidance that had
                limited the provision of deposit advance products. 82 FR 47602 (Oct.
                12, 2017); see also News Release, Office of the Comptroller of the
                Currency, Acting Comptroller of the Currency Rescinds Deposit
                Advance Product Guidance (NR-2017-118, Oct. 5, 2017), https://www.occ.treas.gov/news-issuances/news-releases/2017/nr-occ-2017-118.html. A May 23, 2018 OCC bulletin goes farther, and encourages
                banks to offer responsible short-term, small-dollar installment
                loans, which would likely compete with the loans covered by this
                proposal. Bulletin, Office of the Comptroller of the Currency, Core
                Lending Principles for Short-Term, Small-Dollar Installment Lending,
                (OCC Bulletin 2018-14, May 23, 2018), https://www.occ.treas.gov/news-issuances/bulletins/2018/bulletin-2018-14.html. Additionally,
                on November 14, 2018, the FDIC issued an RFI seeking public comment
                on consumer demand for small-dollar credit products, the supply of
                small-dollar credit products currently offered by banks, and whether
                there are steps the FDIC could take to better enable banks to
                provide such products to consumers to meet demand. 83 FR 58566,
                58567 (Nov. 20, 2018); see also Fed. Deposit Ins. Corp., Financial
                Institution Letter, Request for Information on Small-Dollar Lending
                (FIL-71-2018, Nov. 14, 2018), https://www.fdic.gov/news/news/financial/2018/fil18071.pdf. Given these changes, it is likely that
                these firms will more seriously consider offering these products
                under this proposal.
                 \304\ 82 FR 54472, 54815.
                 \305\ Id. The Bureau also believes many current fintech
                offerings fall outside of at least the mandatory underwriting
                requirements of the Rule, as they often focus on longer-term lending
                without balloon payments.
                ---------------------------------------------------------------------------
                 In addition to short-term lenders, lenders making longer-term
                balloon-payment loans (either vehicle title or unsecured) are also
                covered by the Rule's requirements concerning underwriting and RISes.
                It follows that lenders of each of these types will experience effects
                much like those of short-term lenders by the proposed revocation of the
                mandatory underwriting and RIS requirements.
                 The proposal's revocation of mandatory underwriting and RIS
                requirements carries implications relating to recordkeeping
                requirements that apply to any lender making covered short-term or
                longer-term balloon-payment loans. The proposed revocation of the RIS
                provisions relates to the application process and operational
                requirements for entities who otherwise would have sought to become
                RISes.\306\
                ---------------------------------------------------------------------------
                 \306\ In this part, the Bureau's references to RISes generally
                include firms in any stage of becoming an RIS, whether they would
                have been preliminarily approved, provisionally registered, or would
                have completed the process at the time this proposal would, if
                adopted, go into effect.
                ---------------------------------------------------------------------------
                4. Description of the Baseline
                 The major impact of the proposal on which the Bureau is seeking
                public comment would be to eliminate the Federal regulations requiring
                underwriting of covered short-term and longer-term balloon-payment
                loans. No lenders are required to comply with the 2017 Final Rule until
                the compliance date (which currently is August 19, 2019) and until the
                court in litigation challenging the 2017 Final Rule lifts its stay of
                the compliance date. Accordingly, if the Bureau makes its proposal
                final before lenders have to comply with the Mandatory Underwriting
                Provisions in the 2017 Final Rule, then no lenders will have had to
                comply with them. As a practical matter, issuing regulatory
                requirements and revoking them before covered entities have had to
                actually comply with them means there is little effect on stakeholders
                from the combined effect of issuing and revoking the requirements, that
                is, the combined effect is returning to the status quo prior to the
                agency issuing a final rule.
                 Nevertheless, the Bureau is considering the agency's two regulatory
                actions (that is issuing the 2017 Final Rule and proposing to rescind
                the Mandatory Underwriting Provisions of the 2017 Final Rule prior to
                its compliance date) separately for section 1022(b)(2) analysis
                purposes. The issuance was evaluated in a section 1022(b)(2) analysis
                when the Bureau issued the 2017 Final Rule. The proposed revocation is
                evaluated in this section 1022(b)(2) analysis.
                 In considering the potential benefits, costs, and impacts of the
                proposal to rescind the Mandatory Underwriting Provisions in the 2017
                Final Rule, to provide the most comprehensive assessment of the impact
                that the proposal would have, the Bureau takes as a baseline a scenario
                in which compliance with the 2017 Final Rule would become mandatory as
                of August 19, 2019 and compares the effect of the proposal to the
                market that would exist if, before reaching the compliance date, the
                Bureau elects to issue a final rule rescinding the Mandatory
                Underwriting Provisions of the 2017 Final Rule.
                 In other words, the Bureau takes the 2017 Final Rule as the
                baseline, and considers economic attributes of the relevant markets as
                they were (and continue to be) projected to exist under the 2017 Final
                Rule and the existing legal and regulatory structures (i.e., those that
                have been adopted or enacted, even if compliance is not yet required)
                applicable to providers.\307\ This approach assumes that any actions
                already undertaken and those that will be necessary to take in
                anticipation of the compliance date would also be reversed following
                revocation; it is the Bureau's belief that this is a reasonable
                [[Page 4283]]
                assumption but seeks comment on any such changes.\308\
                ---------------------------------------------------------------------------
                 \307\ The Bureau has discretion in each rulemaking to choose the
                relevant provisions to discuss and to choose the most appropriate
                baseline for that particular rulemaking in its analysis under
                section 1022(b)(2)(A) of the Dodd-Frank Act.
                 \308\ The Bureau also notes that compliance readiness is
                ongoing, and lenders may or may not continue to incur costs in
                anticipation of needing to comply unless and until uncertainty
                around the Mandatory Underwriting Provisions is resolved.
                ---------------------------------------------------------------------------
                 As noted above, the Bureau has considered the same information as
                it considered in the section 1022(b)(2) analysis of the 2017 Final Rule
                and has chosen not to revisit the specific methodologies in that
                analysis. As such, the expected impacts articulated in those analyses
                are taken as features of the baseline in this analysis. The Bureau
                welcomes comments on this approach.
                 The baseline specifically recognizes the wide variation in State-
                level restrictions that currently exist. As described in greater detail
                in the 2017 Final Rule, there were at that time 35 (now 33) States that
                either have created a carve-out from their general usury cap for payday
                loans or have no usury caps on consumer loans.\309\ The remaining 15
                (now 17) States and the District of Columbia either ban payday loans or
                have fee or interest rate caps that payday lenders apparently find too
                low to sustain their business models. Except as described below, this
                proposal would have minimal impact on covered persons in these States,
                and State law would still be binding on the markets in these areas.
                Further variation exists across the States that allow payday loans, as
                States vary in their payday loan size limits and their restrictions
                related to rollovers (e.g., when they are permitted and whether they
                are subject to certain limitations, such as a cap on the number of
                rollovers or requirements that the borrower amortize--i.e., repay part
                of the original loan amount--on the rollover). Numerous cities and
                counties within these States have also passed local ordinances
                restricting the location, number, or product features of payday
                lenders.\310\ Restrictions on vehicle title lending similarly vary
                across and within States, in a manner that often (but not always)
                overlaps with payday lending restrictions. Overall, these restrictions
                result in fewer than half of States allowing single-payment vehicle
                title loans that are covered by the Mandatory Underwriting Provisions
                of the 2017 Final Rule.\311\
                ---------------------------------------------------------------------------
                 \309\ For a list of States, see Pew Charitable Trusts, State
                Payday Loan Regulation and Usage Rates (Jan. 14, 2014), http://www.pewtrusts.org/en/multimedia/data-visualizations/2014/state-payday-loan-regulation-and-usage-rates. Other reports reach slightly
                different totals of payday authorizing States depending on their
                categorization methodology. See, e.g., Susanna Montezemolo, The
                State of Lending in America & Its Impact on U.S. Households: Payday
                Lending Abuses and Predatory Practices, at 32-33 (Ctr. for
                Responsible Lending, 2013), http://www.responsiblelending.org/sites/default/files/uploads/10-payday-loans.pdf; Consumer Fed'n of Am.,
                Legal Status of Payday Loans by State, http://www.paydayloaninfo.org/state-information (last visited Feb. 4, 2019)
                (listing 32 States as having authorized or allowed payday lending).
                Since publication of these reports, South Dakota enacted a 36
                percent usury cap for consumer loans. Press Release, S.D. Dep't of
                Labor and Reg., Initiated Measure 21 Approved (Nov. 10, 2016),
                http://dlr.sd.gov/news/releases16/nr111016_initiated_measure_21.pdf.
                 Legislation in New Mexico prohibiting short-term payday and
                vehicle title loans went into effect on January 1, 2018. Regulatory
                Alert, N.M. Reg. and Licensing Dep't, Small Loan Reforms, http://www.rld.state.nm.us/uploads/files/HB%20347%20Alert%20Final.pdf.
                Legislation passed in Ohio placing significant restrictions on
                short-term loans with an effective date of October 29, 2018. Ohio
                132nd General Assembly House Bill 123, Modify short-term, small, and
                mortgage loan laws, https://www.legislature.ohio.gov/legislation/
                legislation-summary?id=GA132-hb-123. On February 1, 2019, a ballot
                initiative approved by voters in November 2018 will go into effect
                as law in Colorado reducing APRs on payday loans to 36 percent. 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).
                 \310\ For a sample list of local payday ordinances and
                resolutions, see Consumer Fed'n of Am., Controlling the Growth of
                Payday Lending Through Local Ordinances and Resolutions (Oct. 2012),
                www.consumerfed.org/pdfs/Resources.PDL.LocalOrdinanceManual11.13.12.pdf; see also, e.g.,
                Portland Or., Code sec. 7.26.050; Eugene Or., Code sec. 3.556; Tex.
                Mun. League, City Regulation of Payday and Auto Title Lenders,
                http://www.tml.org/payday-updates.
                 \311\ For a discussion of State vehicle title lending
                restrictions, see Consumer Fed'n of Am., Car Title Loan Regulation
                (Nov. 16, 2016), http://consumerfed.org/wp-content/uploads/2017/01/11-16-16-Car-Title-Loan-Regulation_Chart.pdf.
                ---------------------------------------------------------------------------
                 Another notable feature of the baseline is the restriction in the
                Military Lending Act (MLA) to address concerns about the extension of
                high-cost credit to servicemembers.\312\ The MLA, as implemented by the
                Department of Defense, requires, among other things, that the creditor
                may not impose a military annual percentage rate (MAPR) greater than 36
                percent in connection with an extension of consumer credit to a covered
                borrower. In 2007, the Department of Defense issued its initial
                regulation under the MLA, limiting the Act's application to closed-end
                loans with a term of 91 days or less in which the amount financed did
                not exceed $2,000, closed-end vehicle title loans with a term of 181
                days or less, and closed-end tax refund anticipation loans.\313\ This
                covered most short-term and longer-term payday and vehicle title loans.
                These regulations remain in effect and affect the terms of loans
                available to servicemembers.\314\
                ---------------------------------------------------------------------------
                 \312\ The MLA Act, part of the John Warner National Defense
                Authorization Act for Fiscal Year 2007, was signed into law in
                October 2006. The interest rate cap took effect October 1, 2007. See
                10 U.S.C. 987.
                 \313\ 72 FR 50580 (Aug. 31, 2007).
                 \314\ As noted in the 2017 Final Rule, effective October 2015
                the Department of Defense expanded its definition of covered credit
                to include open-end credit and longer-term loans so that the MLA
                protections generally apply to all credit subject to the
                requirements of Regulation Z (12 CFR part 1026), which implements
                the Truth in Lending Act, other than certain products excluded by
                statute. 80 FR 43560 (July 22, 2015) (codified at 32 CFR part 232).
                ---------------------------------------------------------------------------
                 In considering the benefits, costs, and impacts of the proposal,
                the Bureau uses this baseline. More specifically, the Bureau notes that
                the 2017 Final Rule and this proposal would have limited impacts, with
                some limited exceptions, for consumers in States that currently do not
                allow such lending or that impose usury limits that have led payday and
                vehicle title lenders to refrain from doing business in those States,
                or for consumers who are not eligible for such lending.\315\ It is
                possible that consumers in these States access such loans online, by
                crossing State lines, or through other means. To the extent the 2017
                Final Rule would limit such lending, this proposal may impact these
                consumers. Similarly, in States which regulate payday lending in ways
                that prevent or limit the volume of loans extended, the 2017 Final Rule
                and the proposal would have fewer impacts on consumers and covered
                persons, as the State laws may already restrict lending. The overall
                effects of these more restrictive State laws were described in the 2017
                Final Rule and earlier in this proposal. In the remaining States--those
                that allow lending covered by the 2017 Final Rule without any binding
                limitations--the proposal would have its most substantial impacts
                relative to the 2017 Final Rule baseline.
                ---------------------------------------------------------------------------
                 \315\ The 2017 Final Rule would affect such consumers to the
                extent that they would otherwise cross State lines to obtain a
                covered short-term or longer-term balloon-payment loan or borrow
                from an unlicensed lender. Evidence of consumers crossing State
                borders to obtain loans suggests these consumers overwhelmingly
                reside near a border with a State that allows such lending (see
                Onyumbe Enumbe Lukongo & Thomas W. Miller, Adverse Consequences of
                the Binding Constitutional Interest Rate Cap in the State of
                Arkansas (Mercatus Working Paper 2017), https://www.mercatus.org/system/files/lukongo_wp_mercatus_v1.pdf for one example). As such,
                the potential impacts on consumers residing in payday restricting
                States is likely concentrated in those consumers near a border who
                are willing and able to cross to obtain a payday loan.
                ---------------------------------------------------------------------------
                 Notably, the quantitative simulations set forth in the 2017 Final
                Rule and summarized below reflect these variations in the baseline
                across States and across consumers with one exception. The data used
                for the 2017 Final Rule's analysis inherently capture the nature of
                shocks to, and mismatches in the timing between, consumers'
                [[Page 4284]]
                income and payments that drive much of the demand for covered short-
                term and longer-term balloon-payment loans.\316\ To the extent that
                these shocks and mismatches have not changed since the time periods
                covered by the data (2011-2012), they are captured in the simulations.
                The analysis is also based on the statutory and regulatory environment
                extant when the data were compiled. The implication is that to the
                extent that the environment absent the 2017 Final Rule has changed in
                the intervening years, those changes are not reflected in the
                simulations. More specifically, the simulations will overstate the
                proposal's effects on lending volume in those areas where other
                regulatory changes since that time have limited lending. The
                simulations also will underestimate the proposal's effects on lending
                volume in any areas where regulatory changes since that time have
                relaxed restrictions on lending. In general, the Bureau believes that
                the States have become more restrictive over the past seven years, so
                that in this respect the simulations here are more likely to overstate
                than understate the effects of the proposal.\317\ That said, the
                simulation results are generally consistent with the additional
                estimates, using other data and time periods, provided to the Bureau in
                industry and alternative credit bureau comments on the 2016 Proposal.
                ---------------------------------------------------------------------------
                 \316\ The Bureau believes that obtaining additional data to
                update its estimates would not be a cost-effective enterprise. As
                noted in text, these results are largely consistent with estimates
                offered in industry comments on the 2016 Proposal, which provides
                additional validation that that the available evidence upon which
                this analysis relies is reliable for these purposes.
                 \317\ Another possible change that could affect the baseline is
                the June 2018 Community Financial Services of America (a trade
                association representing payday and small-dollar lenders) revision
                of its best practices to add that its members should, before
                extending credit, ``undertake a reasonable, good-faith effort to
                determine a customer's creditworthiness and ability to repay the
                loan.'' This practice applies to other small-dollar loans the member
                makes. See Cmty. Fin. Serv. of Am., Best Practices for the Small-
                Dollar Loan Industry, https://www.cfsaa.com/files/files/CFSA-BestPractices.pdf (last visited Feb. 4, 2019).
                ---------------------------------------------------------------------------
                5. Major Impacts of the Proposal
                 The primary impact of this proposed rule relative to the baseline
                in which compliance with the Mandatory Underwriting Provisions of the
                2017 Final Rule becomes mandatory would be a substantial increase in
                the volume of short-term payday and vehicle title loans (measured in
                both number and total dollar value), and a corresponding increase in
                the revenues lenders realize from these loans. The simulations set
                forth in the section 1022(b)(2) analysis accompanying the 2017 Final
                Rule based on the Bureau's data indicate that relative to the chosen
                baseline payday loan volumes would increase by 104 percent to 108
                percent, with an increase in revenue for payday lenders between 204
                percent and 213 percent.\318\ Simulations of the impact on short-term
                vehicle title lending predict an increase in loan volumes of 809
                percent to 1,329 percent relative to the chosen baseline, with an
                approximately equivalent increase in revenues. The specific details,
                assumptions, and structure of these simulations are described in the
                2017 Final Rule.\319\
                ---------------------------------------------------------------------------
                 \318\ These calculations are based on the same simulations the
                Bureau described in the 2017 Final Rule. The Bureau ran a number of
                simulations based on different market structures that may occur as a
                result of the Rule. The estimates cited here come from the
                specifications where lenders would make loans under both the
                mandatory underwriting and principal step-down approaches. See the
                2017 Final Rule for descriptions of all the simulations conducted by
                the Bureau, and their results. 82 FR 54472, 54824.
                 \319\ The numbers cited here are simply the reverse of the
                numbers cited in the 2017 Final Rule as being the most likely.
                There, the Bureau estimated a decrease in loan volumes of 51 to 52
                percent and a decrease in revenues of 67 percent to 68 percent for
                payday loans, and a decrease in both loan volumes and revenues of 89
                to 93 percent for vehicle title loans. 82 FR 54472, 54827, 54834.
                Taking the decreased values as the baseline and reintroducing the
                reduced loan volumes and revenues yields the numbers cited here.
                ---------------------------------------------------------------------------
                 The Bureau expects, again relative to the chosen baseline, that
                these increases would result in an increase in the number of
                storefronts relative to the market projected to exist under the 2017
                Final Rule. As discussed in the section 1022(b)(2) analysis for the
                2017 Final Rule, a decrease in payday storefronts was observed in
                States that experienced loan volume declines of the magnitude projected
                to occur for payday loans under the 2017 Final Rule after those States
                adopted restrictive regulations (e.g., Washington),\320\ making a
                corresponding relative increase likely if the Mandatory Underwriting
                Provisions are rescinded. This might in turn improve physical access to
                credit for consumers, especially for consumers in rural areas.
                Additionally, the increase in storefronts would be likely to impact
                small lenders and lenders in rural areas more than larger lenders and
                those in areas of greater population density. However, the practical
                improvements in consumer physical access to payday loans are not likely
                to be as substantial as the increase in storefronts may imply. Again as
                explained in the 2017 Final Rule, in States with substantial regulatory
                changes that led to substantial decreases in payday storefronts, over
                90 percent of borrowers had to travel an additional five miles or less.
                Additionally, the Bureau anticipated in the 2017 Final Rule that online
                options would be available to the vast majority of current payday
                borrowers, including those in rural areas.\321\ Assuming that this is
                correct, the improved physical access to payday storefronts would
                likely have the largest impact on a small set of rural consumers who
                would have needed to travel substantially longer to reach a storefront,
                and who lack access to online payday loans (or strongly prefer loans
                initiated at a storefront to those initiated online).
                ---------------------------------------------------------------------------
                 \320\ Supplemental Findings, chapter 3 part B.
                 \321\ This geographic impact on borrowers was discussed
                specifically in the 2017 Final Rule's section on Reduced Geographic
                Availability of Covered Short-Term Loans in part VII.F.2.b.v which
                relies heavily on chapter 3 of the Bureau's Supplemental Findings.
                82 FR 54472, 54842.
                ---------------------------------------------------------------------------
                 Increased revenues (more precisely, increased profits) relative to
                the chosen baseline are expected to lead many current firms that would
                have exited the market under the Rule to remain in the market should
                this proposal take effect.\322\ Additionally, many of the restrictions
                imposed by the 2017 Final Rule could have been voluntarily adopted by
                lenders absent the Rule but the Bureau has no evidence that they were.
                That they were not adopted implies the Rule's impacts are welfare-
                decreasing for lenders. Reversing these restrictions should therefore
                be welfare enhancing for lenders.
                ---------------------------------------------------------------------------
                 \322\ Should lenders have to comply with the Rule prior to the
                finalization of this proposal, it is possible that firms that exited
                the market because they had to comply would not return. However, the
                Bureau believes the demand for loans would remain such that the
                volume of loans and revenue estimates detailed in this analysis
                would still result. In this scenario, it is likely that there will
                be fewer lenders with increased (average) loan volumes.
                ---------------------------------------------------------------------------
                 As for the effects on consumers, the Bureau noted in the 2017 Final
                Rule that the evidence on the impacts of the availability of payday
                loans on consumer welfare varies. The Bureau found that, in general,
                the evidence to date suggests that access to payday loans appears to
                benefit consumers in circumstances where they use these loans for short
                periods of time and/or to address an unforeseen and discrete need, such
                as when they experience a transitory and unexpected shock to their
                incomes or expenses.\323\ The Bureau also found that the evidence to
                date suggests that, in more general circumstances, access to, and
                intensive use of, these loans appears to make consumers worse off. The
                Bureau summarized the evidence in the 2017 Final Rule, noting that
                ``access to payday loans may well be beneficial for those borrowers
                with discrete, short-term needs, but only if they are able to
                [[Page 4285]]
                successfully avoid long sequences of loans.'' \324\
                ---------------------------------------------------------------------------
                 \323\ See, e.g., 82 FR 54472, 54818, and 54842-46.
                 \324\ Id. at 554846.
                ---------------------------------------------------------------------------
                As the 2017 Final Rule, which includes the conditional exemption
                for loans with a step-down in principal, allows for continued access to
                the credit that appears most beneficial--that which assists consumers
                with discrete, short-term needs--the Bureau believed that much of the
                welfare benefit estimated in the literature would be preserved under
                the Rule, despite the substantial reduction in availability of
                reborrowing.\325\ Additionally, the 2017 Final Rule limited the
                potential costs that could be realized by borrowers who would have
                experienced long durations of indebtedness where the, albeit more
                limited, literature, and the Bureau's own analysis and study set forth
                in the 2017 Final Rule suggested that prolonged reborrowing has, on
                average, negative effects.\326\ Given this, the Bureau concluded that
                the overall impacts of the decreased loan volumes resulting from the
                2017 Final Rule's Mandatory Underwriting Provisions on consumers would
                be positive,\327\ it follows that the inverse effects would ensue,
                relative to the chosen baseline, from this proposal to rescind the 2017
                Final Rule. It bears emphasis, however, that the 2017 Final Rule's
                conclusion as to these effects was dependent upon the evidence that
                consumers who experienced long durations of indebtedness generally did
                not anticipate those outcomes and, as discussed above, the agency now
                believes that this evidence is not sufficiently robust and
                representative to support the findings necessary to determine that the
                identified practice is unfair and abusive.
                ---------------------------------------------------------------------------
                 \325\ Id. at 54818.
                 \326\ Id. at 54839, 54842.
                 \327\ Id. at 54835, 54842.
                ---------------------------------------------------------------------------
                 In drafting this proposal, the Bureau has also considered new and
                additional evidence that was not available at the time of the 2017
                Final Rule. There are few such studies that deal with the pecuniary
                effects of payday loans on consumers, and none that specifically deal
                with the effects of the loans that would be eliminated by the 2017
                Final Rule (e.g., those beyond the fourth loan in a sequence or the
                seventh non-underwritten loan in a year). As a result, the new studies
                do not affect the Bureau's analysis as set forth above.
                 Relative to the considerations above, the remaining benefits and
                costs of this proposal--again relative to the baseline in which
                compliance with the 2017 Final Rule will become mandatory--are much
                smaller in their magnitudes and economic importance. Most of these
                impacts manifest as reductions in administrative, compliance, or time
                costs that compliance with the 2017 Final Rule will entail; or as
                potential costs from revoking aspects of the 2017 Final Rule that could
                have decreased fraud or increased transparency. The Bureau expects most
                of these impacts to be fairly small on a per loan/consumer/lender
                basis. These impacts include, among other things, those applicable to
                the RISes under the Rule; those associated with reduced furnishing
                requirements on lenders and consumers (e.g., avoiding the costs to
                establish connection with RISes, forgone benefits from reduced fraud);
                those associated with making an ability-to-repay determination for
                loans that require one (e.g., avoiding the cost to obtain all necessary
                consumer reports, forgoing the benefit of decreased defaults); those
                associated with avoiding the Rule's record retention obligations that
                are specific to the Mandatory Underwriting Provisions; those associated
                with eliminating the need for disclosures regarding principal step-down
                loans; and the additional impacts associated with increased loan
                volumes (e.g., changes in defaults or account closures, non-pecuniary
                changes to consumer welfare). Each of these benefits and costs, broken
                down by type of market participant, is discussed in detail below.
                 The Bureau has also conducted a Paperwork Reduction Act (PRA)
                analysis to estimate the benefits associated with the proposal's
                reduction in the hour and dollar costs of the information collection
                requirements to the entities subject to the 2017 Final Rule. The PRA
                separates these estimates into one-time and annual ongoing categories
                for total burden reduction, labor burden hour reduction, and labor
                burden dollar reduction. As discussed in part X below, a revised
                Supporting Statement detailing the changes to the information
                collections for the Rule and their effects on the Rule's overall burden
                will be made available for public comment on the electronic docket
                accompanying this proposed rule.
                 The discussion of impacts that follows is organized into three main
                categories mentioned above: (1) The revocation of the 2017 Final Rule's
                requirement to reasonably determine borrowers' ability to repay covered
                short-term and longer-term balloon-payment loans; (2) the revocation of
                the recordkeeping requirements associated with (1); and (3) the
                revocation of the 2017 Final Rule's requirements concerning furnishing
                provisions. Within each of these main categories, the discussion is
                organized to facilitate a clear and complete consideration of the
                benefits, costs, and impacts of the major provisions of this proposed
                rule. Impacts on depository institutions with $10 billion or less in
                total assets and on rural consumers are discussed separately below.
                B. Potential Benefits and Costs of the Proposal to Consumers and
                Covered Persons--Provisions Relating Specifically to Ability-To-Repay
                Determinations for Covered Short-Term and Longer-Term Balloon-Payment
                Loans
                 This section discusses the impacts of revoking the Mandatory
                Underwriting Provisions of the 2017 Final Rule relative to the chosen
                baseline in which compliance with the Rule was mandatory. Those
                provisions specifically relate to covered short-term and longer-term
                balloon-payment loans, and the analyses of their benefits and costs
                contained in the 2017 Final Rule were sensitive to the potential
                shifting to products not covered by the Mandatory Underwriting
                Provisions of the Rule (i.e., the Bureau did not attempt to anticipate
                how lenders might adjust their offerings in light of the Rule). In the
                2017 Final Rule, the Bureau stated that the potential evolution of
                lender offerings that may arise in response to the Rule was beyond the
                scope of the section 1022(b)(2) analysis contained therein; \328\
                similarly the Bureau does not attempt to assess here any strategic de-
                evolution of the market that will result if compliance with the 2017
                Final Rule becomes mandatory.\329\
                ---------------------------------------------------------------------------
                 \328\ Id. at 54472, 54818, 54835.
                 \329\ For example, there appears to be a shift in the market
                away from payday lending toward short-term installment lending.
                Payday loan revenue from both storefront and online channels
                declined from 2015 to 2016 by 11.9 percent and 9.9 percent,
                respectively. By contrast, short-term installment loan revenue was
                expected to increase 7.5 percent in 2017. Ctr. for Fin. Serv.
                Innovation, 2017 Financially Underserved Market Size Study, at 12,
                13, 18, 44, and 45 (Dec. 2017), https://s3.amazonaws.com/cfsi-innovation-files/wp-content/uploads/2018/03/07221553/2017-Market-Size-Report_FINAL_4-1.pdf. The Bureau does not attempt to anticipate
                if, or how much of, a move back to payday lending may result from
                this proposal, as it is beyond the scope of the available evidence,
                and the Bureau is unaware of any examples in the market that could
                provide such data.
                ---------------------------------------------------------------------------
                 Revoking the requirements for originations, and the associated
                restrictions on reborrowing, is likely to have a substantial impact on
                the markets for these products relative to the markets that exist under
                the 2017 Final Rule. In order to present a clear analysis of the
                benefits and costs of the proposal, this section first describes the
                benefits and costs of the proposal to covered persons relative to the
                baseline
                [[Page 4286]]
                where compliance with the 2017 Final Rule becomes mandatory and then
                discusses the implications of the proposal for the markets for these
                products. The benefits and costs to consumers are then described.
                1. Benefits and Costs to Covered Persons
                 This proposal would rescind a number of operational requirements on
                lenders making covered short-term and longer-term balloon-payment loans
                and remove restrictions on the number of these loans that can be made.
                As this proposal would rescind the requirements associated with the
                mandatory underwriting approach, it also obviates the need for the
                principal step-down approach set out in Sec. 1041.6 of the 2017 Final
                Rule as an alternative to the mandatory underwriting approach in Sec.
                1041.5 for making covered short-term and longer-term balloon-payment
                loans.\330\ As the proposal would remove restrictions on the
                operational requirements for lenders, allowing them to avoid making an
                ability-to-repay determination, this section discusses the overall
                benefits and costs to lenders associated with not having to comply with
                the Mandatory Underwriting Provisions in the 2017 Final Rule rather
                than having to do so.
                ---------------------------------------------------------------------------
                 \330\ The principal step-down approach is an alternative to the
                mandatory underwriting approach detailed in 12 CFR 1041.6. Under
                this approach, a lender would not need to determine ability-to-repay
                for an initial loan of up to $500. Subsequent loans issued within 30
                days of an initial loan would need to amortize by one-third of the
                principal of the previous loan, and no more than three loans in a
                sequence, or six loans in a rolling 12-month period would be
                permitted. After reaching the limit imposed by the principal step-
                down approach, borrowers would need to obtain all further loans via
                the mandatory underwriting approach.
                ---------------------------------------------------------------------------
                a. Revocation of the Operational Requirements Associated With Mandatory
                Underwriting
                 Under the proposal, lenders would not be required to make an
                ability-to-repay determination prior to originating a loan, nor would
                they be required to ensure adherence to limits on loans made via the
                principal step-down approach, nor would they need to report loans to
                RISes to ensure compliance with those limits.
                 More specifically, under the proposal lenders would not need to
                consult their own records and the records of their affiliates to
                determine whether the borrower had taken out any prior covered short-
                term or longer-term balloon-payment loans that were still outstanding
                or were repaid within the prior 30 days. Lenders would not need to
                maintain the ability-to-repay-related records mandated by the 2017
                Final Rule. Lenders would not need to obtain a consumer report from an
                RIS (if available) in order to obtain information about the consumer's
                borrowing history across lenders, and would no longer be required to
                furnish information regarding covered short-term and longer-term
                balloon-payment loans they originate to all RISes. Lenders would also
                be freed from the obligation imposed by the 2017 Final Rule to obtain
                and verify information about the amount of an applicant's income
                (unless not reasonably available) and major financial obligations.
                 The proposed revocation of each of these operational requirements
                entails a reduction in costs that were to be incurred under the 2017
                Final Rule for loan applications (not just for loans that are
                originated). Additionally, if and depending on when the proposal is
                adopted, lenders may not be required to develop or adhere to procedures
                to comply with each of these requirements and train their staff in
                those procedures. The Bureau believes that many lenders use automated
                systems when originating loans, and will modify those systems, or
                purchase upgrades to those systems, to address many of the operational
                requirements associated with the Mandatory Underwriting Provisions of
                the 2017 Final Rule. Reversing the obligation to incur operational
                costs should be of minimal benefit to lenders. Reversing the obligation
                in fact may actually result in small costs for any lenders who changed
                their processes and procedures in anticipation of having to comply with
                the Rule; however, lenders are under no obligation to reverse these
                modifications, and so any lender that would incur costs to do so could
                simply not reverse the modifications to avoid incurring them.
                 Each of the costs this proposal would obviate is considered in
                detail in the 2017 Final Rule at part VII.F.
                 Total Impacts of the Operational Requirements Associated with
                Mandatory Underwriting. In the 2017 Final Rule, the Bureau estimated
                that obtaining a statement from the consumer, taking reasonable steps
                to verify income, obtaining a national consumer report and a report
                from an RIS, projecting the consumer's residual income or debt-to-
                income ratio, estimating the consumer's basic living expenses, and
                arriving at a reasonable ability-to-repay determination will take
                essentially no additional time for a fully automated electronic system
                and between 15 and 45 minutes for a fully manual system. The Bureau
                further noted total costs would depend on the existing utilization
                rates of, and wages paid to, staff that will spend time carrying out
                this work. To the extent that lenders needed to increase staff and/or
                hours to comply with the 2017 Final Rule's operational requirements
                with respect to the mandatory underwriting approach, under the proposal
                they would experience decreased costs from hiring, training, wages, and
                benefits relative to what will occur under the 2017 Final Rule.
                 Additional savings under this proposal would come from what would
                have been an obligation to obtain a national consumer report costing
                between $0.55 and $2.00, and/or a report from an RIS costing $0.50.
                Lenders using third-party services to gather verification information
                about income would realize an additional small benefit under the
                proposal from avoiding the fees associated with using these services.
                 Developing Procedures, Upgrading Systems, and Training Staff. Under
                the 2017 Final Rule, lenders must develop policies and procedures to
                comply with the requirements of the Mandatory Underwriting Provisions
                and train their staff in those procedures. Many of these requirements
                are not qualitatively different from the practices in which most
                lenders would engage absent the 2017 Final Rule--such as gathering
                information and documents from borrowers and ordering various types of
                consumer reports--though the Rule's requirements may demand more, and
                more costly, efforts to obtain such information and documents.
                 Developing procedures to make a reasonable determination that a
                borrower has the ability to repay a loan without reborrowing while
                paying for major financial obligations and basic living expenses will
                likely be costly and challenging for many lenders. The Bureau expected
                that vendors, law firms, and trade associations will likely offer both
                products and guidance to lenders, potentially mitigating the cost of
                these procedures for lenders, because such service providers can
                realize economies of scale.\331\
                ---------------------------------------------------------------------------
                 \331\ As noted above, the Bureau believes that many lenders use
                automated systems when originating loans, and will incorporate many
                of the operational requirements of the mandatory underwriting
                approach into those systems. While this may mitigate some of the
                costs discussed here, the operational costs will remain substantial.
                ---------------------------------------------------------------------------
                 The Bureau estimated that lender staff engaging in making loans
                would require approximately 5 hours per employee of initial training in
                carrying out the tasks described in the 2017 Final Rule and 2.5 hours
                per employee per year of periodic ongoing training; lenders would
                benefit
                [[Page 4287]]
                if they did not have to incur these time costs if the Bureau adopts
                this proposal.
                b. Operational Requirements--Principal Step-Down Approach
                 All of the costs described in the 2017 Final Rule associated with
                the principal step-down approach would be ultimately unnecessary under
                the proposal. This is because the principal step-down approach is an
                alternative to using the mandatory underwriting approach to issue new
                loans. Under this proposal, lenders would generally be expected to
                continue their pre-2017 Final Rule practices, and need not engage in
                any of the principal step-down procedures. As such, all benefits and
                costs associated with that approach would be eliminated under this
                proposal. This includes avoiding the system upgrades and time costs of
                providing the required disclosures.
                c. Effect on Loan Volumes and Revenue From Eliminating Underwriting
                Requirements and Restrictions on Certain Reborrowing
                 In the 2017 Final Rule, the Bureau described the estimated effects
                of the underwriting requirements under the mandatory underwriting
                approach and the restrictions on certain reborrowing under both the
                mandatory underwriting approach and principal step-down approach. Those
                estimates were based on simulations, and the estimated effects on
                lender revenue were far more substantial than the increase in
                compliance costs from implementing the requirements.
                 In order to simulate the effects of the 2017 Final Rule, it was
                necessary to impose an analytic structure and make certain assumptions
                about the impacts of the Rule, and apply them to the data. The Bureau
                conducted three simulations of the potential impacts of the 2017 Final
                Rule on payday loan volumes--one each under the assumptions that loans
                are only made using the mandatory underwriting approach, that loans are
                made only under the principal step-down approach, and what the Bureau
                believed to be the most realistic assumption, that loans are made under
                both approaches--and a single vehicle title simulation.\332\ The
                results of the simulations are reviewed here; the structure,
                assumptions, and data used by the Bureau were described in detail in
                the 2017 Final Rule.\333\ None of the underlying data, assumptions, or
                structures have changed in the Bureau's analysis of the impacts of this
                proposal. As such, the description in the 2017 Final Rule also
                describes the simulations used here. Moreover, the estimated effects on
                loan volumes of rescinding the underwriting requirements are simply the
                effects as determined in the 2017 Final Rule of implementing these
                requirements. To assist the agency in doing a Section 1022 analysis for
                any proposed final rule revoking the 2017 Final Rule, the Bureau seeks
                comment on the structure, assumptions, and data the agency used in
                these simulations.
                ---------------------------------------------------------------------------
                 \332\ As vehicle title loans are not eligible for the principal
                step-down approach, simulating the effects on this market was more
                straightforward than for payday. As alternative assumptions about
                the prevalence of loans issued via the principal step-down vs.
                mandatory underwriting approaches were not appropriate, only a
                single structure for the vehicle title simulations was assumed.
                 \333\ 82 FR 54472, 54824.
                ---------------------------------------------------------------------------
                 The Bureau's simulations suggest that storefront payday loan
                volumes would increase between 104 percent and 108 percent under this
                proposal relative to the 2017 Final Rule baseline. The Bureau estimates
                that revenues of storefront payday lenders would be between 204 percent
                and 213 percent higher if they do not have to comply with the
                requirements in the 2017 Final Rule.\334\ While these simulated results
                are based on data from storefront payday lenders, the Bureau explained
                in the 2017 Final Rule that the impacts are likely to be similar for
                online payday lenders;\335\ the Bureau believes that to be the likely
                case with the proposal as well. Using the most recent estimated
                revenues for payday lenders by Center for Financial Services
                Innovation's (CFSI), lenders not having to comply with the requirements
                in the 2017 Final Rule would translate to an increase in their annual
                revenues of approximately $3.4 billion to $3.6 billion.\336\
                ---------------------------------------------------------------------------
                 \334\ The loan volume and revenue estimates differ for payday
                loans as the 2017 Final Rule imposed limits on the sizes of loans
                issued under the principal step-down approach, as well as limits on
                the sizes of reborrowed loans. In the 2017 Final Rule, the Bureau
                estimated that approximately 40 percent of the reduction in revenues
                resulted from limits on loan sizes, while the remaining 60 percent
                was the result of decreased loan volumes. Id. at 54827. The
                increases in revenues presented here are estimated to stem from the
                same sources, in the same proportions (i.e., approximately 40
                percent from larger loans, and approximately 60 percent from
                additional loans).
                 \335\ Id. at 54833.
                 \336\ Based on pre-2017 Final Rule estimated revenues for payday
                lenders of approximately $5.3 billion, reported in Eric Wilson & Eva
                Wolkowitz, 2017 Financially Underserved Market Size Study, at 44
                (Ctr. for Fin. Serv. Innovation, Dec. 2017), https://s3.amazonaws.com/cfsi-innovation-files-2018/wp-content/uploads/2017/04/27001546/2017-Market-Size-Report_FINAL_4.pdf, with medium
                confidence.
                ---------------------------------------------------------------------------
                 For vehicle title lending, the simulated impacts are larger. The
                Bureau's simulations suggest that relative to the 2017 Final Rule
                baseline vehicle title loan volumes would increase under the proposal
                by between 809 percent and 1,329 percent, with a corresponding increase
                in revenues for vehicle title lenders.\337\ Using CFSI's most recent
                estimated revenues for vehicle title lenders, this would mean the
                proposed elimination of the Mandatory Underwriting Provisions of the
                2017 Final Rule would translate into an increase in annual revenues for
                these lenders of approximately $3.9 billion to $4.1 billion.\338\ It is
                also possible the impact on vehicle title lending would be even larger
                than the simulations suggest. If the industry were not able to survive
                as a result of complying with the Mandatory Underwriting Provisions of
                the 2017 Final Rule, the proposal could effectively resurrect the
                vehicle title lending industry relative to the baseline. In this case,
                the increased revenues from the proposal would be equal to the entire
                vehicle title lending industry's estimated annual revenue of
                approximately $4.4 billion.\339\
                ---------------------------------------------------------------------------
                 \337\ As vehicle title loans are ineligible for the principal
                step-down approach under the 2017 Final Rule, there was no binding
                limit on the size of these loans. This resulted in a larger decrease
                in volumes for vehicle title loans relative to payday (as loans
                could only be issued under the mandatory underwriting approach), but
                ensured the corresponding decrease in revenues was more similar to
                the decrease in loan volumes (since all issued loans were
                unrestricted in their amounts relative to the Rule's baseline). The
                increases cited here follow a similar pattern, for similar reasons.
                 \338\ Based on pre-2017 Final Rule estimated revenues for
                vehicle title lenders of approximately $4.4 billion, reported in
                Eric Wilson & Eva Wolkowitz, 2017 Financially Underserved Market
                Size Study, at 46 (Ctr. for Fin. Serv. Innovation, Dec. 2017),
                https://s3.amazonaws.com/cfsi-innovation-files-2018/wp-content/uploads/2017/04/27001546/2017-Market-Size-Report_FINAL_4.pdf, with
                medium confidence.
                 \339\ Id. In a similar vein, if the 2017 Final Rule had not
                contained the principal step-down exemption it too could have
                affected the survival of the payday loan industry.
                ---------------------------------------------------------------------------
                 A notable impact of this increase in loan volumes and revenues is
                that many storefronts would likely exist under the proposal that would
                not if they had to comply with the Mandatory Underwriting Provisions of
                the 2017 Final Rule. A pattern of contractions in storefronts has
                played out in States that have imposed laws or regulations that
                resulted in similar reductions in volume as those projected under the
                2017 Final Rule. To the extent that lenders cannot replace reductions
                in revenue by adapting their products and practices, it follows that
                such a contraction--or, in the case of vehicle title, an elimination--
                would be a likely (perhaps inevitable) response to complying with the
                Mandatory Underwriting Provisions of the 2017 Final Rule. It likewise
                [[Page 4288]]
                follows that, under the proposal, there would be a corresponding
                increase in the number of storefronts relative to the number of them
                that would exist if they had to comply with the requirements of the
                2017 Final Rule.
                 The Bureau notes that in recent years there has been a gradual
                shift in the market towards longer-term loans where permitted by State
                law. The Bureau does not have sufficient data to assess whether that
                trend has accelerated since the issuance of the 2017 Final Rule in
                anticipation of the compliance date.\340\ This was considered in the
                2017 Final Rule as well.\341\ To the extent these lenders have already
                made these adaptations, and would not shift their business practices
                back if this proposal were adopted, the loan volume and revenue
                estimates above may be somewhat overstated.
                ---------------------------------------------------------------------------
                 \340\ Since the issuance of the 2017 Final Rule, Florida and
                Alabama have amended their laws to open the door to longer-term
                loans at interest rates above the standard usury limit. See Ala.
                Code sec. 5-18A; Fla. Stat. Ann. sec. 560.404. On the other hand, a
                voter referendum in Colorado has resulted in a law, effective
                February 1, 2019, that capped interest rates on certain longer-term
                loans. 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 Result--State Offices
                & Questions, https://results.enr.clarityelections.com/CO/91808/Web02-state.220747/#/c/C_2 (Proposition 111).
                 \341\ 82 FR 54472, 54835.
                ---------------------------------------------------------------------------
                2. Benefits and Costs to Consumers
                a. Benefits to Consumers and Access to Credit
                 The operational requirements of the Mandatory Underwriting
                Provisions of the 2017 Final Rule would make the process of obtaining a
                loan more time consuming and complex for some borrowers (e.g., online
                borrowers and vehicle title borrowers who may not currently be required
                to provide any documentation of income). The restrictions on lending in
                the 2017 Final Rule will reduce the availability of storefront payday
                loans, online payday loans, single-payment vehicle title loans, longer-
                term balloon-payment loans, and other loans covered by the Mandatory
                Underwriting Provisions of the Rule. Borrowers will likely experience
                reduced access to new loans--i.e., loans that are not part of an
                existing loan sequence--from these restrictions. Some borrowers also
                will be prevented from rolling loans over or reborrowing shortly after
                repaying a prior loan under the 2017 Final Rule. Some borrowers might
                still be able to borrow, but for smaller amounts or with different loan
                structures, and might find this less preferable to them than the terms
                they would have received absent the 2017 Final Rule. The proposal would
                reverse each of these effects that would otherwise result from the 2017
                Final Rule, decreasing the time and effort consumers would need to
                expend to obtain a covered short-term or longer-term balloon-payment
                loan, and improving their access to credit, which may carry pecuniary
                and non-pecuniary benefits.
                 The Bureau's simulations (discussed above) suggest that the 2017
                Final Rule's requirements (again including the principal step-down
                exemption) will prevent between 5.9 and 6.2 percent of payday borrowers
                from initiating a sequence of loans that they would have initiated
                absent the Rule.\342\ That is, since most consumers take out six or
                fewer loans each year, and are not engaged in long sequences of
                borrowing, the Rule as a whole will not limit their borrowing. However,
                if the proposal is adopted, consumers would be able to extend their
                sequences beyond three loans and would not be required to repay one-
                third of the loan each time they reborrow. As a result, many loans
                would be taken out beyond the sequence limitations imposed by the 2017
                Final Rule (e.g., fourth and subsequent loans within 30 days of the
                prior loan); these loans account for the vast majority of the
                additional volume in the Bureau's simulations.
                ---------------------------------------------------------------------------
                 \342\ The section-by-section analysis accompanying the 2017
                Final Rule identified three categories of borrowers based upon their
                ex post behavior: Repayers (those who take out a single loan and
                repay it without the need to reborrow within 30 days); defaulters
                (those who default after taking out a single loan or at the end of a
                sequence of loans); and reborrowers (those who take out a sequence
                of loans which ends with repayment). The simulation did not attempt
                to estimate which type(s) of consumers would be prevented from
                initiating a sequence of loans under the 2017 Final Rule or which
                type(s) of consumer would be able to obtain loans under the
                principal step-down exemption.
                ---------------------------------------------------------------------------
                 Revocation of Operational Requirements. The Bureau is proposing to
                rescind the operational requirements associated with underwriting loans
                originated via the mandatory underwriting approach, and the various
                recordkeeping procedures associated with the principal step-down
                approach. As such, under the proposal, the process of obtaining funds
                should be faster for consumers compared to the baseline of the 2017
                Final Rule. Consumers obtaining loans that would have been subject to
                the Rule's mandatory underwriting requirements would see the most
                significant gains under the proposal. Estimates of the time required to
                manually process an application suggest that eliminating the mandatory
                underwriting requirements would subtract 15 to 45 minutes from the
                borrowing process, a consideration many of these consumers may find
                important given than convenience is an important product feature on
                which payday lenders compete for customers.\343\ Additionally,
                borrowers would not need to obtain and provide to the lender certain
                documentation mandated under the mandatory underwriting requirements;
                the proposal would minimize the complexity of the process, and obviate
                the need for repeat trips to the lender if the borrower did not bring
                all the required documents initially, thereby making the payday loan
                process more convenient for consumers seeking loans that would
                otherwise been subject to the mandatory underwriting requirements. The
                proposal would thus decrease both the complexity and length of the
                process used for consumers who are seeking to obtain a covered short-
                term or longer-term balloon-payment loan that otherwise would have been
                subject to the mandatory underwriting requirements.
                ---------------------------------------------------------------------------
                 \343\ The Bureau noted in the 2017 Final Rule that it
                anticipated that most lenders would use automation to make the
                ability-to-repay determination, which would take substantially less
                time to process. See 82 FR 54472, 54631, 54632 n.767. For those
                borrowers seeking loans from these lenders, the time savings under
                the proposal would be substantially smaller.
                ---------------------------------------------------------------------------
                 Improved Access to Initial Loans. As this proposal would remove the
                restrictions on obtaining a loan stemming from the 2017 Final Rule's
                Mandatory Underwriting Provisions' requirements consumers would have
                increased access to loans. Initial covered short-term loans--i.e.,
                those taken out by borrowers who have not recently had a covered short-
                term loan--are presumably taken out because of a need for credit that
                is not the result of prior borrowing of covered short-term loans. Under
                the 2017 Final Rule, borrowers might be unable to take out new loans
                (those originated more than 30 days after their last loan) for at least
                two reasons: They may only have access to loans made under the
                mandatory underwriting requirements and be unable to demonstrate an
                ability to repay the loan under the Rule, or they may be unable to
                satisfy any additional underwriting requirements adopted by lenders in
                response to, though not required by, the Rule.
                 If lenders had to comply with the 2017 Final Rule, payday borrowers
                would not be likely to face the prescribed mandatory underwriting
                requirement unless and until they have exhausted the limits on loans
                available to them under the principal step-down
                [[Page 4289]]
                approach, or unless the borrower is seeking a loan in excess of $500 or
                secured by a vehicle title (as the costs and restrictions associated
                with the principal step-down approach are generally lower compared to
                the mandatory underwriting approach, so loans under the principal step-
                down approach are likely to be used prior to loans under the mandatory
                underwriting approach, all else being equal). However, to obtain loans
                under the Rule's principal step-down approach, lenders might elect to
                require borrowers to satisfy more exacting underwriting requirements
                than would be applied by lenders if the proposal is adopted. This is
                because under the proposal lenders would be able to obtain more revenue
                from loans that are reborrowed in excess of the limits that would be
                imposed by the principal step-down approach, and would thus be willing
                to continue issuing loans to somewhat riskier borrowers. Moreover,
                after exhausting the limits on principal step-down approach loans in
                the Rule, borrowers would be required to satisfy the mandatory
                underwriting requirement to obtain a new loan; under the proposal,
                however, those more stringent requirements would no longer apply.
                 Based on the simulations contained in the 2017 Final Rule, the
                Bureau estimates that under the proposal about five percent more
                initial payday loans (i.e., those that are not part of an existing
                sequence) would occur due to the revocation of the annual loan limits,
                and roughly six percent more borrowers would be able to initiate a new
                sequence of loans that they could not start under the 2017 Final Rule.
                That is, under the proposal five percent more payday loans that likely
                reflect a new need for credit would be allowed (based on the proposed
                removal of the annual limits on borrowing) and six percent of payday
                borrowers would have access to new sequences of loans as compared to
                the chosen baseline. Vehicle title borrowers are likely to realize
                greater benefits from increased access to loans relative to payday
                borrowers.
                 Consumers who would be able to obtain a new loan because of the
                proposal would not be faced with the effects of the 2017 Final Rule,
                including not being forced to forgo certain purchases, incur high costs
                from delayed payment of existing obligations, or incur high costs and
                other negative impacts by simply defaulting on bills; nor would they
                face the need to borrow from sources that are more expensive or
                otherwise less desirable. These borrowers may avoid overdrafting their
                checking accounts, which may be more expensive than taking out a payday
                or single-payment vehicle title loan. Similarly, they may avoid
                ``borrowing'' by paying a bill late, which can lead to late fees (which
                may or may not be more expensive than a payday or vehicle title loan)
                or other negative consequences like the loss of utility service.
                 Survey evidence provides some information about what borrowers are
                likely to do if they do not have access to these loans. Using the data
                from the CPS Unbanked/Underbanked supplement, researchers found that
                the share of households using pawn loans increased in States that
                banned payday loans, to a level that suggested a large share of
                households that would otherwise have taken out payday loans took out
                pawn loans instead.\344\ A 2012 survey of payday loan borrowers found
                that a majority indicated that if payday loans were unavailable they
                would reduce expenses, delay bill payment, borrow from family or
                friends, and/or sell or pawn personal items.\345\ Under the proposal,
                these consumers would not lose access to payday loans where it is their
                preferred method of credit.
                ---------------------------------------------------------------------------
                 \344\ Neil Bhutta et al., Consumer Borrowing after Payday Loan
                Bans, 59 J. of L. and Econ. 225 (2016).
                 \345\ Pew Charitable Trusts, Payday Lending in America: Who
                Borrows, Where They Borrow, and Why, at 16 (Report 1, 2012), https:/
                /www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_assets/2012/
                pewpaydaylendingreportpdf.pdf (reporting $375 as the average).
                ---------------------------------------------------------------------------
                 Elimination of Limits on Loan Size. The 2017 Final Rule placed
                limits on the size of loans lenders may issue via the principal step-
                down approach, which, as discussed above, is one of the requirements
                for the conditional exemption from the mandatory underwriting approach
                for covered short-term loans. These limits are $500 for the initial
                loan, with each subsequent loan in a sequence decreasing by at least
                one-third the amount of the original loan. For example, a $450 initial
                loan would mean borrowers are restricted to no more than $300 for a
                second loan, and no more than $150 for a third loan. By eliminating
                these restrictions, the proposal would allow borrowers (specifically,
                borrowers who cannot satisfy the mandatory underwriting requirements
                for covered short-term loans and thus who can only borrow under the
                principal step-down approach) to take out larger initial loans (where
                allowed by State law), and reborrow these loans in their full amount.
                In the simulation that the 2017 Final Rule stated best approximates the
                market as it would exist under the Rule,\346\ around 40 percent of the
                increase in payday loan revenues described in part VIII.B.1.c above
                would be the result of eliminating the $500 cap on initial loans and
                step-down requirements on loans issued via the principal step-down
                approach.
                ---------------------------------------------------------------------------
                 \346\ In the 2017 Final Rule, the Bureau describes the results
                from simulations under three sets of assumptions. This proposal
                presents results from the simulation approach preferred by the
                Bureau in the 2017 Final Rule as the one most likely to reflect the
                effects of the Rule, wherein borrowers are assumed to: Take
                principal step-down loans initially, apply for loans subject to an
                ability-to-repay determination only after exhausting the principal
                step-down loans, and be approved for each loan under the mandatory
                underwriting approach with a probability informed by industry
                estimates.
                ---------------------------------------------------------------------------
                 Elimination of Limits on Reborrowing. For storefront payday
                borrowers, most of the increase in the availability of credit if the
                proposal is adopted would be due to borrowers who have recently taken
                out loans being able to roll over their loans or borrow again within a
                shorter period of time as compared to the baseline of the 2017 Final
                Rule. This is because the mandatory underwriting and principal step-
                down provisions in the 2017 Final Rule impose limits on the frequency,
                timing, and amount of reborrowing and the proposal if adopted would
                lift these limitations.
                 The lessened constraints on reborrowing would additionally benefit
                consumers who wish to reborrow loans that would have been made via the
                principal step-down approach under the Rule but are unable to decrease
                the principal of their loans. For example, consider a borrower who has
                a loan due and is unable to repay one-third of the original principal
                amount (plus finance charges and fees) as required to obtain a second
                loan under the principal step-down approach, but who anticipates an
                upcoming influx of income. Under this proposal, such a borrower would
                experience the benefit of being able to reborrow the full amount of the
                loan until such time as the borrower realizes that income.\347\ This
                improved access to credit could result in numerous benefits, including
                avoiding delinquencies on the loan and the potential NSF fees
                associated with such delinquencies, or avoiding the negative
                consequences of being compelled to make unaffordable amortizing
                payments on the loan. However, the Bureau's simulations suggest that
                the majority of the increased access to credit would
                [[Page 4290]]
                result from the proposal's lifting of the reborrowing restrictions,
                rather than its removal of the initial loan size cap and the forced
                step-down features of loans made via the principal step-down approach.
                ---------------------------------------------------------------------------
                 \347\ Necessarily mitigating this benefit is the fact that
                defaulting on a payday loan has relatively few direct costs, while
                there are non-trivial direct costs associated with each instance of
                reborrowing. As such, this benefit would be most significant for
                those consumers with a high likelihood of the necessary influx of
                income being realized after fewer instances of reborrowing.
                ---------------------------------------------------------------------------
                 The Bureau does not believe the proposal, if adopted, would lead to
                a substantial decrease in instances of borrowers defaulting on payday
                loans, in part because the 2017 Final Rule's principal step-down
                provisions likely would encourage many consumers to reduce their debt
                over subsequent loans, rather than to default. It is necessarily true,
                however, that some borrowers who would be able to reborrow the full
                amount of the initial loan under the proposal may avoid a default that
                would have occurred under the Mandatory Underwriting Provisions of the
                Rule. This would be true for borrowers who would not have been able to
                successfully make the step-down payment on the principal step-down
                schedule, but can afford to pay just the fees (i.e., the reborrowing
                cost) and then eventually repay the loan in full when they experience a
                positive income shock. These borrowers will thus avoid the costs of
                default as discussed below and enjoy the benefit of remaining in good
                standing with their lender and eligible for future borrowing when
                needed.
                 Increased Geographic Availability of Covered Short-Term Loans.
                Consumers would also have somewhat greater physical access to payday
                storefront locations under the proposal relative to the 2017 Final Rule
                baseline. As explained in the 2017 Final Rule, Bureau research on
                States that have enacted laws or regulations that led to substantial
                decreases in the overall revenue from storefront lending indicates that
                the number of stores has declined roughly in proportion to (i.e., by
                roughly the same percentage as) the decline in revenue.\348\ It follows
                that the proposal's impact on increasing the revenue of payday lenders
                relative to the 2017 Final Rule baseline should lead to a corresponding
                increase in the number of stores. This benefit is somewhat mitigated by
                the way payday stores locate, however. Nationwide, the median distance
                between a payday store and the next closest payday store is only 0.3
                miles. When a payday store closes in response to laws that reduce
                revenue, there is usually a store nearby that remains open. For
                example, across several States with regulatory changes, between 93 and
                95 percent of payday borrowers had to travel fewer than five additional
                miles to find a store that remained open. This is roughly equivalent to
                the median travel distance for payday borrowers nationwide. Using the
                loan volume impacts previously calculated above for storefront lenders,
                the Bureau forecasts that a large number of storefronts will remain
                open under the proposal that would have closed under the 2017 Final
                Rule, but that consumers' geographic access to stores will not be
                substantially affected in most areas.\349\ The Bureau noted, however,
                that for consumers seeking single-payment vehicle title loans, the
                benefits would be far larger as the 2017 Final Rule's estimated impacts
                would lead to an 89 to 93 percent reduction in revenue which could
                affect the viability of the industry.\350\
                ---------------------------------------------------------------------------
                 \348\ 82 FR 54472, 54487.
                 \349\ The positive effects of increased storefront access are
                likely to be relatively larger in more rural areas; the impacts of
                this proposal on rural areas are considered in more detail below.
                There may also be benefits to consumers from other ``convenience
                factors'' associated with increased competition. Examples could
                include longer hours during which a nearby payday store is open,
                shorter wait times, etc. However, the Bureau lacks data or evidence
                that would allow for a conclusion that such benefits would result
                from the proposal, if adopted.
                 \350\ 82 FR 54472, 54817, 54834-35.
                ---------------------------------------------------------------------------
                b. Costs to Consumers
                 Relative to the 2017 Final Rule baseline, the available evidence
                suggests that the proposal would impose potential costs on consumers by
                increasing the risks of: Experiencing costs associated with extended
                sequences of payday loans and single-payment vehicle title loans;
                experiencing the effects (pecuniary and non-pecuniary) of delinquency
                and default on these loans; defaulting on other major financial
                obligations; and/or being unable to cover basic living expenses in
                order to pay off covered short-term and longer-term balloon-payment
                loans.\351\
                ---------------------------------------------------------------------------
                 \351\ As mentioned previously, the effects associated with
                longer-term balloon-payment loans are likely to be small relative to
                the effects associated with payday and vehicle title loans. This is
                because longer-term balloon-payment loans are uncommon in the
                baseline against which costs are measured.
                ---------------------------------------------------------------------------
                 Extended Loan Sequences. As discussed in greater detail in the 2017
                Final Rule, the available evidence suggests that, absent that Rule, a
                material percentage of borrowers who take out storefront payday loans
                and single-payment vehicle title loans often end up taking out many
                loans in a row. This evidence came from the Bureau's own work, as well
                as analysis by independent researchers and analysts commissioned by
                industry. This proposal's removal of the 2017 Final Rule's limitations
                on making loans to borrowers who have recently had relevant covered
                short-term and longer-term balloon-payment loans would enable borrowers
                to continue to borrow in these longer sequences of loans. As discussed
                above, some consumers who would choose under the proposal to reborrow
                beyond the limits imposed by the 2017 Final Rule might realize
                benefits, but would not be able to do so in the baseline. The evidence
                suggests, however, that the majority of consumers who would choose
                under the proposal to reborrow beyond the limits imposed by the 2017
                Final Rule would incur costs, costs they would not incur under the
                baseline. Studies have suggested that potential consequences from such
                reborrowing include increases in the delays in payments on other
                financial obligations, involuntary checking account closures, NSF and
                overdraft fees, financial instability, stress and related health
                measures, and decreases in consumption.\352\ (The elimination of the
                step-down structure imposed by the 2017 Final Rule's Mandatory
                Underwriting Provisions may have similar effects; however, the Bureau
                is not aware of any studies that address this possibility.)
                ---------------------------------------------------------------------------
                 \352\ The studies describing these results are discussed in the
                section 1022(b)(2) analysis of the 2017 Final Rule (82 FR 54472,
                54842-46) and below. As described therein, some of these studies
                differentiate between shorter and longer loan sequences. The
                majority of studies, however, rely on access to loans as their
                source of variation, and cannot make such distinctions. Similarly,
                few of these studies distinguish between the effects of loan amount
                independent of sequence length.
                ---------------------------------------------------------------------------
                 However, these observed seemingly negative outcomes do not
                necessarily imply a decrease in consumer surplus. A conclusion that
                these impacts result in negative consumer surplus requires not just
                that the apparent impacts on consumers are negative, but also that
                these impacts were not accurately anticipated by the consumers and that
                consumers would have made different choices with more complete
                information. If these are the impacts of initiating a loan sequence for
                a significant share of consumers, and these impacts are not accurately
                anticipated (e.g., if consumers do not fully understand how long they
                are likely to be in debt), then economic analysis would suggest the
                effect on consumer surplus is likely negative. If, on the other hand,
                consumers making their initial borrowing decisions accurately
                anticipate the potential for these impacts, then the effect on consumer
                surplus is likely to be (at least weakly) positive, as there would be
                unobserved, unquantifiable, offsetting benefits.
                 The Bureau weighed these possible outcomes in the 2017 Final Rule
                in part
                [[Page 4291]]
                VII.F.2 noting that the evidence on the impacts of the availability of
                payday loans on consumer welfare varies; that most studies focused on
                what happens when all access to payday loans is eliminated as opposed
                to restricted; and that within that body of literature studies have
                provided evidence that access to payday loans can have positive,
                negative, or no effects on various consumer outcomes. The Bureau's
                synopsis of the available evidence presented there (and above) is that
                access to payday loans may well be beneficial for those borrowers with
                discrete, short-term needs, but only if they are able to successfully
                avoid unanticipated long sequences of loans. The Bureau further
                concluded that the available evidence suggests that consumers who end
                up engaging in long sequences of reborrowing generally do not
                anticipate those outcomes ex ante \353\ and that the 2017 Final Rule,
                on average (and taking into account potential alternatives to which
                consumers might turn if long sequences were proscribed), is welfare
                enhancing for such consumers.\354\
                ---------------------------------------------------------------------------
                 \353\ See 82 FR 54472, 54568-70, 54816-17 (discussing the
                Bureau's analysis of certain data from the Mann Study including
                statistical evidence showing, in Professor Mann's words, ``that
                there is no significant relationship between the predicted number of
                days and the days to clearance''); see also Email from Ronald Mann,
                Professor, Columbia Law School to Jialian Wang and Jesse Leary,
                Bureau of Consumer Fin. Prot., (Sept. 24, 2013) (on file).
                 \354\ For a discussion of alternative sources of credit, see 82
                FR 54472, 54609-11, 554841.
                ---------------------------------------------------------------------------
                As this proposal's increase in access to credit is concentrated in
                long durations of indebtedness where the, albeit limited, evidence
                suggest the welfare impacts are negative on average, the estimated
                effect on average consumer surplus from these extended loan sequences
                would be negative relative to the chosen baseline.
                 Increased Defaults and Delinquencies. Default rates on payday loans
                prior to the 2017 Final Rule were fairly low when calculated on a per
                loan basis (two percent in the data the Bureau analyzed).\355\ A
                potentially more meaningful measure of the frequency with which
                consumers experience default is therefore the share of loan sequences
                that end in default--including single-loan sequences where the consumer
                immediately defaults and multi-loan sequences which end in default
                after one or more instances of reborrowing. The Bureau's data show
                that, using a 30-day sequence definition (i.e., a loan taken within 30
                days of paying off a prior loan is considered part of a sequence of
                borrowing), 20 percent of loan sequences ended in default prior to the
                2017 Final Rule. Other researchers have found similar high levels of
                default. A study of payday borrowers in Texas found that 4.7 percent of
                loans were charged off but 30 percent of borrowers had a loan charged
                off in their first year of borrowing.\356\ It is reasonable to assume a
                return to these market conditions under the proposal.
                ---------------------------------------------------------------------------
                 \355\ Default here is defined as a loan not being repaid as of
                the end of the period covered by the data or 30 days after the
                maturity date of the loan, whichever is later.
                 \356\ Paige Marta Skiba & Jeremy Tobacman, Payday Loans,
                Uncertainty, and Discounting: Explaining Patterns of Borrowing,
                Repayment, and Default, at tbl. 2 (Vand. L. and Econ. Sch., Research
                Paper No. 08-33, 2008). Note that it may not be the case that all
                defaulted loans were charged off.
                ---------------------------------------------------------------------------
                 As previously discussed, the Bureau believes that some borrowers
                who would be able to reborrow the full amount of the initial loan under
                the proposal may avoid a default that would have occurred if lenders
                had to comply with the Mandatory Underwriting Provisions of the Rule.
                This would be the result for borrowers who would not have been able to
                successfully make the step-down payment on the principal step-down
                schedule, but could afford to pay just the fees, i.e., the reborrowing
                cost, and then eventually repay the loan in full when they experience a
                positive income shock. This also would be the result for borrowers who
                are able to obtain an initial loan, cannot demonstrate an ability to
                repay when seeking to reborrow, but would in fact be able to repay
                after experiencing a positive income shock. However, the Bureau
                believes that some borrowers taking out payday loans may experience
                additional defaults under the proposal than they would under the 2017
                Final Rule. This would occur in instances where the principal step-down
                requirement would have resulted in borrowers not reborrowing relatively
                larger amounts that could lead to an eventual default. As discussed in
                the 2017 Final Rule, the Bureau believes the consequences of defaults
                can be harmful to at least some consumers, or in specific
                circumstances. If this proposal were to increase defaults on net, this
                would represent a potential cost to consumers.\357\ However, the Bureau
                does not know the prevalence of the possible increased defaults nor can
                it provide an estimate of the total potential cost per default to
                consumers.\358\
                ---------------------------------------------------------------------------
                 \357\ For a more detailed discussion of the costs of defaults
                and delinquencies, as well as the reasoning behind their likely
                increased prevalence under this proposal, see 82 FR 54472, 54838.
                 \358\ See Paige Marta Skiba & Jeremy Tobacman, Payday Loans,
                Uncertainty, and Discounting: Explaining Patterns of Borrowing,
                Repayment, and Default (Vand. L. and Econ. Sch., Research Paper No.
                08-33, 2008) for a structural model examining reborrowing behavior
                including potential default costs.
                ---------------------------------------------------------------------------
                 The source of those perceived default costs is unclear. Defaulting
                on a payday loan may initially appear to be relatively low cost for
                consumers, given that lenders generally do not report to the major
                credit bureaus and may not choose to pursue collection litigation if
                the amount owed is small. However, as lenders take a post-dated check
                (or account access) to secure the loan, and will seek to obtain payment
                by that method if the consumer fails to return to the store to repay
                (or reborrow), default can only occur when the consumer's account
                balance (inclusive of any overdraft buffer) has less than the amount
                owed. Default, as defined as a failed presentment of the post-dated
                check, therefore often results in NSF assessments. This could lead to
                negative balances and ultimately may lead or contribute to involuntary
                account closures which can decrease a consumer's access to checking
                accounts in the future. For example, in data analyzed by the Bureau,
                half of all identified online payday borrowers' accounts have at least
                one presentment from an online payday lender that results in overdraft
                or failure due to NSF during the 18-month observation period, resulting
                in an average of $185 in fees.\359\ Note, however, there are many
                potential debits or attempted debits that can contribute to account
                closures, and the Bureau has not disentangled the effects of attempts
                to collect on payday loans from other potential contributing causes to
                account closures.
                ---------------------------------------------------------------------------
                 \359\ Bureau of Consumer Fin. Prot., Online Payday Loan Payments
                (Apr. 2016), https://files.consumerfinance.gov/f/201604_cfpb_online-payday-loan-payments.pdf.
                ---------------------------------------------------------------------------
                 In addition to default costs resulting from lenders' access to
                consumers' checking accounts, the 2017 Final Rule also noted that
                borrowers who default may be subject to collection efforts which can
                take aggressive forms, including repeated phone calls, in-person visits
                to the consumer's home or workplace, and calls or visits to consumers'
                friends or relatives.\360\
                ---------------------------------------------------------------------------
                 \360\ 82 FR 54472, 54574.
                ---------------------------------------------------------------------------
                 Additionally, both the loss of the option value of future borrowing
                and non-pecuniary costs of failing to pay may add to the consumer's
                perception of the cost of default. The option value refers to the
                opportunity to borrow again in the future, at least from the specific
                lender, which is decreased after a default. This results in additional
                costs to the consumer in terms of decreased access to credit, or
                additional search beyond their preferred lender, that may, or may not,
                be accurately understood by
                [[Page 4292]]
                the consumer at the time of initial borrowing. Default may also impose
                non-pecuniary costs, such as the loss of access to the borrower's
                preferred lender. The Bureau seeks additional information on the
                expected change in the prevalence of default and the costs associated
                therewith.
                 For borrowers who would take out short-term vehicle title loans
                under the proposal, the impacts would be greater. As previously noted,
                the 2017 Final Rule will end virtually all such lending. Default rates
                on single-payment vehicle title loans are higher than those on payday
                loans. Additionally, as there will be a relatively greater increase in
                vehicle title loans compared to payday loans, the increase in defaults
                on vehicle title loans that would result from this proposal would be
                relatively larger compared to payday. In the data analyzed by the
                Bureau for the 2017 Final Rule, the default rate on all loans is nine
                percent, and the sequence-level default rate is 31 percent.\361\ In the
                data the Bureau has analyzed, five percent of all single-payment
                vehicle title loans lead to repossession, and 18 percent of sequences
                of loans end with repossession. So, at the loan level and at the
                sequence level, slightly more than half of all defaults lead to
                repossession of the borrower's vehicle.
                ---------------------------------------------------------------------------
                 \361\ There is also evidence that the default rates on longer-
                term balloon-payment title loans are high. The Bureau has data for a
                single lender that made longer-term vehicle title loans with both
                balloon and amortizing payment schedules. Those loans with balloon
                payments defaulted at a substantially higher rate. See Supplemental
                Findings at 30.
                ---------------------------------------------------------------------------
                 The range of potential ancillary impacts on a borrower of losing a
                vehicle to repossession depends on the transportation needs of the
                borrower's household and the available transportation alternatives.
                According to two surveys of vehicle title loan borrowers, 15 percent of
                all borrowers report that they would have no way to get to work or
                school if they lost their vehicle to repossession.\362\ Fully 35
                percent of borrowers pledge the title to the only working vehicle in
                the household.\363\ Even those with a second vehicle or the ability to
                get rides from friends or take public transportation might experience
                inconvenience or even hardship from the loss of a vehicle. The Bureau
                seeks additional information on the prevalence and costs of the
                possible ancillary effects of repossession.
                ---------------------------------------------------------------------------
                 \362\ Kathryn Fritzdixon et al., Dude, Where's my Car Title?:
                The Law Behavior and Economics of Title Lending Markets, 2014 U.
                Ill. L. Rev. 1013, 1038 (2014); Pew Charitable Trusts, Auto Title
                Loans--Market practices and borrower experiences, at 14, tbl. 3
                (2015), http://www.pewtrusts.org/~/media/assets/2015/03/
                autotitleloansreport.pdf.
                 \363\ Pew Charitable Trusts, Auto Title Loans--Market practices
                and borrowers' experiences, at 14 (2015), http://www.pewtrusts.org/
                ~/media/assets/2015/03/autotitleloansreport.pdf.
                ---------------------------------------------------------------------------
                 Similarly, to the extent the proposal would increase the number of
                payday and vehicle title loans and length of loan sequences relative to
                the 2017 Final Rule, the proposal likely would increase the frequency
                of delinquencies. Borrowers who become delinquent may incur penalty
                fees, late fees, or NSF fees, which can have associated indirect costs
                (e.g., delinquencies on other bills, difficulty meeting their basic
                living expenses, etc.). Late payments on payday loans (defined as a
                payment that is sufficiently late that the lender deposits the
                borrower's check or attempts to collect using ACH authorization) appear
                to range from seven \364\ to over 10 percent.\365\ These late payments
                can be costly for borrowers. If a lender deposits a check or submits a
                payment request and it is returned for insufficient funds, the
                borrower's bank or credit union will likely charge the borrower an NSF
                fee of approximately $35, and the lender may charge a returned-item
                fee. It should be noted, however, that the harm from NSF will be
                mitigated by the limitations on payment practices and related notices,
                as required by the Payment Provisions described in the section-by-
                section analysis of the 2017 Final Rule. The Bureau does not know the
                total potential cost of potential increased delinquencies from the
                proposal, and it therefore seeks additional information about these
                costs.
                ---------------------------------------------------------------------------
                 \364\ ``For the years ended December 31, 2011 and 2010, we
                deposited customer checks or presented an Automated Clearing House
                (ACH) authorization for approximately 6.7 percent and 6.5 percent,
                respectively, of all the customer checks and ACHs we received and we
                were unable to collect approximately 63 percent and 64 percent,
                respectively, of these deposited customer checks or presented ACHs.
                Total charge-offs, net of recoveries, for the years ended December
                31, 2011 and 2010 were approximately $106.8 million and $108
                million, respectively.'' Advance America, 2011 Annual Report (Form
                10-K), at 27, available at http://www.sec.gov/Archives/edgar/data/1299704/000104746912002758/a2208026z10-k.htm.
                 \365\ Paige Marta Skiba & Jeremy Tobacman, Payday Loans,
                Uncertainty, and Discounting: Explaining Patterns of Borrowing,
                Repayment, and Default (Vand. L. and Econ. Sch., Research Paper No.
                08-33) (2008).
                ---------------------------------------------------------------------------
                c. New Evidence on the Benefits and Costs to Consumers of Access to
                Payday and Other Covered Short-Term and Longer-Term Balloon-Payment
                Loans
                 There have been several studies made available since the 2017 Final
                Rule that address the welfare effects of payday loans. As noted
                earlier, the evidence in these studies did not alter the Bureau's views
                based on earlier evidence; however, it is important to include these in
                this discussion of the evidence that bears on the benefits and costs of
                the proposal. The Bureau seeks comment on any additional relevant
                research, information, or data that has arisen since the 2017 Rule was
                published.
                 Studies of the Direct Effects of Payday Loans and Small Dollar Loan
                Regulations. As was the case with the studies described in the 2017
                Final Rule, the new evidence about the benefits and costs of payday
                loans discussed here is not uniform in its welfare implications.
                Bronson and Smith (2018) surveyed 48 payday loan borrowers in Southeast
                Alabama to assess their satisfaction with payday loans.\366\ The
                authors ask a limited number of questions, but find that 87.5 percent
                of respondents are ``extremely'' or ``very'' satisfied with payday
                loans on average, but that only 41.7 percent are ``extremely'' or
                ``very'' satisfied with their most recent loan.\367\ They also show
                that 71 percent of payday borrowers, were they to not have access to a
                payday loan, would seek an alternative loan (e.g., credit card, borrow
                from family or friend).\368\ Finally, the authors show that fewer than
                21 percent of respondents support limits on the number or dollar amount
                of loans available, and that none of the respondents support an
                outright ban of payday loans.\369\ The authors note the limited scope
                of their study, which focuses on few customers in a very specific
                geographic region. Additionally, the methodology employed leads to a
                self-selected, likely non-representative sample of respondents,
                limiting the usefulness of these results for informing this analysis of
                benefits and costs.\370\
                ---------------------------------------------------------------------------
                 \366\ Christy A. Bronson & Daniel J. Smith, Swindled or Served?:
                A Survey of Payday Lending Customers in Southeast Alabama, 40 S.
                Bus. & Econ. J. 16 (2017).
                 \367\ Id. at 22-23.
                 \368\ Id. at 25.
                 \369\ Id. at 23-24.
                 \370\ Respondents were solicited by surveyors standing in public
                places who asked if the respondent had taken a payday loan and was
                willing to complete a survey. No validation of actual experience
                with payday loans was attempted for respondents, let alone non-
                respondents.
                ---------------------------------------------------------------------------
                 Lukongo and Miller (2017) found that Arkansas' binding interest
                rate cap creates additional costs for consumers of small-dollar
                installment products.\371\ The authors show that Arkansas' interest
                rate cap did not decrease demand for small-dollar installment loans,
                noting that many Arkansans in
                [[Page 4293]]
                counties adjacent to States allowing these loans take small-dollar
                installment loans. The authors also document an ``installment loan
                credit desert'' in the interior of Arkansas (noting that nearly 97
                percent of Arkansans holding these loans reside in perimeter counties),
                and that transportation costs increase the effective APR for those
                borrowers who are able to travel in order to obtain such loans. While
                not directly related to payday (small-dollar installment loans have a
                different structure that is not affected by the 2017 Final Rule or this
                proposal), this study documents that demand for credit is not
                eliminated by restrictions on the supply of that credit, and that
                customers in border counties are better able to travel across State
                lines to obtain loans, and do so with some frequency.
                ---------------------------------------------------------------------------
                 \371\ Onyumbe Enumbe Lukongo & Thomas W. Miller, Adverse
                Consequences of the Binding Constitutional Interest Rate Cap in the
                State of Arkansas (Mercatus Working Paper, 2017), https://www.mercatus.org/system/files/lukongo_wp_mercatus_v1.pdf.
                ---------------------------------------------------------------------------
                 Ramirez (2017) shows that when Ohio constrained interest rates on
                payday loans in 2008, licenses for pawn brokers, precious metal buyers,
                alternative small-loan, and second-mortgage lending increased.\372\ The
                author concludes that demand for the credit previously satisfied by
                payday loans persisted after the reducing in the availability of those
                loans, and that supply-side effects evolved in order to partially meet
                this demand. The author's implication is that these alternatives to
                payday loans are substitutes (though likely imperfect ones). The Bureau
                notes there may be other likely imperfect substitutes for payday loans
                available to consumers, such as borrowing from relatives, decreasing
                expenses, borrowing from an unlicensed lender, but the Bureau does not
                have data concerning to what extent these alternatives are available
                and at what prices as well as the ancillary benefits and costs
                associated with these possible alternatives.
                ---------------------------------------------------------------------------
                 \372\ Stefanie Ramirez, Payday-Loan Bans: Evidence of Indirect
                Effects on Supply (SSRN Working Paper, 2017).
                ---------------------------------------------------------------------------
                 Studies Describing the Links Between Payday Loans and Health
                Issues. The 2017 Final Rule described in general terms that payday loan
                use could be associated with non-pecuniary benefits or costs, but did
                not present empirical evidence of these impacts.\373\ A newer payday-
                related literature shows correlations between payday loan access or use
                and health outcomes.\374\
                ---------------------------------------------------------------------------
                 \373\ The Bureau was aware of at least one of these papers prior
                to the 2017 Final Rule. At the time, the paper was a working paper
                with preliminary results. As such, the Bureau chose not to discuss
                its findings in the 2017 Final Rule.
                 \374\ However, the Bureau underscores that correlation between
                two variables does not necessarily imply causation, specifically,
                that payday loan access or use is the cause of these health
                outcomes.
                ---------------------------------------------------------------------------
                 Cuffe and Gibbs (2017) explore the relationship between payday loan
                access and liquor sales.\375\ The authors find a persistent reduction
                in liquor sales resulting from payday lending regulations that
                restricted access for frequent payday loan users. They also show that
                this decline in sales is nearly three times larger for liquor stores
                closest to payday lenders. Importantly, the authors also find no
                corresponding decline in overall expenditures from the restricted
                access to payday loans. The authors imply these finding could have
                public health impacts, though they do not provide estimates of these
                impacts, and the direction of any overall welfare impacts is not
                clear.\376\
                ---------------------------------------------------------------------------
                 \375\ Harold E. Cuffe & Christopher G. Gibbs, The Effect of
                Payday Lending Restrictions on Liquor Sales, 85(1) J. Banking & Fin.
                132-45 (2017).
                 \376\ The authors also note specific behavioral biases with
                which their findings are consistent. However, they are unable to
                test for any specific biases that actually are at play. As such, the
                Bureau's analysis is not informed by this aspect of the paper.
                ---------------------------------------------------------------------------
                 Eisenberg-Guyot et al. (2018) assess the impact of ``fringe banking
                services'' on health outcomes.\377\ Using Current Population Survey
                data and propensity score matching, the authors show ``fringe loan''
                use is associated with 38 percent higher prevalence of reporting poor
                health. The authors imply that the magnitude suggests that at least
                some fringe loan use may cause a decline in perceived health. However,
                the authors do not compellingly address the possibility of reverse
                causality: i.e., the possibility that individuals suffering (or
                reporting to suffer) poor health are more likely to use payday loans.
                Additionally, if payday borrowers affected by this proposal would be
                using other ``fringe loans'' absent the proposal, the proposal's
                increase in payday and vehicle title access would have no effect on
                their health.
                ---------------------------------------------------------------------------
                 \377\ Jerzy Eisenberg-Guyot et al., From Payday Loans To
                Pawnshops: Fringe Banking, The Unbanked, And Health, 37(3) Health
                Aff. 429 (2018).
                ---------------------------------------------------------------------------
                 Sweet et al. (2018) use data from a small, non-random survey of
                debt and health to test whether short-term loans are associated with
                emotional and physical health indicators.\378\ They find that having
                ever used a short-term loan is associated with a number of risk
                factors, including poor physical health and anxiety, even after
                controlling for several socio-demographic covariates. However, the
                survey used is small (n=286), they do not distinguish between types of
                loans, frequency of use, or when a loan was used, and their sample
                comes from one metropolitan statistical area (MSA) in a State with an
                interest rate cap that does not allow for traditional payday lending
                (Boston, MA).
                ---------------------------------------------------------------------------
                 \378\ Elizabeth Sweet et al., Short-term lending: Payday loans
                as risk factors for anxiety, inflammation and poor health, 5 SSM--
                Population Health, 114-121 (2018), https://doi.org/10.1016/j.ssmph.2018.05.009.
                ---------------------------------------------------------------------------
                 In the only study regarding health effects of payday loan access
                using a causal identification strategy, Lee (2017) explores the link
                between payday loans and household welfare by estimating the impact of
                payday loan access on an extreme measure of household distress:
                Suicide.\379\ The author uses a distance to border and difference-in-
                difference identification approach to provide evidence consistent with
                payday loans increasing the risk of suicide attempts for low- and
                moderate-income borrowers and employed workers. The author also shows
                that completed suicides increase by relatively more than attempts. The
                estimated magnitudes are quite high. Notably, the author does not
                estimate whether the increase in suicide risk associated with initial
                access to payday loans is reversed (or possibly even exacerbated) by
                the removal of some of that access and as such, the implication for
                this proposal's effective reinstatement of access to more borrowing is
                unclear.
                ---------------------------------------------------------------------------
                 \379\ Jaeyoon Lee, Credit Access and Household Welfare: Evidence
                From Payday Lending (SSRN Working Paper, 2017).
                ---------------------------------------------------------------------------
                 Studies Describing the Links Between Financial Education and Payday
                Loan Use. An expanding literature deals with the impact of financial
                education and literacy on the use of payday loans.
                 For example, Harvey (2017) shows that financial education mandates
                significantly reduce the likelihood and frequency of payday
                borrowing.\380\ Specifically, the author finds that individuals who
                were mandated to take personal finance classes in high school are less
                likely to have used payday loans, and used fewer payday loans compared
                to those individuals who did not have a mandated personal finance
                class. Kim and Lee (2017) explore whether financial literacy impacts
                payday loan use and find, using the 2012 National Financial Capability
                Study, that increased financial literacy is negatively associated with
                payday loan use.\381\ In slight contrast, Alyousif and Kalenkoski
                (2017) use a self-selected sample to find that seeking financial advice
                about savings and investment is associated with less
                [[Page 4294]]
                payday loan use, but that seeking debt counseling is correlated with a
                higher chance of payday loan use.\382\
                ---------------------------------------------------------------------------
                 \380\ Melody Harvey, Impact of Financial Education Mandates on
                Younger Consumers' Use of Alternative Financial Services (SSRN
                Working Paper, 2017).
                 \381\ Kyoung Tae Kim and Jonghee Lee, Financial literacy and use
                of payday loans in the United States, 25(11) Applied Econ. Letters
                781 (2017).
                 \382\ Maher Alyousif & Charlene M. Kalenkoski, Asking for
                Action: Does Financial Advice Improve Financial Behaviors? (SSRN
                Working Paper, 2017).
                ---------------------------------------------------------------------------
                 While the relationship between financial education and literacy and
                payday loan use has only indirect implications for the impacts of
                payday loan use on consumers, the apparent finding that consumers with
                greater financial education and literacy use payday loans less may
                imply that the use of these loans is at least somewhat driven by the
                information consumers have about these loans. This, in turn, could have
                implications for the consumer surplus that would result from use of
                these loans. But perhaps the more direct implication is that improved
                financial education programs and opportunities could be a viable
                alternative to more direct market interventions such as issuing
                regulations.
                 Summary of Research Findings on the Welfare Effects of Consumers of
                Payday Loan Use. The Bureau believes the new research described here
                supplements, and does not contradict, the research described in the
                2017 Final Rule. The Bureau welcomes comment on these new studies and
                other new research concerning the effect on consumers from using payday
                loans.
                C. Potential Benefits and Costs of the Proposal to Consumers and
                Covered Persons--Recordkeeping Requirements
                 The 2017 Final Rule requires lenders to maintain sufficient records
                to demonstrate compliance with the Rule. Those requirements include,
                among other records to be kept, loan records; materials collected
                during the process of originating loans, including the information used
                to determine whether a borrower had the ability to repay the loan, if
                applicable; records of reporting loan information to RISes, as
                required; and records of attempts to withdraw payments from borrowers'
                accounts, and the outcomes of those attempts. The Bureau's proposed
                revocation of the Mandatory Underwriting Provisions would eliminate the
                recordkeeping requirements set forth in the 2017 Final Rule that are
                not related to payment withdrawal attempts.
                1. Benefits and Costs to Covered Persons
                 The Bureau estimated in the 2017 Final Rule that the costs
                associated with electronic storage of records was small. As such, the
                Bureau estimates the benefits from avoiding these costs under the
                proposal to be small as well. Specifically, the Bureau estimates the
                benefits to be less than $50 per lender if they purchased additional
                storage themselves (e.g., a portable hard drive) to comply with the
                2017 Final Rule, or $10 per month if they leased storage (e.g., from
                one of the many online cloud storage vendors). Lenders would also avoid
                the need to develop procedures and train staff to retain records under
                this proposal; these benefits are included in earlier estimates of the
                benefits of no longer needing to develop procedures, upgrade systems,
                and train staff.
                2. Benefits and Costs to Consumers
                 Consumers will be minimally affected by the proposed revocation of
                mandatory underwriting-related recordkeeping requirements.
                D. Potential Benefits and Costs of the Proposal to Consumers and
                Covered Persons--Requirements Related to Information Furnishing and
                Registered Information Systems
                 As discussed above, the 2017 Final Rule requires lenders to report
                covered short-term and longer-term balloon-payment loans to every RIS.
                This requirement would be eliminated by this proposal, as would the
                potential benefits and costs from the existence of, and reporting to,
                every RIS.
                1. Benefits and Costs to Covered Persons
                 The proposal, if adopted, would eliminate the benefits, described
                in the 2017 Final Rule, that are afforded to firms that apply to become
                RISes by eliminating the requirement on lenders to furnish information
                regarding covered short-term and longer-term balloon-payment loans to
                every RIS and to obtain a consumer report from at least one RIS before
                originating such loans.
                 The proposal, if adopted, would also eliminate the benefits to
                lenders from access to RISes described in the 2017 Final Rule. Most of
                these benefits would result from decreased fraud and increased
                transparency. These benefits include, inter alia, easier identification
                of borrowers with past defaults on payday loans issued by other
                lenders, avoiding issuing loans to borrowers who currently have
                outstanding loans from other lenders, etc. This proposal's elimination
                of these benefits would represent a cost to lenders.
                2. Benefits and Costs to Consumers
                 The proposed elimination of the RIS-related requirements would have
                minimal impact on consumers. The largest benefit for consumers from the
                RIS-related provisions, as noted in the 2017 Final Rule, was compliance
                by lenders with the underwriting requirements of the Rule. This benefit
                would be moot, given the proposed revocation of the Rule's Mandatory
                Underwriting Provisions. The remaining benefits this proposal would
                eliminate are small.
                E. Other Unquantified Benefits and Costs
                 Some of the proposal's impacts noted above are difficult if not
                impossible to quantify, because their magnitudes or values are unknown
                or unknowable. One of the most notable of these is the consumer welfare
                impact of increased access to short-term vehicle title loans. While the
                structure of these loans is somewhat similar to payday loans, there are
                no direct studies of the impact of these loans on consumer welfare.
                Additionally, there is no obvious way to sign or scale the welfare
                effects of access to vehicle title loans relative to payday loans. For
                example, it is possible that the larger loan amounts available from
                vehicle title lenders enable consumers to better handle more
                substantial financial shocks and that the risk of losing a vehicle in
                the event of default provides consumers with greater incentives to
                become more fully informed before initiating loans. This would result
                in relatively more positive welfare effects relative to payday loans.
                However, it is also possible that the larger loan amounts may result in
                more repossessions after defaults that may have additional adverse
                consequences for some consumers. If this possibility were the reality,
                the welfare effects of the proposal would be more negative for vehicle
                title consumers than for payday consumers. However, within the set of
                17 States that permit short-term vehicle title lending, 12 also permit
                longer-term lending; \383\ so the substitution of longer-term lending
                for short-term lending has significant potential to mitigate the
                negative welfare impacts of the proposal. Absent reliable evidence
                about the welfare effects of access to short-term vehicle title loans,
                the Bureau does not attempt to quantify these effects here.
                ---------------------------------------------------------------------------
                 \383\ One of the States that only allows short-term vehicle
                title lending is Ohio, but recent legislation will eliminate such
                lending in April 2019. Note that an additional 6 States only allow
                longer-term vehicle title lending, and those would be unaffected by
                this proposal.
                ---------------------------------------------------------------------------
                 There are other, less direct effects of the proposal that are also
                left unquantified. These impacts include (but are not limited to):
                Intrinsic utility (``warm glow'') from access to loans that are not
                available under the 2017 Final Rule; innovative regulatory approaches
                by States that would have been
                [[Page 4295]]
                discouraged by the 2017 Final Rule; public and private health costs
                that may (or may not) result from payday loan use; suicide-related
                costs that may (or may not) result from increased access to loans;
                changes to the profitability and industry structure in response to the
                2017 Final Rule (e.g., industry consolidation that may create scale
                efficiencies, movement to installment product offerings) that would not
                occur under the proposal; concerns about regulatory uncertainty and/or
                inconsistent regulatory regimes across markets; benefits or costs to
                outside parties associated with the change in access to payday loans
                (e.g., revenues of providers of payday substitutes like pawnshops,
                overdraft fees paid by consumers and received by financial
                institutions, the cost of late fees and unpaid bills, etc.); indirect
                costs arising from increased repossessions of vehicles in response to
                non-payment of title loans; non-pecuniary effects associated with
                financial stress that may be alleviated or exacerbated by increased
                access to/use of payday loans; and any impacts on lenders of fraud and
                opacity related to a lack of industry-wide RISes (e.g., borrowers
                circumventing lender policies against taking multiple concurrent payday
                loans, lenders having more difficulty identifying chronic defaulters,
                etc.). If there exist credible quantitative estimates of these impacts,
                the Bureau welcomes comments providing those estimates.
                F. Potential Impact on Depository Creditors With $10 Billion or Less in
                Total Assets
                 The Bureau believes that depository institutions and credit unions
                with less than $10 billion in assets are minimally constrained by the
                2017 Final Rule's Mandatory Underwriting Provisions. To the limited
                extent depository institutions and credit unions did make loans in this
                market, many of those loans were conditionally exempted from the 2017
                Final Rule under Sec. 1041.3(e) or (f) as alternative or accommodation
                loans. As such, this proposal would have minimal impact on these
                institutions.
                 However, it is possible that the removal of the 2017 Final Rule's
                restrictions would allow depository institutions and credit unions with
                less than $10 billion in assets to develop products that are not viable
                under the 2017 Final Rule (subject to applicable Federal and State laws
                and under the supervision of their prudential regulators).\384\ To the
                extent these products are developed and successfully marketed, they
                would represent a benefit of this proposal for these institutions.
                ---------------------------------------------------------------------------
                 \384\ As discussed previously, this may be even more likely than
                it would have been at the time the 2017 Final Rule was drafted. The
                OCC not only rescinded guidance on deposit advance products, but has
                also encouraged banks to explore additional small-dollar installment
                lending products. Additionally, the FDIC is seeking comment on
                small-dollar products that its banks could offer. These factors
                might allow for additional lending if not for the 2017 Final Rule
                (e.g., some additional product offerings may result from this
                proposal that would have been inviable under the 2017 Final Rule).
                ---------------------------------------------------------------------------
                G. Potential Impact on Consumers in Rural Areas
                 Under the proposal, consumers in rural areas would have a greater
                increase in the availability of covered short-term and longer-term
                balloon-payment loans originated through storefronts relative to
                consumers living in non-rural areas. As described above, the Bureau
                estimates that removing the restrictions in the 2017 Final Rule on
                making these loans would likely lead to a substantial increase in the
                markets for storefront payday loans and storefront single-payment
                vehicle title loans. In the 2017 Final Rule, the Bureau analyzed how
                the adoption of State laws restricting payday lending in Colorado,
                Virginia, and Washington led to significant contraction in the number
                of payday stores. In those States, nearly all borrowers living in non-
                rural areas (MSAs) still had access to a bricks-and-mortar payday
                store. However, the Bureau noted that a substantial minority of
                borrowers living outside of MSAs no longer had a payday store readily
                available following the contraction in the industry. In Colorado,
                Virginia, and Washington, 37 percent, 13 percent, and 30 percent of
                borrowers, respectively, would need to travel at least five additional
                miles to reach a store that remained open. In Virginia, almost all
                borrowers had a store that remained open within 20 miles of their
                previous store. And, in Washington 9 percent of borrowers would have to
                travel at least 20 additional miles.\385\
                ---------------------------------------------------------------------------
                 \385\ 82 FR 54472, 54853.
                ---------------------------------------------------------------------------
                 While many borrowers who live outside of MSAs do travel that far to
                take out a payday loan, many do not. As such, the expected increase in
                bricks-and-mortar stores that would result from this proposal should
                improve access to storefront payday loans for those borrowers unwilling
                or unable to travel greater distances for these loans. While rural
                borrowers for whom visiting a storefront payday lender is impracticable
                under the 2017 Final Rule retain the option to seek covered short-term
                or longer-term balloon-payment loans from online lenders, restrictions
                imposed by State and local law may not allow this in some
                jurisdictions. Additionally, not all of these would-be borrowers
                necessarily have access to the internet, a necessity in order to
                originate online loans.\386\ For those consumers who are unable or
                unwilling to seek loans from an online lender, the proposal would
                provide more, and potentially more desirable, borrowing options.
                ---------------------------------------------------------------------------
                 \386\ In considering this in the 2017 Final Rule, the Bureau
                noted that ``rural populations are less likely to have access to
                high-speed broadband compared to the overall population,'' but that
                ``the bandwidth and speed required to access an online payday lender
                is minimal,'' and that ``most potential borrowers in rural
                communities will likely be able to access the internet by some means
                (e.g., dial up, or access at the public library or school).'' 82 FR
                54472, 54853. However, there are likely to be at least some rural
                borrowers that were displaced from the market by the 2017 Final
                Rule.
                ---------------------------------------------------------------------------
                 The Bureau expects that the relative impacts on rural and non-rural
                consumers of vehicle title loans would be similar to what would occur
                in the payday market. That is, rural consumers would be likely to
                experience a greater increase in the physical availability of single-
                payment vehicle title loans made through storefronts than borrowers
                living in non-rural areas.
                 Finally, the Bureau notes that it received a number of comments on
                the 2016 Proposal indicating that some online payday lenders operate in
                rural areas and comprise large shares of their local economies. Given
                that the proposal would allow these lenders to operate at their pre-
                2017 Final Rule capacities, it is likely that at least some rural
                lenders would be substantially and positively impacted by the proposal,
                benefiting their local economies.
                 Given the available evidence, the Bureau believes that, other than
                the relatively greater increase in the physical availability of covered
                short-term loans made through storefronts, consumers living in rural
                areas would not experience substantially different effects of the
                proposal than other consumers.\387\
                ---------------------------------------------------------------------------
                 \387\ In the 2017 Final Rule, the Bureau noted the potential for
                small effects on a few local labor markets in which online lenders
                comprise a significant share of employment. 82 FR 54472, 54853.
                Corresponding effects may result from this proposal as well.
                However, the specifics of these impacts would depend on the
                competitive characteristics of these labor markets (both as they
                currently exist and in the counterfactual) that are not easily
                discernable or generalizable, and are of a second-order concern
                relative to the more direct impacts noted above.
                ---------------------------------------------------------------------------
                IX. Regulatory Flexibility Act Analysis
                 The Regulatory Flexibility Act \388\ as amended by the Small
                Business
                [[Page 4296]]
                Regulatory Enforcement Fairness Act of 1996 \389\ (RFA) requires each
                agency to consider the potential impact of its regulations on small
                entities, including small businesses, small governmental units, and
                small not-for-profit organizations.\390\ The RFA defines a ``small
                business'' as a business that meets the size standard developed by the
                Small Business Administration pursuant to the Small Business Act.\391\
                ---------------------------------------------------------------------------
                 \388\ Public Law 96-354, 94 Stat. 1164 (1980).
                 \389\ Public Law 104-21, section 241, 110 Stat. 847, 864-65
                (1996).
                 \390\ 5 U.S.C. 601 through 612. The term `` `small organization'
                means any not-for-profit enterprise which is independently owned and
                operated and is not dominant in its field, unless an agency
                establishes [an alternative definition under notice and comment].''
                5 U.S.C. 601(4). The term `` `small governmental jurisdiction' means
                governments of cities, counties, towns, townships, villages, school
                districts, or special districts, with a population of less than
                fifty thousand, unless an agency establishes [an alternative
                definition after notice and comment].'' 5 U.S.C. 601(5).
                 \391\ 5 U.S.C. 601(3). The Bureau may establish an alternative
                definition after consulting with the SBA and providing an
                opportunity for public comment. Id.
                ---------------------------------------------------------------------------
                 The RFA generally requires an agency to conduct an initial
                regulatory flexibility analysis (IRFA) and a final regulatory
                flexibility analysis (FRFA) of any rule subject to notice-and-comment
                rulemaking requirements, unless the agency certifies that the rule will
                not have a significant economic impact on a substantial number of small
                entities.\392\ The Bureau also is subject to certain additional
                procedures under the RFA involving the convening of a panel to consult
                with small business representatives prior to proposing a rule for which
                an IRFA is required.\393\
                ---------------------------------------------------------------------------
                 \392\ 5 U.S.C. 601 through 612.
                 \393\ 5 U.S.C. 609.
                ---------------------------------------------------------------------------
                 As discussed above, this proposal would rescind the Mandatory
                Underwriting Provisions of the 2017 Final Rule. The section 1022(b)(2)
                analysis above describes how, if adopted, this proposal would reduce
                the costs and burdens on covered persons, including small entities,
                relative to a baseline where compliance with the 2017 Final Rule
                becomes mandatory. Additionally, the 2017 Final Rule's FRFA contains a
                discussion of the specific costs and burdens imposed by the 2017 Final
                Rule on small entities, including those imposed by the Mandatory
                Underwriting Provisions that this proposal would reverse.\394\ In
                addition to the removal of costs and burdens, all operations under
                current law, as well as those that would be adopted if compliance with
                the Mandatory Underwriting Provisions becomes mandatory, would remain
                available to small entities should this proposal be adopted. Thus, a
                small entity that is in compliance with the law at such time when this
                proposal might be adopted would not need to take any additional action
                to remain in compliance. Based on these considerations, the proposed
                rule would not have a significant economic impact on any small
                entities.
                ---------------------------------------------------------------------------
                 \394\ 82 FR 54472, 54853.
                ---------------------------------------------------------------------------
                 Accordingly, the undersigned hereby certifies that this proposed
                rule, if adopted, would not have a significant economic impact on a
                substantial number of small entities. Thus, neither an IRFA nor a small
                business review panel is required for this proposal. The Bureau
                requests comments on this analysis and any relevant data.
                X. Paperwork Reduction Act
                 Under the Paperwork Reduction Act of 1995 (PRA),\395\ Federal
                agencies are generally required to seek Office of Management and Budget
                (OMB) approval for information collection requirements prior to
                implementation. Under the PRA, the Bureau may not conduct or sponsor
                and, notwithstanding any other provision of law, a person is not
                required to respond to an information collection unless the information
                collection displays a valid control number assigned by OMB. The
                collections of information related to the 2017 Final Rule were
                previously submitted to OMB in accordance with the PRA and assigned OMB
                Control Number 3170-0065 for tracking purposes, however this control
                number is not yet active as OMB has not approved these information
                collection requests. This proposed rule would substantially revise or
                remove several of the information collection requirements contained in
                the Rule and, as such, a new information collection request seeking a
                new OMB control number has been submitted to OMB for review under PRA
                Section 3507(d).
                ---------------------------------------------------------------------------
                 \395\ 44 U.S.C. 3501 et seq.
                ---------------------------------------------------------------------------
                 A revised Supporting Statement detailing the changes to the
                information collections and their effects on the Rule's overall burden
                will be made available for public comment on the electronic docket
                accompanying this proposed rule.
                 Comments are specifically invited on: (a) Whether the collection of
                information is necessary for the proper performance of the functions of
                the Bureau, including whether the information will have practical
                utility; (b) the accuracy of the Bureau's estimate of the burden of the
                collection of information, including the validity of the methods and
                the assumptions used; (c) ways to enhance the quality, utility, and
                clarity of the information to be collected; and (d) ways to minimize
                the burden of the collection of information on respondents, including
                through the use of automated collection techniques or other forms of
                information technology. Comments on these issues may be sent to the
                Office of Information and Regulatory Affairs of OMB, Attention: Desk
                Officer for the Bureau of Consumer Financial Protection. Comments may
                also be sent to the addresses identified in the ADDRESSES section
                above. All comments will become a matter of public record.
                List of Subjects in 12 CFR Part 1041
                 Banks, Banking, Consumer protection, Credit, Credit Unions,
                National banks, Reporting and recordkeeping requirements, Savings
                associations, Trade practices.
                Authority and Issuance
                 For the reasons set forth above, the Bureau proposes to amend 12
                CFR part 1041, as set forth below:
                PART 1041--PAYDAY, VEHICLE TITLE, AND CERTAIN HIGH-COST INSTALLMENT
                LOANS
                0
                1. The authority citation for part 1041 continues to read as follows:
                 Authority: 12 U.S.C. 5511, 5512, 5514(b), 5531(b), (c), and
                (d), 5532.
                Subpart A--General
                Sec. 1041.1 [Amended]
                0
                2. Amend Sec. 1041.1 by removing the last sentence of paragraph (b).
                Sec. 1041.2 [Amended]
                0
                3. Amend Sec. 1041.2 by removing and reserving paragraphs (a)(14) and
                (19).
                Subpart B--[Removed and Reserved]
                0
                4. Remove and reserve subpart B, consisting of Sec. Sec. 1041.4
                through 1041.6.
                0
                5. Revise the heading for subpart D to read as follows:
                Subpart D--Recordkeeping, Anti-Evasion, and Severability
                Sec. Sec. 1041.10 and 1041.11 [Removed and Reserved]
                0
                6. Remove and reserve Sec. Sec. 1041.10 and 1041.11.
                0
                7. Amend Sec. 1041.12 by revising paragraph (b)(1) and removing and
                reserving paragraphs (b)(2) and (3) to read as follows:
                Sec. 1041.12 Compliance program and record retention.
                * * * * *
                 (b) * * *
                 (1) Retention of loan agreement for covered loans. To comply with
                the
                [[Page 4297]]
                requirements in this paragraph (b), a lender must retain or be able to
                reproduce an image of the loan agreement for each covered loan that the
                lender originates.
                * * * * *
                0
                8. In appendix A to part 1041, remove Model Forms A-1 and A-2 and add
                reserved Model Forms A-1 and A-2 and headings for Model Forms A-3
                through A-5 and Model Clauses A-6 through A-8 to read as follows:
                Appendix A to Part 1041--Model Forms
                A-1 Model Form
                 [Reserved]
                A-2 Model Form
                 [Reserved]
                A-3 Model Form
                * * * * *
                A-4 Model Form
                * * * * *
                A-5 Model Form
                * * * * *
                A-6 Model Clause
                * * * * *
                A-7 Model Clause
                * * * * *
                A-8 Model Clause
                * * * * *
                0
                9. In supplement I to part 1041:
                0
                a. Under Section 1041.2--Definitions, revise 2(a)(5) Consummation and
                remove 2(a)(19) Vehicle Security.
                0
                b. Under Section 1041.3--Scope of Coverage; Exclusions; Exemptions,
                revise 3(e)(2) Borrowing History Condition and 3(e)(3) Income
                Documentation Condition.
                0
                c. Remove Section 1041.4--Identification of Unfair and Abusive
                Practice, Section 1041.5--Ability-to-Repay Determination Required,
                Section 1041.6--Conditional Exemption for Certain Covered Short-Term
                Loans, Section 1041.10--Furnishing Information to Registered
                Information Systems, and Section 1041.11--Registered Information
                Systems.
                0
                d. In Section 1041.12--Compliance Program and Record Retention:
                0
                i. Revise 12(a) Compliance Program and 12(b) Record Retention.
                0
                ii. Remove 12(b)(1) Retention of Loan Agreement and Documentation
                Obtained in Connection With Originating a Covered Short-Term or Covered
                Longer-Term Balloon-Payment Loan, 12(b)(2) Electronic Records in
                Tabular Format Regarding Origination Calculations and Determinations
                for a Covered Short-Term or Longer-Term Balloon-Payment Loan Under
                Sec. 1041.5, 12(b)(3) Electronic Records in Tabular Format Regarding
                Type, Terms, and Performance of Covered Short-Term or Covered Longer-
                Term Balloon-Payment Loans, and Paragraph 12(b)(3)(iv).
                0
                iii. Revise 12(b)(5) Electronic Records in Tabular Format Regarding
                Payment Practices for Covered Loans.
                 The revisions read as follows:
                Supplement I to Part 1041--Official Interpretations
                Section 1041.2--Definitions
                * * * * *
                2(a)(5) Consummation
                 1. New loan. When a contractual obligation on the consumer's
                part is created is a matter to be determined under applicable law. A
                contractual commitment agreement, for example, that under applicable
                law binds the consumer to the loan terms would be consummation.
                Consummation, however, does not occur merely because the consumer
                has made some financial investment in the transaction (for example,
                by paying a non-refundable fee) unless applicable law holds
                otherwise.
                * * * * *
                Section 1041.3--Scope of Coverage; Exclusions; Exemptions
                * * * * *
                3(e) Alternative Loans
                * * * * *
                3(e)(2) Borrowing History Condition
                 1. Relevant records. A lender may make an alternative covered
                loan under Sec. 1041.3(e) only if the lender determines from its
                records that the consumer's borrowing history on alternative covered
                loans made under Sec. 1041.3(e) meets the criteria set forth in
                Sec. 1041.3(e)(2). The lender is not required to obtain information
                about a consumer's borrowing history from other persons, such as by
                obtaining a consumer report.
                 2. Determining 180-day period. For purposes of counting the
                number of loans made under Sec. 1041.3(e)(2), the 180-day period
                begins on the date that is 180 days prior to the consummation date
                of the loan to be made under Sec. 1041.3(e) and ends on the
                consummation date of such loan.
                 3. Total number of loans made under Sec. 1041.3(e)(2). Section
                1041.3(e)(2) excludes loans from the conditional exemption in Sec.
                1041.3(e) if the loan would result in the consumer being indebted on
                more than three outstanding loans made under Sec. 1041.3(e) from
                the lender in any consecutive 180-day period. See Sec.
                1041.2(a)(17) for the definition of outstanding loan. Under Sec.
                1041.3(e)(2), the lender is required to determine from its records
                the consumer's borrowing history on alternative covered loans made
                under Sec. 1041.3(e) by the lender. The lender must use this
                information about borrowing history to determine whether the loan
                would result in the consumer being indebted on more than three
                outstanding loans made under Sec. 1041.3(e) from the lender in a
                consecutive 180-day period, determined in the manner described in
                comment 3(e)(2)-2. Section 1041.3(e) does not prevent lenders from
                making a covered loan subject to the requirements of this part.
                 4. Example. For example, assume that a lender seeks to make an
                alternative loan under Sec. 1041.3(e) to a consumer and the loan
                does not qualify for the safe harbor under Sec. 1041.3(e)(4). The
                lender checks its own records and determines that during the 180
                days preceding the consummation date of the prospective loan, the
                consumer was indebted on two outstanding loans made under Sec.
                1041.3(e) from the lender. The loan, if made, would be the third
                loan made under Sec. 1041.3(e) on which the consumer would be
                indebted during the 180-day period and, therefore, would be exempt
                from this part under Sec. 1041.3(e). If, however, the lender
                determined that the consumer was indebted on three outstanding loans
                under Sec. 1041.3(e) from the lender during the 180 days preceding
                the consummation date of the prospective loan, the condition in
                Sec. 1041.3(e)(2) would not be satisfied and the loan would not be
                an alternative loan subject to the exemption under Sec. 1041.3(e)
                but would instead be a covered loan subject to the requirements of
                this part.
                3(e)(3) Income Documentation Condition
                 1. General. Section 1041.3(e)(3) requires lenders to maintain
                policies and procedures for documenting proof of recurring income
                and to comply with those policies and procedures when making
                alternative loans under Sec. 1041.3(e). For the purposes of Sec.
                1041.3(e)(3), lenders may establish any procedure for documenting
                recurring income that satisfies the lender's own underwriting
                obligations. For example, lenders may choose to use the procedure
                contained in the National Credit Union Administration's guidance at
                12 CFR 701.21(c)(7)(iii) on Payday Alternative Loan programs
                recommending that Federal credit unions document consumer income by
                obtaining two recent paycheck stubs.
                * * * * *
                Section 1041.12--Compliance Program and Record Retention
                12(a) Compliance Program
                 1. General. Section 1041.12(a) requires a lender making a
                covered loan to develop and follow written policies and procedures
                that are reasonably designed to ensure compliance with the
                applicable requirements in this part. These written policies and
                procedures must provide guidance to a lender's employees on how to
                comply with the requirements in this part. In particular, under
                Sec. 1041.12(a), a lender must develop and follow detailed written
                policies and procedures reasonably designed to achieve compliance,
                as applicable, with the payments requirements in Sec. Sec. 1041.8
                and 1041.9. The provisions and commentary in each section listed
                above provide guidance on what specific directions and other
                information a lender must include in its written policies and
                procedures.
                12(b) Record Retention
                 1. General. Section 1041.12(b) requires a lender to retain
                various categories of documentation and information concerning
                [[Page 4298]]
                payment practices in connection with covered loans. The items listed
                are non-exhaustive as to the records that may need to be retained as
                evidence of compliance with this part.
                * * * * *
                12(b)(5) Electronic Records in Tabular Format Regarding Payment
                Practices for Covered Loans
                 1. Electronic records in tabular format. Section 1041.12(b)(5)
                requires a lender to retain records regarding payment practices in
                electronic, tabular format. Tabular format means a format in which
                the individual data elements comprising the record can be
                transmitted, analyzed, and processed by a computer program, such as
                a widely used spreadsheet or database program. Data formats for
                image reproductions, such as PDF, and document formats used by word
                processing programs are not tabular formats.
                * * * * *
                 Dated: February 6, 2019.
                Kathleen L. Kraninger,
                Director, Bureau of Consumer Financial Protection.
                [FR Doc. 2019-01906 Filed 2-11-19; 4:15 pm]
                 BILLING CODE 4810-AM-P
                

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