Payday lending reform

Chapter 2 of the Truth in Lending Act (15 U.S.C. 1631 et seq.) is amended by inserting after section 129A the following new section:

129B.

Mandatory disclosures for extended repayment plans and other protections for consumers

(a)

Definitions

For purposes of this section, the following definitions shall apply: (1)

Consumer account

The term consumer account or account shall have the meaning set forth in section 903 of the Electronic Funds Transfer Act (15 U.S.C. 1693a). (2)

Extended repayment plan; repayment plan

The term extended repayment plan or repayment plan means an installment plan under which a consumer who is unable to repay a payday loan on the loan due date and who complies with applicable requirements established under this section may repay the creditor the outstanding balance of the loan in at least 4 substantially equal payments, on or after a date on which the consumer receives regular income, without being charged any additional interest and fees. (3)

Interest and fees

The term interest and fees— (A)means all charges payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or as a condition of the extension of a payday loan; and (B)does not include— (i)any reasonable charge for a default, delinquency, or similar occurrence; (ii)any charge imposed when, if for any reason, funds are not made available to pay an item or authorization delivered to the creditor when presented for payment, to the extent that the charge does not exceed the greater of $35 or the amount charged to the creditor by the creditor’s financial institution and the charge is only imposed once per each item or authorization regardless of whether the item or authorization is presented for payment more than once; (iii)a document preparation fee of up to $10; and (iv)a loan administrative fee, except when a loan is being refinanced, of up to 5 percent of the original loan principal amount. (4)

Payday loan; loan

The term payday loan or loan, for purposes of this section, means a closed end credit transaction, unsecured by any interest in the consumer’s personal property and excluding any credit card transaction under an open-end consumer credit plan, with a term of at least 7 and not more than 91 days in which the amount financed does not exceed $2,000, pursuant to which the consumer receives funds from and incurs interest or a fee payable to a creditor, and contemporaneously with the receipt of funds, provides a payment instrument to the creditor who agrees with the consumer not to deposit or present the payment instrument for at least 7 days. (5)

Payment instrument

The term payment instrument means a check, automated clearinghouse debit, or remotely created check, or similar payment instrument directing the withdrawal of funds from a consumer account. (6)

Refinancing; refinance

The term refinancing or refinance means to refinance, renew, rollover, amend, or extend a loan beyond its original term, by payment of a fee. (b)

Protections for Consumers

(1)

Mandatory disclosures for payday loans

No creditor may make a payday loan to a consumer unless the creditor has first provided the consumer with a copy of a written loan agreement, which shall be signed by the consumer and shall include the following information: (A)A clear and conspicuous description of the terms of the loan, in at least 18-point bold face type, including the consumer’s payment obligations under the loan and the total cost of all fees and other charges in connection with origination of the loan, stated as a dollar amount and as either a percentage of the original loan principal amount or in the form of the corresponding ratio of dollars per hundred dollars. (B)The name, address, and telephone number of the creditor making the loan. (C)The following statements, in at least 18-point bold face type:

WARNING: This loan is not intended to meet long-term financial needs. This loan should be used only to meet short-term cash needs. The cost of this loan may be higher than loans offered by other lending institutions.

CREDIT COUNSELING AVAILABILITY: You should consider contacting an independent, non-profit credit counseling agency approved by the National Foundation for Credit Counseling (NFCC) or by a state or federal government agency. You may obtain information on how to contact an approved counselor near you by calling NFCC at 1–800–388–2227.

NO CRIMINAL PROSECUTION OR SECURITY INTEREST: No criminal prosecution may be commenced against you as a result of your non-payment of this loan, and the creditor may not take or attempt to take an interest in any of your personal property to secure this loan.

NO-COST EXTENDED REPAYMENT PLAN:

If you are unable to repay your loan when due, you may elect once every 12 months to repay your loan to the creditor by using an extended repayment plan that will allow you to repay your loan in at least 4 substantially equal installments as described further below without being charged any additional interest and fees, to the extent that you repay the loan as agreed under the repayment plan.

To obtain an extended repayment plan, you must advise the creditor prior to close of business on the last business day before the original due date of the loan that you wish to enter into an extended repayment plan by returning to the office where you obtained the loan or by using whatever other method you used to obtain the loan, such as by Internet, telephone or fax, and you must promptly sign an amendment to your loan agreement reflecting the new payment schedule.

The 12-month period during which you may elect to use an extended repayment plan is measured from the date that you fully pay off all amounts due under 1 extended repayment plan until the date that you enter into another extended repayment plan.

The creditor must allow you to repay your loan balance in at least 4 substantially equal installment payments. These installments must be due on or after a date on which you receive regular income except that there shall be at least 13 days between installments, and the first installment under the plan shall not be due before your next pay date that is at least 13 days after you have signed the repayment plan amendment.

If you enter into an extended repayment plan and then default by failing to meet your payment obligations, the creditor may charge you a reasonable payment plan fee and may accelerate payment of the balance remaining.

You may prepay the amount due under the extended repayment plan at any time without charge or penalty.

(D)Any other disclosures required by Federal law. (2)

Additional public disclosures

No creditor shall make a payday loan to any consumer unless the following notices are posted conspicuously and in not less than 1-inch bold print in the creditor’s public lending area in each physical location, or, if the loan is made using the Internet, fax or other means, posted conspicuously on the creditor’s public Internet site relating to any such payday loan:

Warning: This loan is not intended to meet long-term financial needs. This loan should be used only to meet short-term cash needs. The cost of your loan may be higher than loans offered by other lending institutions.

Credit Counseling Availability: You should consider contacting an independent, non-profit credit counseling agency approved by the National Foundation for Credit Counseling (NFCC) or by a state or federal government agency. You may obtain information on how to contact an approved counselor near you by calling the NFCC at 1–800–388–2227.

No Criminal Prosecution Or Security Interest: No criminal prosecution may be commenced against you as a result of your non-payment of this loan, and we may not take or attempt to take an interest in any of your personal property to secure this loan.

Interest-Free Extended Repayment Plan: If you are unable to repay your loan as agreed, we are required by federal law to allow you to enter into an extended repayment plan, at least once every 12 months, that will allow you to repay the loan in at least 4 substantially equal installments without being charged any additional interest or fees as long as you notify us of your desire to enter into such a plan prior to close of business on the last business day before the original due date of the loan.

(3)

Mandatory extended repayment plan

No creditor may make a payday loan to any consumer unless the creditor offers the consumer an extended repayment plan that meets the following requirements: (A)The extended repayment plan is offered at least once in any 12-month period, if the consumer advises the creditor prior to the close of business on the last business day before the original due date of the loan that the consumer is unable to repay the loan as agreed and wants to enter into an extended repayment plan. (B)To qualify for such an extended repayment plan, the consumer may be required to return to the office where the consumer obtained the loan or use whatever method (e.g., Internet, telephone or facsimile) the consumer used to obtain the loan, and the consumer shall promptly sign an amendment to the loan agreement reflecting the new repayment schedule. For creditors operating over the Internet, the creditor also must obtain authorization to originate recurring debits to the consumer’s account in accordance with the new repayment schedule and in compliance with the authorization requirements for preauthorized transfers set forth under the Electronic Funds Transfer Act and Regulation E of the Board. (C)The creditor shall allow the consumer to repay the consumer’s loan balance in at least 4 substantially equal installments generally due coinciding with the consumer’s periodic pay dates, but there shall be at least 13 days between installments, and the first installment under the plan shall not be due before the consumer’s next pay date that is at least 13 days after the repayment plan amendment is signed by the consumer. (D)The creditor may extend the length of time between installments. (E)The creditor may, with each payment under the plan by a consumer, provide for the return of the consumer’s prior held payment instrument and require a new payment instrument for the remaining balance under the plan. Alternatively, the creditor may require the consumer at the time the consumer enters into the extended payment plan to provide multiple payment instruments, 1 for each of the scheduled payments in the amount of those payments. For purposes of this subparagraph the term payment instrument does not include an automated clearinghouse debit. (F)The consumer may prepay the amount due under the extended repayment plan at any time without charge or penalty. (G)The consumer may not be charged additional interest and fees; however, if the consumer fails to meet such payment obligations, the creditor may charge a repayment plan fee and may accelerate repayment of the balance remaining. (4)

Additional protections for consumers

It shall be unlawful for a creditor to— (A)require a consumer to pay more than the following authorized charges, each of which a creditor may charge and collect in connection with a payday loan: (i)interest and fees of 20 cents for every dollar of the original loan principal amount; (ii)a loan administrative fee of 5 percent of the original loan principal amount; and (iii)a document preparation fee of $10; (B)in connection with a refinancing, require a consumer to pay more than interest and fees of 20 cents for every dollar of the refinanced amount, or to require a consumer to pay any loan administrative fee or document preparation fee; (C)threaten or seek to have the consumer prosecuted criminally to collect the loan; (D)take or attempt to take an interest in any of the consumer’s personal property to secure the loan; (E)file or initiate a legal proceeding of any kind, including a lawsuit or arbitration, against a consumer to collect on a loan that is the subject of an extended repayment plan, or construe the loan to be in default unless the consumer has failed to repay the loan as agreed under the terms of the repayment plan; (F)take any power of attorney; (G)include in the loan documents— (i)a confession of judgment clause; (ii)a waiver of the right to a jury trial, if applicable, in any action brought by or against a consumer, unless the waiver is included in an arbitration clause allowed by subparagraph (iii) of this paragraph; and (iii)a mandatory arbitration clause that is oppressive, unfair, unconscionable, or substantially in derogation of the rights of consumers; (H)make a payday loan to a consumer who has an outstanding loan obligation to the creditor under an extended repayment plan, or for at least 13 days until after the outstanding loan obligation to the creditor under any such repayment plan is paid in full; (I)make a payday loan with a term of less than 7 days; (J)knowingly accept payment in whole or in part for any obligation under an extended repayment plan based on funds obtained from another payday loan; (K)enter into any agreement with a consumer pursuant to which the consumer seeks or purports to waive the consumer’s rights under this section or any claim or defense arising out of the loan contract; (L)charge or attempt to collect attorney’s fees, court costs, or arbitration costs incurred in connection with the collection of a payday loan, in excess of 20 percent of the loan balance; (M)refinance a payday loan more than 4 consecutive times; (N)make more than 1 payday loan at the same time to a consumer; (O)fail to give the consumer, after each payment by the consumer, a signed, dated, receipt showing the amount paid and the balance due on the loan; and (P)sell any insurance of any kind in connection with the making or collecting of a payday loan. (c)

Rescission

A consumer may cancel future payment obligations on a payday loan, without cost or finance charges, by informing the creditor in writing that the consumer wants to rescind the loan and by returning the cash amount of the principal of the loan to the creditor no later than the end of the business day following the day on which the payday loan agreement was executed. (d)

Penalties; defense; civil liability

(1)

Civil money penalty

Notwithstanding the provisions of section 130(a), any person that violates this section, or seeks to enforce an agreement made in violation of this section, shall be subject to, for each such violation, a civil money penalty not to exceed $5,000. (2)

Penalties not exclusive of other penalties

The remedies and rights provided under this section are in addition to and do not preclude any remedy otherwise available under applicable law to the person claiming relief under any such provision of law, other than section 130(a). (3)

Availability as defense

Notwithstanding any statute of limitations or repose, a violation of this section may be raised as a matter of defense by recoupment or setoff to an action to collect any payday loan. (4)

Civil liability

In determining the amount of the award in any class action, no minimum recovery as to each member of the class shall be applicable, and the total recovery in any class action or series of class actions arising out of the same failure to comply with the requirements of this section by the same creditor shall not be more than the lesser of $500,000 or 1 percent of the net worth of the creditor. (e)

Inflation Adjustments

The dollar amounts specified in subsections (a), (b), and (c) shall be adjusted annually on January 1 by the annual percentage change in the Consumer Price Index, as reported on June of the year preceding such adjustment, but in no event may such dollars amounts be adjusted below the amounts stated in such subsections, as enacted. (f)

Regulations

The Board of Governors of the Federal Reserve System shall prescribe regulations to the extent necessary to implement this section. (g)

Effect on state laws

No provision of this section may be construed as preventing a State from regulating a payday loan, except that any State regulation shall not significantly interfere with the ability of a payday lender to offer a payday loan that meets the consumer protection standards in this section.