2016 Small-Dollar Lending Update An Obituary or a Re-Awakening?

• Published in: The Business Lawyer Vol. 72; no. 2; pp. 539 - 548
• Main Authors: Brennan, Catherine M., Hosie, Justin B., Wilson, K. Dailey, Kramer, Erica A.N.
• Format: Journal Article Trade Publication Article
• Language: English
• Published: Chicago Business Law Section of the American Bar Association 22-03-2017; American Bar Association
• Subjects: Attorneys general; Borrowing; Collection (Accounting); Commercial law; Consent; Consumer credit; Consumer protection; Consumers; Enforcement; Fees & charges; Fines & penalties; Injunctions; Lines of credit; Loans; Payoffs; Personal loans; Restraint of trade; Short term; State court decisions; Surveys; Survey—Consumer Financial Services; Usury
• ISSN: 0007-6899; 2164-1838

INTRODUCTION During the past year, small-dollar lenders continued to face increasing scrutiny.1 The Consumer Financial Protection Bureau ("CFPB") announced a rulemaking to overhaul the small-dollar lending industry;2 the U.S. Department of Justice and the U.S. Attorney for the Southern District of New York each filed criminal indictments related to small-dollar lending operations;3 and even search-engine company Google banned advertisements for loans with an annual percentage rate of 36 percent or more.4 This survey reviews some of the key developments during the past year. Proposed Federal Small-Dollar Lending Rule In June 2016, the CFPB proposed a rule ("Proposal") requiring lenders to determine whether consumers can repay new loans along with their preexisting obligations.5 Under the Proposal, the ability-to-repay determination does not apply to loans that satisfy certain structural conditions.6 The Proposal also imposes limits on repeated attempts to debit consumers' accounts and mandates specified consumer disclosures, recordkeeping, and compliance programs.7 The Proposal covers closed-end and open-end consumer credit with the following exclusions: credit extended solely to finance the purchase of a car or other consumer good that secures the transaction, credit secured by real property or a dwelling if the security interest is recorded or perfected, credit card transactions, student loans, non-recourse pawn transactions, overdraft services, and certain lines of credit.8 The Proposal classifies covered transactions in two categories, "short-term" and "longer-term" credit.9 The Proposal defines "short-term" as loans with terms of forty-five days or less.10 Longer-term transactions covered under the Proposal are those with a duration over forty-five days that...