[Federal Register Volume 81, Number 141 (Friday, July 22, 2016)]
[Notices]
[Pages 47781-47789]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13492]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

[Docket No. CFPB-2016-0026]
RIN 3170-AA40


Request for Information on Payday Loans, Vehicle Title Loans, 
Installment Loans, and Open-End Lines of Credit

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Request for information.

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SUMMARY: Congress established the Bureau of Consumer Financial 
Protection (Bureau or CFPB) in the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 (Dodd-Frank Act). As set forth in 
section 1021 of the Dodd-Frank Act, the Bureau's purpose is to 
implement and, where applicable, enforce Federal consumer financial law 
consistently for the purpose of ensuring that all consumers have access 
to markets for consumer financial products and services and that 
markets for consumer financial products and services are fair, 
transparent, and competitive. In discharging this obligation, the CFPB 
seeks feedback on practices and products that are related to but may 
not be addressed in the Bureau's concurrently published Notice of 
Proposed Rulemaking on Payday, Vehicle Title, and Certain High-Cost 
Installment Loans (Concurrent Proposal). Specifically, in this Request 
for Information (RFI), the Bureau seeks comment on: Potential consumer 
protection concerns with loans that fall outside the scope of the 
Bureau's Concurrent Proposal but are designed to serve similar 
populations and needs as those loans covered by the proposal; and 
business practices concerning loans falling within the Bureau's 
Concurrent Proposal's coverage that raise potential consumer protection 
concerns that are not addressed by the Concurrent Proposal. The Bureau 
seeks comment from the public about these consumer lending practices to 
increase the Bureau's understanding of and support for potential future 
efforts, including but not limited to future rulemakings, supervision, 
enforcement, or consumer education initiatives. Where the Bureau 
requests evidence, data, or other information regarding a particularly 
concern about consumer protections, the Bureau does not seek 
information that directly identifies an individual consumer.

DATES: Comments must be received on or before October 14, 2016.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2016-
0026 or RIN 3170-AA40, by any of the following methods:
     Email: [email protected]. Include Docket 
No. CFPB-2016-0026 or RIN 3170-AA40 in the subject line of the email.
     Electronic: http://www.regulations.gov. Follow the 
instructions for submitting comments.
     Mail: Monica Jackson, Office of the Executive Secretary, 
Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 
20552.
     Hand Delivery/Courier: Monica Jackson, Office of the 
Executive Secretary, Consumer Financial Protection Bureau, 1275 First 
Street NE., Washington, DC 20002.
    Instructions: 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 http://www.regulations.gov. In addition, 
comments will be available for public inspection and copying at 1275 
First Street NE., Washington, DC 20002, 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. 
Sensitive personal information, such as account numbers or Social 
Security numbers, should not be included. Comments will not be edited 
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: For general inquiries, submission 
process questions, or any additional information, please contact Monica 
Jackson, Office of the Executive Secretary, at 202-435-7275.

    Authority:  12 U.S.C. 5511(c).

SUPPLEMENTARY INFORMATION: Pursuant to the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (Dodd-Frank Act) that established 
the Bureau, part of the Bureau's mission is to empower consumers to 
take control over their economic lives. Section 1021(c)(3) of the Dodd-
Frank Act provides that one of the primary functions of the Bureau is 
collecting, researching, monitoring, and publishing information 
relevant to the function of markets for consumer financial products and 
services.\1\ Specifically section 1022(c)(1) directs the Bureau to 
monitor for risks to consumers in the offering or provision of consumer 
financial products or services in order to support its rulemaking and 
other functions.\2\ Moreover, the Bureau is charged with using its 
rulemaking, supervision, and enforcement authorities under Federal 
consumer financial law to prevent unfair, deceptive, or abusive acts or 
practices in the consumer financial services markets.\3\ In discharging 
these obligations, the Bureau has studied certain types of loans made 
to consumers facing liquidity shortfalls, including payday loans, 
vehicle title loans, and certain types of installment loans. The Bureau 
also has conducted supervisory examinations of payday lenders and 
pursued public law enforcement actions against creditors making payday 
loans, vehicle title loans, and similar forms of credit.
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    \1\ 12 U.S.C. 5511(c)(3).
    \2\ 12 U.S.C. 5512(c)(1).
    \3\ 12 U.S.C. 5511(b)(2).
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    The Bureau is concerned that lenders that make these loans have 
developed business models that deviate substantially from the practices 
in other credit markets by failing to assess consumers' ability to 
repay their loans and by engaging in harmful practices in the course of 
seeking to withdraw payments from consumers' accounts. The Bureau 
believes that there may be a high likelihood of consumer harm in 
connection with these covered loans because many consumers struggle to 
repay their loans. In particular, many consumers who take out covered 
loans appear to lack the ability to repay them and face one of three 
options when an unaffordable loan payment is due: Take out additional 
covered loans, default on the covered loan, or make the payment on the 
covered loan and fail to meet other major financial obligations or 
basic living expenses. Many lenders may seek to obtain repayment of 
covered loans directly from consumers' accounts. The Bureau is 
concerned that consumers may be subject to multiple fees and other 
harms when lenders make repeated unsuccessful attempts to withdraw 
funds from consumers' accounts.
    The Concurrent Proposal generally would cover two categories of 
loans. First, the proposal generally would cover loans with a term of 
45 days or less or loans with multiple advances if each advance is 
required to be repaid within 45 days. Second, the proposal

[[Page 47782]]

generally would cover loans with a term greater than 45 days, provided 
that they (1) have an all-in annual percentage rate greater than 36 
percent; and (2) either are repaid directly from the consumer's account 
or income or are secured by the consumer's vehicle. For both categories 
of covered loans, the proposal would identify it as an abusive and 
unfair practice for a lender to make a covered loan without reasonably 
determining that the consumer has the ability to repay the loan. The 
proposal generally would require that, before making a covered loan, a 
lender must reasonably determine that the consumer has the ability to 
repay the loan. The proposal also would impose certain restrictions on 
making covered loans when a consumer has or recently had certain 
outstanding covered loans. The proposal would provide lenders with 
options to make covered loans without satisfying the ability-to-repay 
requirements, if those loans meet certain conditions. The proposal also 
would identify it as an unfair and abusive practice to attempt to 
withdraw payment from a consumer's account for a covered loan after two 
consecutive payment attempts have failed. The proposal would require 
lenders to provide certain notices to the consumer before attempting to 
withdraw payment for a covered loan from the consumer's account. The 
Bureau's Concurrent Proposal appears in a separate Federal Register 
notice concurrently published with this RFI. The Bureau is seeking 
comment on that proposal in the rulemaking docket, which is separate 
from the docket for this RFI.
    The Bureau is also engaged in pre-rulemaking activity concerning 
debt collection practices generally and on checking account overdraft 
services, which some consumers may use in lieu of small-dollar loans. 
Those practices are not the focus of this RFI. Finally, the Bureau has 
also proposed to regulate certain credit products offered in 
conjunction with prepaid accounts, which is also not the focus of this 
RFI.
    The Bureau is aware that the Concurrent Proposal may not address 
all potential concerns in these markets. Most particularly, while the 
Bureau has chosen to issue a proposed rule on payday loans and similar 
forms of credit for public comment, the Bureau is aware that the 
Concurrent Proposal does not cover all loans made to consumers facing 
liquidity shortfalls. Such loans may include other high-cost products, 
where the risks to consumers from making unaffordable payments may be 
similar to the types of harms detailed in the Concurrent Proposal. The 
Bureau is specifically seeking to learn more about the scope, use, 
underwriting, and impact of such products for purposes of determining 
what types of Bureau action may be appropriate. To protect consumers 
from unfair, deceptive, or abusive acts or practices, the Bureau is 
expressly empowered to use all of its authorities, not just rulemaking. 
Therefore, in this RFI the Bureau is seeking information about certain 
consumer lending practices to increase the Bureau's understanding of 
whether there is a need and basis for potential future efforts, 
including but not limited to future rulemakings, supervisory 
examinations, or enforcement investigations.
    Similarly, the Bureau is aware that the Concurrent Proposal may not 
address all potentially harmful practices with regard to products that 
would be covered by the Concurrent Proposal. Specifically, the proposal 
focuses on lenders' practices with regard to underwriting and attempts 
to withdraw loan payments from consumers' bank accounts. The Bureau is 
thus seeking information on other potentially problematic lender 
practices and consumer protection concerns regarding products that 
would be covered by the proposal, in order to determine whether 
additional Bureau actions are warranted.
    Accordingly, the Bureau is interested in learning more about 
potential consumer protection concerns that may not be addressed by the 
Bureau's Concurrent Proposal. The Bureau encourages comments from the 
public, including:
     Borrowers and their families;
     Lenders and their investors or employees;
     Debt collectors, payment processors, and other service 
providers;
     Financial counselors and social workers;
     Pastors, priests, nuns, rabbis, imams, and other clergy or 
faith leaders;
     Accountants;
     Journalists;
     Consumer advocates;
     Banks, thrifts, and credit unions;
     State, local, and tribal governments;
     Academics including but not limited to psychologists, 
economists, sociologists, geographers, and historians; as well as
     Any other interested parties.

I. Background

    Throughout American history, the Federal government and the States 
have taken varied approaches to regulating payday and similar forms of 
credit. Early on, the 13 original American States adopted interest rate 
limits of between 5 percent and 12 percent per annum in the early years 
of the Republic.\4\ Later entrants into the Union typically followed 
this pattern and most of these ``general usury limits'' remained in 
force throughout the United States during the 19th Century. Later, 
Congress passed legislation intended to provide protection to consumers 
in the Wheeler-Lea Act of 1938.\5\ The Wheeler-Lea Act amended the 
Federal Trade Commission (FTC) Act of 1914 to provide the FTC with the 
authority to pursue unfair or deceptive acts or practices in commerce 
to protect consumers against oppression that might not amount to common 
law or criminal fraud.\6\
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    \4\ These State price limits were based on English statutes. 
Ransom H. Tyler, A Treatise on the Law of Usury, Pawns or Pledges 
and Maritime Loans, at 49-55 (1891). American usury law drew upon an 
older legal tradition. For example, historians report that the Roman 
Empire capped interest rates at 12 percent per annum. And, the Code 
of Hammurabi (c. 1750 BCE) includes an interest rate limit of 33.3 
percent for loans payable in grain and a limit of 20 percent on 
loans payable in silver. Sydney Homer & Richard Sylla, A History of 
Interest Rates, at 30, 49 (3d. ed. 1996).
    \5\ Wheeler-Lea Act of 1938, Public Law 75-447, 52 Stat. 111 
(1938).
    \6\ Richard A. Posner, The Federal Trade Commission: A 
Retrospective, 72 Antitrust L.J. 761, 765 (2005).
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    In the 1960s, Congress began passing a wave of consumer protection 
laws focused on financial products, beginning with the Consumer Credit 
Protection Act (CCPA) in 1968.\7\ The CCPA included the Truth in 
Lending Act (TILA), which imposed disclosure and other requirements on 
creditors.\8\ Congress followed the enactment of TILA with several 
other consumer financial protection laws. For example, in 1970, 
Congress passed the Fair Credit Reporting Act (FCRA), which promotes 
the accuracy, fairness, and privacy of consumer information contained 
in the files of consumer reporting agencies, as well as providing 
consumers access to their own information.\9\ In 1974, Congress passed 
the Equal Credit Opportunity Act (ECOA) to prohibit creditors from 
discriminating against applicants with respect to credit 
transactions.\10\ In 1977, Congress passed the Fair Debt Collection 
Practices Act (FDCPA) to promote the fair treatment of consumers who 
are subject to debt collection activities.\11\ Congress has

[[Page 47783]]

placed limitations on the rates Federal credit unions may impose, 
generally 15 percent with certain allowance for the NCUA to make 
adjustments.\12\ Congress has established a usury limit for loans to 
servicemembers. In 2006 Congress established an all-in interest rate 
limit of 36 percent annual percentage rate (APR) on consumer credit 
extended to military servicemembers and their dependents and charged 
the Bureau with enforcing this limit in 2013.\13\
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    \7\ Consumer Credit Protection Act, Public Law 90-321, 82 Stat. 
146 (1968).
    \8\ 15 U.S.C. 1601
    \9\ 15 U.S.C. 1681.
    \10\ 15 U.S.C. 1691.
    \11\ 15 U.S.C. 1692. Other such Federal consumer protection laws 
include those enumerated in the Dodd-Frank Act and made subject to 
the Bureau's rulemaking, supervision, and enforcement authority: 
Alternative Mortgage Transaction Parity Act of 1982, 12 U.S.C. 3801; 
Consumer Leasing Act of 1976, 15 U.S.C. 1667; Electronic Fund 
Transfer Act (EFTA), 15 U.S.C. 1693 (except with respect to Sec.  
920 of that Act); Fair Credit Billing Act, 15 U.S.C. 1666; Home 
Mortgage Disclosure Act of 1975, 12 U.S.C. 2801; Home Owners 
Protection Act of 1998, 12 U.S.C. 4901; Federal Deposit Insurance 
Act, 12 U.S.C. 1831t (b)-(f); Gramm-Leach-Bliley Act 15 U.S.C. 6802-
09 (except with respect to Sec.  505 as it applies to Sec.  501(b) 
of that Act); Interstate Land Sales Full Disclosure Act, 15 U.S.C. 
1701; section 626 of the Omnibus Appropriations Act, 2009, 12 U.S.C. 
5338; Real Estate Settlement Procedures Act of 1974 (RESPA), 12 
U.S.C. 2601; S.A.F.E. Mortgage Licensing Act of 2008, 12 U.S.C. 
5101. Federal consumer protection law also includes the Bureau's 
authority to take action to prevent a covered person or service 
provider from committing or engaging in an unfair, deceptive, and 
abusive acts or practices, Dodd-Frank section 1031, and its 
disclosure authority, Dodd-Frank section 1032.
    \12\ 12 U.S.C. 1757(5)(A)(vi).
    \13\ 10 U.S.C. 987(b), (f)(6). Moreover, Congress has also 
established criminal laws enforced by the Department of Justice that 
address some forms of payday and similar credit. First, Congress 
established a threshold of 45 percent per annum as a limitation in 
determining whether the government is entitled to a presumption that 
a debtor believed a creditor used extortionate collection methods in 
criminal loansharking prosecutions under the Consumer Credit 
Protection Act. 18 U.S.C. 892(b)(2). And second, the Racketeer 
Influenced and Corrupt Organizations Act established a federal crime 
for collecting an unenforceable debt with a price in excess of twice 
an applicable federal or state usury limit. 18 U.S.C. 1961(6)(B), 
1962(c), 1963. See, e.g., U.S. v. Scott Tucker and Timothy Muir, 
Sealed Indictment, No. 16 Crim 091 (S.D.N.Y. 2016); Press Release, 
Department of Justice, U.S. Attorney's Office, Southern District of 
New York, Manhattan U.S. Attorney Announces Charges Against owner 
of, and Attorney For, $2 Billion Unlawful Internet Payday Lending 
Enterprise (February 10, 2016), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-charges-against-owner-and-attorney-2-billion-unlawful.
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    In addition, in the early 20th Century many States began to adopt 
small loan laws that allowed licensed lenders to make small consumer 
loans at interest rates of between 2 and 4 percent per month, or 24 to 
48 percent per year \14\ A variety of ``special'' usury limits along 
these lines proliferated in most States throughout the 20th Century. By 
1965, all States limited interest rates on small loans, with an annual 
rate of 36 percent per annum being the most common ceiling.\15\
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    \14\ Elizabeth Anderson, Experts, Ideas, and Policy Change: The 
Russell Sage Foundation and Small Loan Reform, 1910-1940 (March 8, 
2006), 16. See also David J. Gallert, Walter Stern, and Geoffrey 
May, Small Loan Legislation: A History of the Regulation of the 
Business of Lending Small Sums, at 89 (1932).
    \15\ Christopher L. Peterson, Usury Law, Payday Loans, and 
Statutory Sleight of Hand: Salience Distortion in American Credit 
Pricing Limits, 92 Minn. L. Rev. 1110, 1138-1142 (2008).
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    In the 1960s, States began passing their own consumer protection 
statutes modeled on the FTC Act to prohibit unfair and deceptive 
practices. The FTC encouraged the adoption of consumer protection 
statutes at the State level and worked directly with the Council of 
State Governments to draft model legislation that influenced many state 
consumer protection statutes.\16\ Currently, ``[e]very state has a 
consumer protection law that prohibits deceptive practices, and many 
prohibit unfair or unconscionable practices as well.'' \17\ At the same 
time that States have become more active in providing substantive 
consumer protection, there has been some movement away from State 
regulation of interest rates. In States with usury limits, a majority 
of State legislatures have created carve outs for payday loans, 
permitting licensed businesses to make payday loans with average 
effective interest rates of over 300 percent per annum.\18\
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    \16\ Dee Pridgen and Richard M. Alderman, Consumer Protection 
and the Law Sec.  2:10 (2015).
    \17\ See Carolyn L. Carter, Nat'l Consumer L. Ctr., Consumer 
Protection in the States, at 5 (2009), available at https://www.nclc.org/images/pdf/udap/report_50_states.pdf.
    \18\ As discussed in further detail within the Concurrent 
Proposal, there are now 36 States that either have created a carve-
out from their general usury cap for payday loans or have no usury 
caps on consumer loans. The remaining 14 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.
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    As discussed in greater detail in the Concurrent Proposal, some 
states and municipalities have set other limits on payday and similar 
lending. For example, Washington and Delaware have restricted repeat 
borrowing by imposing limits on the number of payday loans consumers 
may obtain. Through 2010 amendments to its payday loan law, Colorado no 
longer permits short-term single-payment payday loans. Instead, in 
order to charge fees in excess of the 36 percent APR cap for most other 
consumer loans, the minimum loan term must be six months.\19\ The 
maximum payday loan amount remains capped at $500, and lenders are 
permitted to take a series of post-dated checks or payment 
authorizations to cover each payment under the loan, providing lenders 
with the same access to borrowers' accounts as a single-payment payday 
loan. At least 35 Texas municipalities have adopted local ordinances 
setting business regulations on payday lending (and vehicle title 
lending).\20\
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    \19\ Colo. Rev. Stat. sec. 5-3.1-103. Although loans may be 
structured in multiple installments of substantially equal payments 
or a single installment, almost all lenders contract for repayment 
in monthly or bi-weekly installments. 4 Colo. Code Regs. sec. 902-1, 
Rule 17(B)1, available at http://www.sos.state.co.us/CCR/GenerateRulePdf.do?ruleVersionId=3842; Adm'r of the Colo. Unif. 
Consumer Credit Code, Colorado Payday Lending--Demographic and 
Statistical Information July 2000 Through December 2012, at 15-16 
(2014), available at http://www.coloradoattorneygeneral.gov/sites/default/files/contentuploads/cp/ConsumerCreditUnit/UCCC/AnnualReportComposites/DemoStatsInfo/ddlasummary2000-2012.pdf.
    \20\ A description of the municipalities is available at Texas 
Municipal League. An additional 15 Texas municipalities have adopted 
land use ordinances on payday or vehicle title lending. City 
Regulation of Payday and Auto Title Lenders, Texas Mun. League, 
http://www.tml.org/payday-updates (last visited May 6, 2016).
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    In the wake of the financial crisis, Congress adopted the Dodd-
Frank Act. Title X of the Dodd-Frank Act established the Consumer 
Financial Protection Bureau to regulate the offering and provision of 
consumer financial products and services under the Federal consumer 
financial laws.\21\ The Dodd-Frank Act defines Federal consumer 
financial law to include certain enumerated federal consumer laws, 
including the TILA, FCRA, FDCPA, EFTA as well as Title X of the Dodd-
Frank Act itself. Congress provided the Bureau with a range of 
enforcement and regulatory tools to fulfill its mission. For example, 
the Bureau has both supervisory and enforcement authority over all 
banks, savings associations, and credit unions with over 10 billion 
dollars in assets, as well as over a variety of nondepository financial 
companies including payday lenders.\22\ Congress also provided the 
Bureau with a range of rulemaking authorities. Section 1022(b) of the 
Dodd-Frank Act provides that the Bureau's Director may prescribe rules 
and issue orders and guidance, 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, and to prevent 
evasion thereof.\23\ Section 1031(b) of the Dodd-Frank Act also 
provides the Bureau with authority to prescribe rules to identify 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.\24\ Rules issued identifying as unlawful

[[Page 47784]]

unfair, deceptive, or abusive acts or practices may include 
requirements for the purpose of preventing such acts or practices.\25\ 
The Bureau also has the authority to prescribe rules to ensure that the 
features of any consumer financial product or service are fully, 
accurately, and effectively disclosed to consumers.\26\ Finally, the 
Bureau is also charged with conducting financial education programs to 
assist consumers in making responsible decisions about financial 
transactions.\27\
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    \21\ 12 U.S.C. 5491(a).
    \22\ 12 U.S.C. 5514(a), 5515, 5516(a)
    \23\ 12. U.S.C. 5512(b)(1).
    \24\ 12 U.S.C. 5531(b).
    \25\ 12 U.S.C. 5531(b).
    \26\ 12 U.S.C. 5532(a).
    \27\ 12 U.S.C. 5511(b)(1), (c)(1).
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    In addition to establishing the Bureau, Title X of the Dodd-Frank 
Act also prohibits any unfair, deceptive or abusive act or practice in 
connection with any transaction with a consumer for a consumer 
financial product or service or the offering of such product or 
service.\28\ The Bureau is charged with conducting examinations of 
institutions within its jurisdiction for the purpose, among others, of 
assessing compliance with the requirements of Federal consumer 
financial laws; \29\ this includes assessing compliance with the 
prohibition on unfair, deceptive and abusive acts and practices. The 
Bureau is likewise charged with conducting investigations ``for the 
purpose of ascertaining whether any person is or has been engaged in 
any conduct that is a . . . violation of any provision of Federal 
consumer finance law,'' again including the prohibition on unfair, 
deceptive, or abusive acts or practices in consumer finance markets. 
Congress specifically provided that ``No provision of [Title X] shall 
be construed as conferring authority on the Bureau to establish a usury 
limit applicable to an extension of credit offered or made by a covered 
person to a consumer, unless explicitly authorized by law.'' \30\
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    \28\ 12 U.S.C. 5536(a)(1)(B) (``It shall be unlawful'' for any 
covered person or service provider ``to engage in any unfair, 
deceptive, or abusive act or practice.'').
    \29\ 12 U.S.C. 5515(b)(1)(A).
    \30\ 12 U.S.C. 5517(o). As discussed in greater detail in the 
Concurrent Proposal, the Bureau believes the prohibition in this 
section is reasonably interpreted not to prohibit differential 
regulation such as certain requirements contained in the Bureau's 
Concurrent Proposal.
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    The Bureau is aware that the Concurrent Proposal may not address 
all potential concerns relating to loans made to consumers facing 
liquidity shortfalls. Most particularly, while the Bureau has chosen to 
issue a proposed rule on payday, vehicle title, and certain high-cost 
installment loans, the Bureau is aware that the Concurrent Proposal 
does not cover all loans made to consumers facing liquidity shortfalls. 
Such loans may include other high-cost products, where the risks to 
consumers from making unaffordable payments may be similar to the types 
of harms detailed in the Concurrent Proposal. The Bureau is 
specifically seeking to learn more about the scope, use, underwriting, 
and impact of such products for purposes of determining what types of 
Bureau action may be appropriate. To protect consumers from unfair, 
deceptive, or abusive acts or practices, the Bureau is expressly 
empowered to use all of its authorities, not just rulemaking. 
Therefore, in this RFI the Bureau is seeking information about certain 
consumer lending practices to increase the Bureau's understanding of 
whether there is a need and basis for potential future efforts, 
including but not limited to future rulemakings, supervisory 
examinations, or enforcement investigations.
    Similarly, the Bureau is aware that the Concurrent Proposal may not 
address all potentially harmful practices with regard to products that 
would be covered by the Concurrent Proposal. Specifically, the proposal 
focuses on lenders' practices with regard to underwriting and attempts 
to withdraw loan payments from consumers' bank accounts. The Bureau is 
thus seeking information on other potentially problematic lender 
practices and consumer protections concerns regarding products that 
would be covered by the proposal, in order to determine whether 
additional Bureau actions are warranted.
    Accordingly, the Bureau is interested in learning more about 
potential consumer protection concerns that may not be addressed by the 
Bureau's Concurrent Proposal.

II. Potential Consumer Protection Concerns With High-Cost Installment 
Loans and Open-End Lines of Credit Not Covered Within the Bureau's 
Concurrent Proposal

    As detailed in the Concurrent Proposal, the Bureau believes that 
there may be a high likelihood of consumer harm in connection with 
loans that would be covered by the Concurrent Proposal. As noted above, 
the Concurrent Proposal generally would cover loans with a term of 45 
days or less or loans with multiple advances if each advance is 
required to be repaid within 45 days. Second, the Concurrent Proposal 
generally would cover loans with a term greater than 45 days, provided 
that they (1) have an all-in annual percentage rate greater than 36 
percent; and (2) either are repaid directly from the consumer's account 
or income (i.e., have a ``leveraged payment mechanism'' \31\) or are 
secured by the consumer's vehicle.
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    \31\ In the Concurrent Proposal, the Bureau refers to methods by 
which the lender can obtain payment directly ``leveraged payment 
mechanisms.'' As provided in proposed Sec.  1041.3(c), in general, a 
lender or service provider would obtain a leveraged payment 
mechanism if it has the right to initiate a transfer of money, 
through any means, from a consumer's account to satisfy an 
obligation on a loan, except that the lender or service provider 
does not obtain a leverage payment mechanism by initiating a one-
time electronic fund transfer immediately after the consumer 
authorizes the transfer, has the contractual right to obtain payment 
directly from the consumer's employer or other source of income, or 
requires the consumer to repay the loan through a payroll deduction 
or deduction from another source of income.
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    Thus, the Bureau's Concurrent Proposal would not cover either 
closed-end installment loans or open-end lines of credit with durations 
longer than 45 days with no vehicle title or leveraged payment 
mechanisms, regardless of the total cost of credit. The Bureau's 
Concurrent Proposal also would not cover loans that fall within the 
proposed exceptions, including non-recourse pawn loans, certain money 
purchase loans, real-estate secured credit, student loans, and credit 
card loans. In this RFI, the Bureau refers to loans that fall outside 
the scope of the proposal as ``non-covered products.''
    The Bureau believes that most loans made to consumers facing 
liquidity shortfalls would fall within the scope of the proposal. As 
discussed further in the Concurrent Proposal, these consumers tend to 
have low or non-existent credit scores and limited access to mainstream 
sources of credit. The loans that are made to them tend to be at a high 
interest rate and the Bureau believes that, with most of these loans, 
lenders generally obtain either a security interest in the borrower's 
vehicle or the ability to secure repayment directly from the consumer's 
deposit account or paycheck. On the other hand, the Bureau also has 
identified a limited number of lenders offering non-covered longer 
duration loans with high annual percentage rates that lack a vehicle 
security interest or leveraged payment mechanism and that may raise 
consumer protection concerns.\32\
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    \32\ For example, in New Mexico, Idaho, Utah, and Wisconsin The 
CashStore offers 140 day installment loans of $500 repayable in cash 
only with a 780 percent APR. Cash Store APR And Rate Card 
Information, Thecashstore.com, https://www.cashstore.com/apr-rate-card (last visited March 24, 2016). In Utah, Mountain Loan Centers, 
Inc. has offered seven month, 432 percent APR, ``signature'' loans 
of $800 with no post-dated check or account access. Mountain Loan 
Centers, Inc. v. Audra Crizer, Complaint, Fourth Judicial District 
Court, Utah (March 25, 2015). See also Mountain Loan Centers, Inc., 
Mountain Loan Centers Get $5000! EZ Approval!, YouTube (Nov. 7, 
2011), https://www.youtube.com/watch?v=PtipWKKOoAo (advertisement 
stating ``we don't hold a check and we don't even care if you have a 
bank account.''). And in Missouri Capital Solutions Investments, 
Inc. (d/b/a Loan Express Co.) has made five month loans of $100 with 
no account access and an interest rate of 199 percent APR. Hollins 
v. Capital Solutions Investments, Inc. 477 SW.3d 19, 21 (Mo. Ct. 
App. 2015); Defendant's Statement of Uncontroverted Material Facts 
Supporting Motion for Summary Judgment, Exhibit B-1, Case, Hollins 
v. Capital Solutions Investments, Inc., No. 11SL-CC04216 Div. 7, 
(Mo. Cir. Ct. St. Louis County, 21st Jud. Cir. Nov. 7, 2012).

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[[Page 47785]]

    The Bureau believes that some non-covered products may be different 
in significant ways from loans that would be covered under the 
Concurrent Proposal. For example, in bona fide pawn transactions, 
borrowers grant a possessory security interest in personal property in 
exchange for a non-recourse loan. Because these loans are non-recourse 
and because the consumer turns over physical possession of the 
collateral to the lender at the outset, the Bureau believes the 
consumer risks posed by these loans are somewhat different from the 
consumer risks posed by other high-cost products. In a bona fide pawn 
loan, the borrower has the option to either repay the loan or permit 
the pawnbroker to retain and sell the pledged collateral at the end of 
the loan term, relieving the borrower of any additional financial 
obligation, and the process of surrendering the item may reinforce to 
the consumer what the consequences will be if the consumer is later 
unable to repay the pawn loan.
    The Bureau is seeking additional information about forms of non-
covered credit offered to the types of consumers who use covered loans 
to deal with cash shortfalls, including the types and volume of 
installment and open-end credit products that would not be covered by 
the Concurrent Proposal and are offered in this market segment, their 
pricing structures, and lenders' practices with regard to marketing, 
underwriting, servicing and collections. For example, an installment 
loan or open-end line of credit without a leveraged payment mechanism 
or vehicle security interest would be beyond the scope of the Bureau's 
Concurrent Proposal even if the agreement calls for non-amortizing, 
interest-only payments and without regard to the cost. Such loans could 
raise substantial consumer protection concerns and might potentially be 
unfair, deceptive, or abusive depending on the circumstances, including 
instances where there are long-term financial hardships imposed by such 
loans or where consumers fail to understand the payment structure of 
the loans. Since such loans lack vehicle security or leveraged payment 
mechanisms, the Bureau is also particularly interested in any other 
mechanisms or practices that lenders may use with regard to such loans 
to mitigate the risk that consumers would be unable to repay their 
loans.
    Because Congress has charged the Bureau with protecting consumers 
from unfair, deceptive, or abusive credit practices, the Bureau is 
interested in learning more about the potential consumer protection 
concerns that may arise in high-cost loans that are not covered by the 
Bureau's Concurrent Proposal. The Bureau is also looking ahead to 
anticipate potential changes in the consumer lending market in response 
to both the Concurrent Proposal and other regulatory and economic 
developments. Accordingly, the Bureau seeks public feedback to better 
understand the prevalence of problematic business practices in this 
market.
    While the Bureau invites all comments relevant to this general 
topic, the Bureau specifically invites commenters to address the 
following questions. With respect to these non-covered, high-cost, 
longer-duration installment loans and open-end lines of credit that 
lack vehicle security or leveraged payment features:
    1. Is there a viable business model in extending high-cost, non-
covered loans for terms longer than 45 days without regard to the 
borrower's ability to repay the loan as scheduled? If so, what are the 
essential characteristics of this business model or models and what 
consumer protection concerns, if any, are associated with such 
practices? For example:
    a. Are there non-covered loan products with particular payment 
structures that make it viable for a lender to extend loans without 
regard to the consumer's ability to repay?
    b. Are there non-covered loan products with security or possessory 
interests in products or documents other than the consumer's vehicle 
(and without leveraged access to the consumer's transaction account) 
that make it viable for a lender to extend loans without regard to the 
consumer's ability to repay?
    c. Are there particular collection practices that make it viable 
for lenders to make high-cost, non-covered loans without regard to the 
consumer's ability to repay?
    d. Are there other loan features or practices that make it viable 
for lenders to extend loans without regard to the consumer's ability to 
repay?
    e. To the extent there are loans made in categories a through d, 
how prevalent are such practices? How easy is it for consumers to find 
and obtain such products? To what extent are these loans leading to 
injury to consumers? To what extent are consumers aware of the costs 
and risks of such loans?
    f. Are there changes in technology or the market that make such 
practices more likely to develop or spread in the future?
    2. To the extent that certain business models enable lenders to 
extend non-covered loans to consumers facing liquidity shortfalls 
without regard to the consumer's ability to repay, what factors might 
limit or encourage growth of these business models going forward?
    a. What are the State and Federal regulations that affect their 
viability and growth?
    b. What effect, if any, would the Bureau's Concurrent Proposal, if 
finalized, have on their viability and growth?
    c. Are technology, investment, and other market factors affecting 
their viability and growth?
    d. What factors affect competition in these markets, particularly 
the emergence of new market players and development of new product 
alternatives?
    3. To what extent are consumers able to protect themselves in the 
selection or use of products identified in response to questions number 
1(a) through 1(d)? For example:
    a. What evidence, data, or other information exists with respect to 
the ability of consumers to shop effectively for products of the type 
described above and for alternative products that may better serve 
consumers' needs? Are there currently Web sites or other digital tools 
that facilitate effective price comparison among lenders offering 
products designed to serve the needs of liquidity-constrained 
borrowers, including comparison of prices, prior to surrendering 
personal information such as names, email addresses, and bank account 
numbers? Are consumers in search of a loan to meet a liquidity 
shortfall able to avail themselves of common internet search engines to 
effectively shop for loans to meet their needs?
    b. Are new business entrants in the market for high-cost, non-
covered loans able to offer loans at a lower cost than those offered by 
established lenders? What factors enhance or inhibit the ability of new 
market entrants to do so? Are new business entrants with lower pricing 
able to effectively raise customer awareness about the benefits of 
their products in comparison to established covered or non-covered 
loans?
    c. Are there cognitive, behavioral, or psychological limitations 
that make it

[[Page 47786]]

more difficult for consumers facing a liquidity crisis to shop 
effectively for a non-covered loan to meet their needs?
    d. Are there marketing practices or loan features that take 
advantage of these cognitive, behavioral, or psychological limitations?
    e. What evidence, data, or other information exists with respect to 
the existence and prevalence of any such limitations, marketing 
practices, or loan features?

III. Potential Consumer Harm from Garnishment Orders, Judgment Liens, 
or Other Forms of Enhanced Collection

    As discussed above, the Bureau's Concurrent Proposal would cover 
high-cost, longer-term loans that include a leveraged payment mechanism 
or a vehicle security interest and would generally require lenders 
making such loans to first reasonably determine whether the consumer 
has the ability to repay the loan.\33\ The Bureau anticipates that, if 
the Concurrent Proposal is finalized, even where lenders do 
successfully determine a consumer's ability to repay, some consumers 
will nonetheless end up defaulting on their loans if, for example, the 
consumer becomes disabled and is unable to work for a prolonged period 
of time.
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    \33\ Under the Concurrent Proposal a lender with a leveraged 
payment mechanism generally includes a lender that has the right to 
initiate a transfer of money from a consumer's transaction account 
to satisfy an obligation, to obtain payment directly from the 
consumer's employer or other source of income, or to require the 
consumer to repay the loan through a payroll deduction or deduction 
from another source of income.
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    The Bureau's Concurrent Proposal does not address the collection 
practices of lenders making covered loans. The Bureau anticipates that 
at a future date it will be issuing a proposal to regulate debt 
collection practices that will apply to the collection of covered and 
non-covered loans alike. But the Bureau is concerned that there may be 
certain practices that are more prevalent with respect to high-cost 
loans made to consumers facing cash shortfalls and that pose serious 
risks for such consumers. The Bureau is concerned that these practices 
could become more prevalent with covered or non-covered high-cost loans 
if the Bureau finalizes the Concurrent Proposal.
    In particular, the Bureau seeks information about possible 
alternatives to leveraged payment mechanisms and vehicle security 
interests that may exist currently or develop in response to the 
Bureau's Concurrent Proposal and market or technology changes. For 
example, the laws of some States allow creditors to sue borrowers over 
a debt, and subsequently obtain garnishment orders that permit lenders 
to seize borrowers' wages, bank account funds, or vehicles under some 
circumstances. The Federal CCPA and implementing regulations issued by 
the Department of Labor provide some protection for consumers by 
limiting the amount of wages that can be garnished during a pay 
period.\34\ Moreover, State and Federal due process guarantees as well 
as debtor asset exemption statutes also provide borrowers with some 
protection. However, the Bureau's market monitoring and research 
suggests that State laws vary widely in this regard and may place 
burdens on consumers that they may not be prepared to meet and that the 
consumer financial services market has seen substantial and potentially 
problematic innovation and change in recent years. For example, a 
recent case in the Missouri Court of Appeals highlights a lender 
practice of allowing interest and fees to accrue post-default--as 
discussed further in part V of this RFI--and then suing and obtaining a 
garnishment order for amounts that a concurring opinion found ``shocks 
the conscience'' such as the following seven consumers that 
``exemplif[ied] the situation of the class action members in this 
case'':
---------------------------------------------------------------------------

    \34\ Subject to certain exceptions, the Title III of the 
Consumer Credit Protection Act protects employees by limiting the 
amount of earnings that may be garnished in any workweek or pay 
period to the lesser of 25 percent of disposable earnings or the 
amount by which disposable earnings are greater than 30 times the 
federal minimum hourly wage prescribed by Section 6(a)(1) of the 
Fair Labor Standards Act of 1938. 15 U.S.C. 1673(a). This limit 
applies regardless of how many garnishment orders an employer 
receives. The Federal minimum wage is $7.25 per hour effective July 
24, 2009. Wages and Hours Worked: Wage Garnishment, Department of 
Labor, https://www.dol.gov/compliance/guide/garnish.htm (last 
visited May 24, 2016).
---------------------------------------------------------------------------

    Class member, D.W., took out a $100 loan from CSI. A judgment was 
entered against him for $705.18; the garnishment is still pending. So 
far, $3.174.81 has been collected, and a balance of $4.105.77 remains
    Class member, S.S., took out an $80 loan from CSI. A judgment was 
entered against her for $2.137.68; the garnishment is still pending. So 
far, $5.346.41 has been collected, and a balance of $19,643.48 remains.
    Class member, C.R., took out a $155 loan from CSI. A judgment was 
entered against her for $1.686.93; the garnishment is still pending. So 
far, $9.566.15 has been collected, and a balance of $2.162.07 remains.
    Class member, C.N., took out a $155 loan from CSI. A judgment was 
entered against him for $1.627.44. There is now a lien on C.N.'s 
property.
    Class member, S.L., took out a $360 loan from CSI. A judgment was 
entered against her for $1.305.17; the garnishment is still pending. So 
far, $6.021.80 has been collected, and a balance of $2.182.90 remains.
    Class member, F.H., took out a $100 loan from CSI. A judgment was 
entered against her for $380.82; the garnishment is still pending. So 
far, $3.935.54 has been collected, and a balance of $707.98 remains.
    Class member, B.D., took out a $200 loan from CSI. A judgment was 
entered against her for $853.05; the garnishment is still pending. So 
far, $4.692.31 has been collected, and a balance of $1.531.57 
remains.\35\
---------------------------------------------------------------------------

    \35\ Hollins v. Capital Sols. Investments, Inc., 477 SW.3d at 
27.
---------------------------------------------------------------------------

    The Bureau believes that business practices of this nature, which 
might be referred to as enhanced collections practices, may raise 
substantial consumer protection concerns. Therefore, the Bureau 
requests information about methods creditors may use in connection with 
loans covered under the Concurrent Proposal or with non-covered loans 
to seize wages, funds, vehicles or other forms of personal property 
from borrowers that face liquidity crisis and obtain loans outside 
mainstream credit systems.
    4. Are there practices in obtaining or using wage garnishment 
orders to collect covered or non-covered loans that raise consumer 
protection concerns? If so, what data, evidence, or other information 
tends to show these concerns exist or are likely to emerge in the 
future?
    5. Are there practices in obtaining or using attachment or 
garnishment orders to seize funds from deposit accounts, prepaid cards, 
or other consumer assets to collect covered or non-covered loans that 
raise consumer protection concerns? If so, what data, evidence, or 
other information tends to show these concerns exist or are likely to 
emerge in the future?
    6. Are there practices in obtaining or using judgment liens on 
vehicles or other consumer goods that raise consumer protection 
concerns? If so, what data, evidence, or other information tends to 
show these concerns exist or are likely to emerge in the future?
    7. With respect to each of these questions, what is the prevalence 
of these practices in the current market? And, can the Bureau 
reasonably anticipate that these practices would increase or decrease 
if the Bureau were to finalize a rule along the lines of the

[[Page 47787]]

Bureau's Concurrent Proposal? If so, why?
    8. Do particular Federal, State, or local laws affect consumer 
protection concerns associated with enhanced collection practices that 
would not be addressed by the Concurrent Proposal?

IV. Potential Consumer Harm From Loan Churning, Prepayment Penalties, 
and Slowly Amortizing Credit in Covered and Non-Covered High-Cost 
Credit

    The Bureau's research into high-cost installment loans indicates 
that a substantial percentage of consumers refinance their loans during 
the term of their loans. Under the Concurrent Proposal, where consumers 
reborrow because their loan payments have proven to be unaffordable, a 
presumption would apply that a new loan with similar payment terms 
would likewise be unaffordable. However, that presumption would not 
apply in circumstances in which there is not an indication of financial 
distress or evidence that the refinancing was masking unaffordability 
of the outstanding loan.
    The Bureau is concerned, however, that under certain circumstances 
lenders may have an incentive to encourage borrowers to refinance their 
loans in a way that creates extended patterns of payment that do not 
serve consumers' interests. These patterns of extended repayment may be 
caused or exacerbated by marketing or business practices that tend to 
frustrate the ability of borrowers to understand their loan terms. For 
example, some lenders may structure their loans such that a refinancing 
generates additional revenue for the lender, beyond the incremental 
finance charges, as a result of prepayment penalties, rebates 
calculated under the Rule of 78s, new origination fees, or new fees to 
purchase ancillary products associated with the refinancing. Moreover, 
because, in some high-cost loans, repayment of loan principal does not 
occur until the final few payments of the borrower's payment schedule, 
refinancing can deprive borrowers of the opportunity to make 
substantial progress in escaping their debts. The Bureau seeks to 
better understand the use of incentives and sales practices that might 
encourage borrowers to refinance high-cost loans, including practices 
that encourage refinancing after the consumer has made multiple 
payments allocated to interest and fees, but before making substantial 
progress reducing the loan principal.
    The Bureau also requests information about the nature of consumer 
protection concerns associated with the imposition of prepayment 
penalties in longer-duration, high-cost covered loans and also whether 
comparable concerns exist in non-covered loan products. In the 
Concurrent Proposal, the Bureau has noted that penalizing consumers for 
prepaying loans with durations of less than 24 months is likely to be 
inconsistent with consumers' expectations for their loans and may 
prevent consumers from repaying debts that they otherwise would be able 
to retire. Accordingly the proposal would prohibit lenders from 
imposing a prepayment penalty in connection with certain covered longer 
duration loans that are made under a conditional exemption from the 
proposed ability-to-repay requirements. While the Bureau believes there 
is a basis for proposing to prohibit prepayment penalties from 
conditionally exempt covered loans, the Bureau requests further 
information about whether consumer protection concerns may exist more 
generally with respect to prepayment penalties incorporated into longer 
duration covered and non-covered loans marketed to consumers facing 
liquidity crises. In particular, the Bureau seeks to explore whether 
there may be informal methods of imposing prepayment penalties, such as 
denial of a promised rebate, which could make it more costly for 
borrowers in either covered or non-covered longer duration high-cost 
loans to repay those loans. The Bureau also seeks to obtain more 
information about the prevalence of prepayment penalties and potential 
consumer protection concerns associated with non-covered, longer 
duration, high-cost loans.
    The Bureau is also concerned that, for borrowers facing cash 
shortfalls that lack access to the mainstream credit system, loans 
could be structured in such a way that even if borrowers have the 
ability to make their payments, doing so could cause borrowers to 
suffer undue, long-term hardships. These hardships could be caused or 
exacerbated by marketing, business practices, or contract terms that 
tend to frustrate the ability of borrowers to understand their payment 
obligations or otherwise interfere with their ability to protect their 
interests. For example, a lender might aggressively market a payment-
option, adjustable-rate installment loan that allows borrowers to 
temporarily make negatively amortizing payments until a later recast 
date. After the recast date, borrowers facing larger, adjusted 
installment payment obligations could be vulnerable to payment shock 
because their income may be insufficient to cover the adjusted payment 
along with their other obligations and basic living expenses at that 
time.
    Similarly, a lender might offer a fully amortizing loan with a 
sufficiently long term and high interest rate and apply most payments 
to interest for a large portion of the loan's life. Consider, for 
example, a $500 consumer loan with a 450 percent APR and a two-year 
duration payable in equal monthly installments. This borrower would 
face 24 monthly payments of about $188 each. After the first three 
months, a successfully repaying borrower would have repaid more than 
the initial amount financed, but reduced that balance by less than 50 
cents. After 18 of 24 payments, the successfully repaying borrower 
would still owe over $400 of the $500 originally borrowed. Under the 
Bureau's Concurrent Proposal, if the loan included a leveraged payment 
mechanism or vehicle security interest, the lender would be required to 
reach a reasonable determination of the borrower's ability to repay 
each $188 monthly payment. On the other hand, a lender making this loan 
without a leveraged payment mechanism or vehicle security interest 
would not be subject to the proposed ability-to-repay requirement. In 
either case, the Bureau requests information about whether loans along 
the lines of these or similar examples currently exist or could be 
anticipated to evolve if the Bureau finalizes the Concurrent Proposal.
    With respect to these potential concerns:
    9. Are there marketing or other business practices with respect to 
lender incentives or encouragement of loan refinancing that raise 
consumer protection concerns?
    a. If so, what specific business practices or contractual terms are 
associated with consumer harm?
    b. What data, evidence, or other information tends to show the 
current or likely future prevalence of consumer harm associated with 
these practices?
    10. Are there circumstances in which the imposition of prepayment 
penalties raises consumer protection concerns in non-covered loans 
marketed to consumers facing a liquidity crisis?
    a. If so, what specific contractual terms or business activities 
are associated with consumer harm?
    b. What evidence, data, or other information tends to show the 
current or likely future prevalence of consumer harm associated with 
prepayment penalties in non-covered loans?
    11. Are there methods of imposing informal penalties for 
prepayment, such as withholding a promised rebate, which raise consumer 
protection

[[Page 47788]]

concerns in either covered or non-covered loans marketed to consumers 
facing liquidity crisis?
    a. If so, specifically what contractual terms or business 
activities are associated with consumer harm?
    b. What evidence, data, or other information tends to show the 
current or likely future prevalence of consumer harm associated with 
such informal penalties for prepayment.
    12. Are there circumstances in which excessively slow amortization 
of high-cost installment loans or open-end lines of credit raise 
consumer protection concerns?
    a. If so, what specific contractual terms or business activities 
are associated with consumer harm?
    b. To what extent are consumers aware of the costs and risks of 
such loans? Are there other factors that might frustrate the ability of 
consumers to protect their interests in using such loans?
    c. Is there consumer harm from loan payment schedules where the 
bulk of repayment allocated to principal occurs in the final few 
payments of an even-payment loan? What specific criteria should the 
Bureau consider in identifying such consumer harm, if any?
    d. What data, evidence, or other information tends to show the 
current or likely future prevalence of consumer harm, if any, 
associated with payment schedules of this type?
    e. What evidence exists that consumers who make an even-payment 
understand that the lower principal is not being evenly paid down?
    13. With respect to each of these questions, what is the prevalence 
of these practices in the current market? And, can the Bureau 
reasonably anticipate that these practices would increase or decrease 
if the Bureau were to issue a final rule along the lines of the 
Bureau's notice of proposed rulemaking? If so, why?

V. Potential Consumer Harm From Default Interest Rates, Late Payment 
Penalties, Teaser Rate Loans, or Other Back-End Pricing Practices

    In the Bureau's experience, post-delinquency or default revenue 
terms such as late fees, default interest rates, or other contractual 
remedies can lead to consumer protection concerns. For example, in 2009 
Congress adopted the Credit Card Accountability, Responsibility, and 
Disclosure Act (CARD Act) to curb excessive or unfair late fees by 
generally requiring card issuers to refrain from imposing a late fee 
unless the creditor has adopted reasonable policies and procedures to 
ensure that consumers are given at least 21 days to pay their bill and 
by limiting late fees to an amount that is ``reasonable and 
proportional'' to the violation of the account terms in question.\36\
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 1665d, 1666b. To assist credit card issuers in 
complying with their CARD Act obligations Regulation Z establishes a 
safe harbor benchmark for reasonable and proportional penalty fees. 
12 CFR 1026.52(b)(1)(ii).
---------------------------------------------------------------------------

    Unlike credit card markets, there are currently no broadly 
applicable Federal rules comparable to the CARD Act's late payment 
provisions for consumers of high-cost payday, vehicle title, 
installment loans, or open-end lines of credit. The Bureau seeks 
information about whether post-delinquency or default revenue terms 
such as late fees, default interest rates, or other back-end pricing 
practices may create a mismatch between borrowers' expectations and 
their actual experiences with their loans over time. For example, some 
consumers may have the ability to repay at origination but changes in 
their circumstances such as illness, loss of employment, family 
disruptions such as divorce or separation, or unexpected expenses could 
nevertheless lead to delinquency or default. Similarly, some consumers 
may fall into arrears due to inattention to detail, miscommunication, 
payment system delay, or clerical error. The Bureau seeks to learn 
whether revenue generation provisions imposed on consumers in these and 
similar situations may raise consumer protection concerns.\37\ The 
Bureau is not, however, soliciting information in this RFI on the 
examples of such practices that would constitute evasions of the 
Concurrent Proposal, as described in proposed Sec.  1041.19 and its 
commentary.
---------------------------------------------------------------------------

    \37\ For example, Mountain Loan Centers' seven-month, 432 
percent APR ``signature'' loans of $800 include a default interest 
rate of 600 percent imposed when any installment payment is more 
than three days past due. Complaint, Mountain Loan Centers, Inc. v. 
Audra Crizer, No. 159401338.
---------------------------------------------------------------------------

    The Bureau is also aware that teaser rate products can, under some 
circumstances, give rise to consumer protection concerns. With a teaser 
rate, the initial interest rate and payment may remain in effect for a 
limited period of time. For some such loans, the initial rate and 
payment can vary considerably from the rate and payment obligations 
later on. Teaser rate loans can lead to unexpected ``payment shock'' 
when borrowers face payments associated with a recast interest rate 
that increases borrower payments.\38\ The Bureau seeks to learn whether 
covered or non-covered high-cost loans made to consumers facing 
liquidity crisis are being offered with teaser rate features. If so, 
the Bureau would like to obtain information about whether the use of 
teaser rate loan terms in this market may create risks to consumers.
---------------------------------------------------------------------------

    \38\ Federal Reserve Board of Governors, Consumer Handbook on 
Adjustable-Rate Mortgages, available at http://files.consumerfinance.gov/f/201204_CFPB_ARMs-brochure.pdf.
---------------------------------------------------------------------------

    With respect to these issues:
    14. Other than circumstances identified in the Concurrent Proposal, 
as discussed above, under what circumstances do lenders' use of post-
delinquency or default revenue terms such as late fees, default 
interest rates, or other contractual provisions or remedies in either 
covered or non-covered loans marketed to consumers facing liquidity 
crisis raise consumer protection concerns?
    a. To what extent do lenders making covered loans or non-covered, 
high-cost loans to consumers facing cash shortfalls consider post-
delinquency or default revenue generating terms such as late fees, 
default interest rates, or other contractual provisions or remedies 
when they perform underwriting? If they do so, how do they do it?
    b. If lenders' current underwriting practices do not include 
consideration of the borrower's ability to repay post-delinquency or 
default revenue generating terms, what would be a reasonable method of 
underwriting for this factor?
    c. What evidence, data, or other information shows the current or 
likely future prevalence of consumer harm, if any, associated with 
post-delinquency or default revenue terms in covered or non-covered 
high-cost consumer loans?
    15. Are there circumstances in which the use of teaser rates which 
reset to high-cost loans made to consumers facing liquidity crisis 
raise consumer protection concerns?
    a. If so, what specific contractual terms or business activities 
are associated with consumer harm?
    b. Do teaser rate products, to the extent any exist, create a 
mismatch between borrowers' repayment expectations and their actual 
experiences in either covered or non-covered loans?
    c. If lenders offer teaser rate products in loans to consumers 
facing liquidity needs, do they consider recast interest rates in 
underwriting? If they do so, how do they do it?
    d. What data, evidence, or other information tends to show the 
current or likely future prevalence of consumer harm, if any, 
associated with adjustable interest rates products in covered or non-
covered high-cost loans?
    16. Are there other circumstances in which ``back-end'' pricing 
impedes the

[[Page 47789]]

ability of consumers to afford or to understand and compare credit 
options marketed to consumers facing liquidity crisis in a way that 
raises consumer protection concerns or impedes their ability to 
understand or anticipate the full cost of the loan to that consumer?
    a. If so, what specific back-end pricing fees, contractual terms, 
or other business activities exist in the marketplace or are likely to 
evolve in the future?
    b. If so, what back-end pricing fees, contractual terms, or other 
business activities are associated with consumer harm?
    c. What data, evidence, or other information tends to show the 
current or likely future prevalence of consumer harm, if any, 
associated with such back-end pricing in covered or non-covered high-
cost loans?

VI. Potential Consumer Harm from Ancillary Products

    In the Bureau's experience, the marketing of ancillary products, 
sometimes called ``add-ons,'' can lead to consumer protection 
concerns.\39\ For instance, the Bureau is concerned that some creditors 
may engage in sales and marketing practices that raise consumer 
protection concerns with respect to the sale of credit insurance, debt 
suspension or debt cancellation agreements, and other credit related 
ancillary products. For example, in the past four years the Bureau has 
announced numerous different public enforcement actions associated with 
illegal marketing of add-ons that led to approximately $2.4 billion in 
consumer redress, refunds, and forgiven debts. In these ancillary 
product matters, the Bureau, in some instances working in cooperation 
with other Federal or State regulators, imposed over $128 million in 
civil money penalties. Among other practices and concerns, the Bureau 
has found or alleged that some companies offering ancillary products 
failed to accurately describe those products, offered products that 
provided little or no benefit to consumers without disclosing this 
fact, stated or implied that ancillary products were required as a 
condition of borrowing when they were not, and billed consumers for 
add-on products without permission.\40\ For both covered and non-
covered loans, the Bureau seeks to learn more about the marketing of 
ancillary products to consumers facing liquidity crisis and borrowing 
outside the mainstream credit system.
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    \39\ Examples of ancillary products include credit insurance, 
debt suspension or debt cancellation agreements, and identity theft 
protection plans.
    \40\ See, e.g., Citibank, N.A., CFPB No. 2015-CFPB-0015 (July 
21, 2015), available at http://files.consumerfinance.gov/f/201507_cfpb_consent-order-citibank-na-department-stores-national-bank-and-citicorp-credit-services-inc-usa.pdf; Am. Express Centurion 
Bank, CFPB No. 2012-CFPB-0002 (Oct. 1, 2012), available at http://files.consumerfinance.gov/f/2012-CFPB-0002-American-Express-Centurion-Consent-Order.pdf; Discover Bank, CFPB No. 2012-CFPB-0005 
(Sept. 24, 2012), available at http://files.consumerfinance.gov/f/201209_cfpb_consent_order_0005.pdf.
---------------------------------------------------------------------------

    Moreover, ancillary products can affect the affordability of 
consumer credit. The Bureau's Concurrent Proposal includes the cost of 
credit insurance, debt suspension agreements, and credit-related 
ancillary products sold in originating a loan in calculating the total 
cost of credit for purposes of determining whether a longer duration 
loan is covered by the proposed rule. The Bureau's Concurrent Proposal 
also would require that creditors consider the cost of these products 
in determining borrowers' ability to repay. Nevertheless, the Bureau 
seeks to obtain more information about the prevalence and affordability 
of add-on products in non-covered loans made to consumers facing 
liquidity crisis.
    With respect to these potential issues:
    17. Aside from affordability, are there consumer protection 
concerns arising out of the marketing of ancillary products in covered 
payday, vehicle title, or similar loans? If so, what evidence, data, or 
other information shows the current or likely future prevalence of 
these concerns?
    18. To what extent do lenders making non-covered, high-cost loans 
consider the cost of ancillary products in determining whether 
borrowers have the ability to repay?
    a. If they do so, how do they do it?
    b. If lenders do not currently consider the affordability of such 
products, what would be a reasonable method of underwriting for this 
component of the loan?
    c. What evidence, data, or other information shows the current or 
likely future prevalence of unaffordable ancillary products in non-
covered loans?
    19. Are there other consumer protection concerns associated with 
the marketing or use of ancillary products in combination with covered 
or non-covered, high-cost credit? If so, what evidence, data, or other 
information shows the current or likely future prevalence of such 
consumer protection concerns?

VII. Potential Market Evolution and Other Topics Not Identified

    The market for high-cost consumer credit is currently in transition 
due to regulatory and technological change. Many lenders are developing 
new technological channels for delivering consumer financial products 
to the market place. State, local and tribal laws are continually 
evolving in response to these forces. The Bureau seeks to apprise 
itself of current and expected changes in the marketplace for high-cost 
loans that could present consumer protection concerns. Moreover, the 
Bureau is mindful that, in the past, markets supplying credit to 
borrowers facing cash shortfalls have evolved in response to regulatory 
action, thereby causing the government considerable difficulty in 
addressing some consumer protection issues.
    Bearing in mind the potential for future evolution in this market 
and in lender practices:
    20. Are there other marketing, origination, underwriting, or 
collection practices that currently exist or, if the Bureau issues a 
final rule along the lines of the Concurrent Proposal, are likely to 
emerge, that pose risk to consumers and may warrant Bureau regulatory, 
supervisory, enforcement, or consumer educational action?
    21. Are there arrangements with brokers, credit service 
organizations, or other intermediaries in the marketing, origination, 
underwriting, collection or information-sharing practices associated 
with non-covered high-cost credit markets that pose risk to consumers 
and may warrant Bureau regulatory, supervisory, enforcement, or 
consumer educational action?
    22. If so, what specific actions or policies should the Bureau 
consider in addressing such consumer harm? Other than usury limits 
applicable to an extension of credit, which Congress has not authorized 
the Bureau to establish, are there examples of existing law, 
regulations, or other policy interventions that the Bureau should 
consider?

    Dated: June, 2016.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2016-13492 Filed 7-21-16; 8:45 am]
 BILLING CODE 4810-AM-P