Title 12—Banks and Banking--Volume 1
PART 1041—PAYDAY, VEHICLE TITLE, AND CERTAIN HIGH-COST INSTALLMENT LOANS
§ 1041.1   Authority and purpose.
(a) Authority. The regulation in this part is issued by the Bureau of Consumer Financial Protection (Bureau) pursuant to Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 5481, et seq. ).
(b) Purpose. The purpose of this part is to identify certain unfair and abusive acts or practices in connection with certain consumer credit transactions and to set forth requirements for preventing such acts or practices. This part also prescribes requirements to ensure that the features of those consumer credit transactions are fully, accurately, and effectively disclosed to consumers.
§ 1041.2   Definitions.
(a) Definitions. For the purposes of this part, the following definitions apply:
(1) Account has the same meaning as in Regulation E, 12 CFR 1005.2(b).
(2) Affiliate has the same meaning as in 12 U.S.C. 5481(1).
(3) Closed-end credit means an extension of credit to a consumer that is not open-end credit under paragraph (a)(16) of this section.
(4) Consumer has the same meaning as in 12 U.S.C. 5481(4).
(5) Consummation means the time that a consumer becomes contractually obligated on a new loan or a modification that increases the amount of an existing loan.
(6) Cost of credit means the cost of consumer credit as expressed as a per annum rate and is determined as follows:
(i) Charges included in the cost of credit. The cost of credit includes all finance charges as set forth by Regulation Z, 12 CFR 1026.4, but without regard to whether the credit is consumer credit, as that term is defined in 12 CFR 1026.2(a)(12), or is extended to a consumer, as that term is defined in 12 CFR 1026.2(a)(11).
(ii) Calculation of the cost of credit —(A) Closed-end credit. For closed-end credit, the cost of credit must be calculated according to the requirements of Regulation Z, 12 CFR 1026.22.
(B) Open-end credit. For open-end credit, the cost of credit must be calculated according to the rules for calculating the effective annual percentage rate for a billing cycle as set forth in Regulation Z, 12 CFR 1026.14(c) and (d).
(7) Covered longer-term balloon-payment loan means a loan described in § 1041.3(b)(2).
(8) Covered longer-term loan means a loan described in § 1041.3(b)(3).
(9) [Reserved]
(10) Covered short-term loan means a loan described in § 1041.3(b)(1).
(11) Credit has the same meaning as in Regulation Z, 12 CFR 1026.2(a)(14).
(12) Electronic fund transfer has the same meaning as in Regulation E, 12 CFR 1005.3(b).
(13) Lender means a person who regularly extends credit to a consumer primarily for personal, family, or household purposes.
(14) [Reserved]
(15) Motor vehicle means any self-propelled vehicle primarily used for on-road transportation. The term does not include motor homes, recreational vehicles, golf carts, and motor scooters.
(16) Open-end credit means an extension of credit to a consumer that is an open-end credit plan as defined in Regulation Z, 12 CFR 1026.2(a)(20), but without regard to whether the credit is consumer credit, as defined in 12 CFR 1026.2(a)(12), is extended by a creditor, as defined in 12 CFR 1026.2(a)(17), is extended to a consumer, as defined in 12 CFR 1026.2(a)(11), or permits a finance charge to be imposed from time to time on an outstanding balance as defined in 12 CFR 1026.4.
(17) Outstanding loan means a loan that the consumer is legally obligated to repay, regardless of whether the loan is delinquent or is subject to a repayment plan or other workout arrangement, except that a loan ceases to be an outstanding loan if the consumer has not made at least one payment on the loan within the previous 180 days.
(18) Service provider has the same meaning as in the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. 5481(26).
(19) [Reserved]
(b) Rule of construction. For purposes of this part, where definitions are incorporated from other statutes or regulations, the terms have the meaning and incorporate the embedded definitions, appendices, and commentary from those other laws except to the extent that this part provides a different definition for a parallel term.
§ 1041.3   Scope of coverage; exclusions; exemptions.
(a) General. This part applies to a lender that extends credit by making covered loans.
(b) Covered loan. Covered loan means closed-end or open-end credit that is extended to a consumer primarily for personal, family, or household purposes that is not excluded under paragraph (d) of this section or conditionally exempted under paragraph (e) or (f) of this section; and:
(1) For closed-end credit that does not provide for multiple advances to consumers, the consumer is required to repay substantially the entire amount of the loan within 45 days of consummation, or for all other loans, the consumer is required to repay substantially the entire amount of any advance within 45 days of the advance;
(2) For loans not otherwise covered by paragraph (b)(1) of this section:
(i) For closed-end credit that does not provide for multiple advances to consumers, the consumer is required to repay substantially the entire balance of the loan in a single payment more than 45 days after consummation or to repay such loan through at least one payment that is more than twice as large as any other payment(s).
(ii) For all other loans, either:
(A) The consumer is required to repay substantially the entire amount of an advance in a single payment more than 45 days after the advance is made or is required to make at least one payment on the advance that is more than twice as large as any other payment(s); or
(B) A loan with multiple advances is structured such that paying the required minimum payments may not fully amortize the outstanding balance by a specified date or time, and the amount of the final payment to repay the outstanding balance at such time could be more than twice the amount of other minimum payments under the plan; or
(3) For loans not otherwise covered by paragraph (b)(1) or (2) of this section, if both of the following conditions are satisfied:
(i) The cost of credit for the loan exceeds 36 percent per annum, as measured:
(A) At the time of consummation for closed-end credit; or
(B) At the time of consummation and, if the cost of credit at consummation is not more than 36 percent per annum, again at the end of each billing cycle for open-end credit, except that:
( 1 ) Open-end credit meets the condition set forth in this paragraph (b)(3)(i)(B) in any billing cycle in which a lender imposes a finance charge, and the principal balance is $0; and
( 2 ) Once open-end credit meets the condition set forth in this paragraph (b)(3)(i)(B), it meets the condition set forth in paragraph (b)(3)(i)(B) for the duration of the plan.
(ii) The lender or service provider obtains a leveraged payment mechanism as defined in paragraph (c) of this section.
(c) Leveraged payment mechanism. For purposes of paragraph (b) of this section, a lender or service provider obtains 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 leveraged payment mechanism by initiating a single immediate payment transfer at the consumer's request.
(d) Exclusions for certain types of credit. This part does not apply to the following:
(1) Certain purchase money security interest loans. Credit extended for the sole and express purpose of financing a consumer's initial purchase of a good when the credit is secured by the property being purchased, whether or not the security interest is perfected or recorded.
(2) Real estate secured credit. Credit that is secured by any real property, or by personal property used or expected to be used as a dwelling, and the lender records or otherwise perfects the security interest within the term of the loan.
(3) Credit cards. Any credit card account under an open-end (not home-secured) consumer credit plan as defined in Regulation Z, 12 CFR 1026.2(a)(15)(ii).
(4) Student loans. Credit made, insured, or guaranteed pursuant to a program authorized by subchapter IV of the Higher Education Act of 1965, 20 U.S.C. 1070 through 1099d, or a private education loan as defined in Regulation Z, 12 CFR 1026.46(b)(5).
(5) Non-recourse pawn loans. Credit in which the lender has sole physical possession and use of the property securing the credit for the entire term of the loan and for which the lender's sole recourse if the consumer does not elect to redeem the pawned item and repay the loan is the retention of the property securing the credit.
(6) Overdraft services and lines of credit. Overdraft services as defined in 12 CFR 1005.17(a), and overdraft lines of credit otherwise excluded from the definition of overdraft services under 12 CFR 1005.17(a)(1).
(7) Wage advance programs. Advances of wages that constitute credit if made by an employer, as defined in the Fair Labor Standards Act, 29 U.S.C. 203(d), or by the employer's business partner, to the employer's employees, provided that:
(i) The advance is made only against the accrued cash value of any wages the employee has earned up to the date of the advance; and
(ii) Before any amount is advanced, the entity advancing the funds warrants to the consumer as part of the contract between the parties on behalf of itself and any business partners, that it or they, as applicable:
(A) Will not require the consumer to pay any charges or fees in connection with the advance, other than a charge for participating in the wage advance program;
(B) Has no legal or contractual claim or remedy against the consumer based on the consumer's failure to repay in the event the amount advanced is not repaid in full; and
(C) With respect to the amount advanced to the consumer, will not engage in any debt collection activities if the advance is not deducted directly from wages or otherwise repaid on the scheduled date, place the amount advanced as a debt with or sell it to a third party, or report to a consumer reporting agency concerning the amount advanced.
(8) No-cost advances. Advances of funds that constitute credit if the consumer is not required to pay any charge or fee to be eligible to receive or in return for receiving the advance, provided that before any amount is advanced, the entity advancing the funds warrants to the consumer as part of the contract between the parties:
(i) That it has no legal or contractual claim or remedy against the consumer based on the consumer's failure to repay in the event the amount advanced is not repaid in full; and
(ii) That, with respect to the amount advanced to the consumer, such entity will not engage in any debt collection activities if the advance is not repaid on the scheduled date, place the amount advanced as a debt with or sell it to a third party, or report to a consumer reporting agency concerning the amount advanced.
(e) Alternative loan. Alternative loans are conditionally exempt from the requirements of this part. Alternative loan means a covered loan that satisfies the following conditions and requirements:
(1) Loan term conditions. An alternative loan must satisfy the following conditions:
(i) The loan is not structured as open-end credit, as defined in § 1041.2(a)(16);
(ii) The loan has a term of not less than one month and not more than six months;
(iii) The principal of the loan is not less than $200 and not more than $1,000;
(iv) The loan is repayable in two or more payments, all of which payments are substantially equal in amount and fall due in substantially equal intervals, and the loan amortizes completely during the term of the loan; and
(v) The lender does not impose any charges other than the rate and application fees permissible for Federal credit unions under regulations issued by the National Credit Union Administration at 12 CFR 701.21(c)(7)(iii).
(2) Borrowing history condition. Prior to making an alternative loan under this paragraph (e), the lender must determine from its records that the loan would not result in the consumer being indebted on more than three outstanding loans made under this paragraph (e) from the lender within a period of 180 days. The lender must also make no more than one alternative loan under this paragraph (e) at a time to a consumer.
(3) Income documentation condition. In making an alternative loan under this paragraph (e), the lender must maintain and comply with policies and procedures for documenting proof of recurring income.
(4) Safe harbor. Loans made by Federal credit unions in compliance with the conditions set forth by the National Credit Union Administration at 12 CFR 701.21(c)(7)(iii) for a Payday Alternative Loan are deemed to be in compliance with the requirements and conditions of paragraphs (e)(1), (2), and (3) of this section.
(f) Accommodation loans. Accommodation loans are conditionally exempt from the requirements of this part. Accommodation loan means a covered loan if at the time that the loan is consummated:
(1) The lender and its affiliates collectively have made 2,500 or fewer covered loans in the current calendar year, and made 2,500 or fewer such covered loans in the preceding calendar year; and
(2)(i) During the most recent completed tax year in which the lender was in operation, if applicable, the lender and any affiliates that were in operation and used the same tax year derived no more than 10 percent of their receipts from covered loans; or
(ii) If the lender was not in operation in a prior tax year, the lender reasonably anticipates that the lender and any of its affiliates that use the same tax year will derive no more than 10 percent of their receipts from covered loans during the current tax year.
(3) Provided, however, that covered longer-term loans for which all transfers meet the conditions in § 1041.8(a)(1)(ii), and receipts from such loans, are not included for the purpose of determining whether the conditions of paragraphs (f)(1) and (2) of this section have been satisfied.
(g) Receipts. For purposes of paragraph (f) of this section, receipts means “total income” (or in the case of a sole proprietorship “gross income”) plus “cost of goods sold” as these terms are defined and reported on Internal Revenue Service (IRS) tax return forms (such as Form 1120 for corporations; Form 1120S and Schedule K for S corporations; Form 1120, Form 1065 or Form 1040 for LLCs; Form 1065 and Schedule K for partnerships; and Form 1040, Schedule C for sole proprietorships). Receipts do not include net capital gains or losses; taxes collected for and remitted to a taxing authority if included in gross or total income, such as sales or other taxes collected from customers but excluding taxes levied on the entity or its employees; or amounts collected for another (but fees earned in connection with such collections are receipts). Items such as subcontractor costs, reimbursements for purchases a contractor makes at a customer's request, and employee-based costs such as payroll taxes are included in receipts.
(h) Tax year. For purposes of paragraph (f) of this section, “tax year” has the meaning attributed to it by the IRS as set forth in IRS Publication 538, which provides that a “tax year” is an annual accounting period for keeping records and reporting income and expenses.
§ 1041.7   Identification of unfair and abusive practice.
It is an unfair and abusive practice for a lender to make attempts to withdraw payment from consumers' accounts in connection with a covered loan after the lender's second consecutive attempts to withdraw payments from the accounts from which the prior attempts were made have failed due to a lack of sufficient funds, unless the lender obtains the consumers' new and specific authorization to make further withdrawals from the accounts.
§ 1041.8   Prohibited payment transfer attempts.
(a) Definitions. For purposes of this section and § 1041.9:
(1) Payment transfer means any lender-initiated debit or withdrawal of funds from a consumer's account for the purpose of collecting any amount due or purported to be due in connection with a covered loan.
(i) Means of transfer. A debit or withdrawal meeting the description in paragraph (a)(1) of this section is a payment transfer regardless of the means through which the lender initiates it, including but not limited to a debit or withdrawal initiated through any of the following means:
(A) Electronic fund transfer, including a preauthorized electronic fund transfer as defined in Regulation E, 12 CFR 1005.2(k).
(B) Signature check, regardless of whether the transaction is processed through the check network or another network, such as the automated clearing house (ACH) network.
(C) Remotely created check as defined in Regulation CC, 12 CFR 229.2(fff).
(D) Remotely created payment order as defined in 16 CFR 310.2(cc).
(E) When the lender is also the account-holder, an account-holding institution's transfer of funds from a consumer's account held at the same institution, other than such a transfer meeting the description in paragraph (a)(1)(ii) of this section.
(ii) Conditional exclusion for certain transfers by account-holding institutions. When the lender is also the account-holder, an account-holding institution's transfer of funds from a consumer's account held at the same institution is not a payment transfer if all of the conditions in this paragraph (a)(1)(ii) are met, notwithstanding that the transfer otherwise meets the description in paragraph (a)(1) of this section.
(A) The lender, pursuant to the terms of the loan agreement or account agreement, does not charge the consumer any fee, other than a late fee under the loan agreement, in the event that the lender initiates a transfer of funds from the consumer's account in connection with the covered loan for an amount that the account lacks sufficient funds to cover.
(B) The lender, pursuant to the terms of the loan agreement or account agreement, does not close the consumer's account in response to a negative balance that results from a transfer of funds initiated in connection with the covered loan.
(2) Single immediate payment transfer at the consumer's request means:
(i) A payment transfer initiated by a one-time electronic fund transfer within one business day after the lender obtains the consumer's authorization for the one-time electronic fund transfer.
(ii) A payment transfer initiated by means of processing the consumer's signature check through the check system or through the ACH system within one business day after the consumer provides the check to the lender.
(b) Prohibition on initiating payment transfers from a consumer's account after two consecutive failed payment transfers —(1) General. A lender must not initiate a payment transfer from a consumer's account in connection with any covered loan that the consumer has with the lender after the lender has attempted to initiate two consecutive failed payment transfers from that account in connection with any covered loan that the consumer has with the lender. For purposes of this paragraph (b), a payment transfer is deemed to have failed when it results in a return indicating that the consumer's account lacks sufficient funds or, if the lender is the consumer's account-holding institution, it is for an amount that the account lacks sufficient funds to cover.
(2) Consecutive failed payment transfers. For purposes of the prohibition in this paragraph (b):
(i) First failed payment transfer. A failed payment transfer is the first failed payment transfer from the consumer's account if it meets any of the following conditions:
(A) The lender has initiated no other payment transfer from the account in connection with the covered loan or any other covered loan that the consumer has with the lender.
(B) The immediately preceding payment transfer was successful, regardless of whether the lender has previously initiated a first failed payment transfer.
(C) The payment transfer is the first payment transfer to fail after the lender obtains the consumer's authorization for additional payment transfers pursuant to paragraph (c) of this section.
(ii) Second consecutive failed payment transfer. A failed payment transfer is the second consecutive failed payment transfer from the consumer's account if the immediately preceding payment transfer was a first failed payment transfer. For purposes of this paragraph (b)(2)(ii), a previous payment transfer includes a payment transfer initiated at the same time or on the same day as the failed payment transfer.
(iii) Different payment channel. A failed payment transfer meeting the conditions in paragraph (b)(2)(ii) of this section is the second consecutive failed payment transfer regardless of whether the first failed payment transfer was initiated through a different payment channel.
(c) Exception for additional payment transfers authorized by the consumer —(1) General. Notwithstanding the prohibition in paragraph (b) of this section, a lender may initiate additional payment transfers from a consumer's account after two consecutive failed payment transfers if the additional payment transfers are authorized by the consumer in accordance with the requirements and conditions in this paragraph (c) or if the lender executes a single immediate payment transfer at the consumer's request in accordance with paragraph (d) of this section.
(2) General authorization requirements and conditions —(i) Required payment transfer terms. For purposes of this paragraph (c), the specific date, amount, and payment channel of each additional payment transfer must be authorized by the consumer, except as provided in paragraph (c)(2)(ii) or (iii) of this section.
(ii) Application of specific date requirement to re-initiating a returned payment transfer. If a payment transfer authorized by the consumer pursuant to this paragraph (c) is returned for nonsufficient funds, the lender may re-initiate the payment transfer, such as by re-presenting it once through the ACH system, on or after the date authorized by the consumer, provided that the returned payment transfer has not triggered the prohibition in paragraph (b) of this section.
(iii) Special authorization requirements and conditions for payment transfers to collect a late fee or returned item fee. A lender may initiate a payment transfer pursuant to this paragraph (c) solely to collect a late fee or returned item fee without obtaining the consumer's authorization for the specific date and amount of the payment transfer only if the consumer has authorized the lender to initiate such payment transfers in advance of the withdrawal attempt. For purposes of this paragraph (c)(2)(iii), the consumer authorizes such payment transfers only if the consumer's authorization obtained under paragraph (c)(3)(iii) of this section includes a statement, in terms that are clear and readily understandable to the consumer, that payment transfers may be initiated solely to collect a late fee or returned item fee and that specifies the highest amount for such fees that may be charged and the payment channel to be used.
(3) Requirements and conditions for obtaining the consumer's authorization —(i) General. For purposes of this paragraph (c), the lender must request and obtain the consumer's authorization for additional payment transfers in accordance with the requirements and conditions in this paragraph (c)(3).
(ii) Provision of payment transfer terms to the consumer. The lender may request the consumer's authorization for additional payment transfers no earlier than the date on which the lender provides to the consumer the consumer rights notice required by § 1041.9(c). The request must include the payment transfer terms required under paragraph (c)(2)(i) of this section and, if applicable, the statement required by paragraph (c)(2)(iii) of this section. The lender may provide the terms and statement to the consumer by any one of the following means:
(A) In writing, by mail or in person, or in a retainable form by email if the consumer has consented to receive electronic disclosures in this manner under § 1041.9(a)(4) or agrees to receive the terms and statement by email in the course of a communication initiated by the consumer in response to the consumer rights notice required by § 1041.9(c).
(B) By oral telephone communication, if the consumer affirmatively contacts the lender in that manner in response to the consumer rights notice required by § 1041.9(c) and agrees to receive the terms and statement in that manner in the course of, and as part of, the same communication.
(iii) Signed authorization required —(A) General. For an authorization to be valid under this paragraph (c), it must be signed or otherwise agreed to by the consumer in writing or electronically and in a retainable format that memorializes the payment transfer terms required under paragraph (c)(2)(i) of this section and, if applicable, the statement required by paragraph (c)(2)(iii) of this section. The signed authorization must be obtained from the consumer no earlier than when the consumer receives the consumer rights notice required by § 1041.9(c) in person or electronically, or the date on which the consumer receives the notice by mail. For purposes of this paragraph (c)(3)(iii)(A), the consumer is considered to have received the notice at the time it is provided to the consumer in person or electronically, or, if the notice is provided by mail, the earlier of the third business day after mailing or the date on which the consumer affirmatively responds to the mailed notice.
(B) Special requirements for authorization obtained by oral telephone communication. If the authorization is granted in the course of an oral telephone communication, the lender must record the call and retain the recording.
(C) Memorialization required. If the authorization is granted in the course of a recorded telephonic conversation or is otherwise not immediately retainable by the consumer at the time of signature, the lender must provide a memorialization in a retainable form to the consumer by no later than the date on which the first payment transfer authorized by the consumer is initiated. A memorialization may be provided to the consumer by email in accordance with the requirements and conditions in paragraph (c)(3)(ii)(A) of this section.
(4) Expiration of authorization. An authorization obtained from a consumer pursuant to this paragraph (c) becomes null and void for purposes of the exception in this paragraph (c) if:
(i) The lender subsequently obtains a new authorization from the consumer pursuant to this paragraph (c); or
(ii) Two consecutive payment transfers initiated pursuant to the consumer's authorization fail, as specified in paragraph (b) of this section.
(d) Exception for initiating a single immediate payment transfer at the consumer's request. After a lender's second consecutive payment transfer has failed as specified in paragraph (b) of this section, the lender may initiate a payment transfer from the consumer's account without obtaining the consumer's authorization for additional payment transfers pursuant to paragraph (c) of this section if:
(1) The payment transfer is a single immediate payment transfer at the consumer's request as defined in paragraph (a)(2) of this section; and
(2) The consumer authorizes the underlying one-time electronic fund transfer or provides the underlying signature check to the lender, as applicable, no earlier than the date on which the lender provides to the consumer the consumer rights notice required by § 1041.9(c) or on the date that the consumer affirmatively contacts the lender to discuss repayment options, whichever date is earlier.
(e) Prohibition against evasion. A lender must not take any action with the intent of evading the requirements of this section.
§ 1041.9   Disclosure of payment transfer attempts.
(a) General form of disclosures —(1) Clear and conspicuous. Disclosures required by this section must be clear and conspicuous. Disclosures required by this section may contain commonly accepted or readily understandable abbreviations.
(2) In writing or electronic delivery. Disclosures required by this section must be provided in writing or, so long as the requirements of paragraph (a)(4) of this section are satisfied, through electronic delivery. The disclosures must be provided in a form that can be viewed on paper or a screen, as applicable. This paragraph (a)(2) is not satisfied by a disclosure provided orally or through a recorded message.
(3) Retainable. Disclosures required by this section must be provided in a retainable form, except for electronic short notices delivered by mobile application or text message under paragraph (b) or (c) of this section.
(4) Electronic delivery. Disclosures required by this section may be provided through electronic delivery if the following consent requirements are satisfied:
(i) Consumer consent —(A) General. Disclosures required by this section may be provided through electronic delivery if the consumer affirmatively consents in writing or electronically to the particular electronic delivery method.
(B) Email option required. To obtain valid consumer consent to electronic delivery under this paragraph, a lender must provide the consumer with the option to select email as the method of electronic delivery, separate and apart from any other electronic delivery methods such as mobile application or text message.
(ii) Subsequent loss of consent. Notwithstanding paragraph (a)(4)(i) of this section, a lender must not provide disclosures required by this section through a method of electronic delivery if:
(A) The consumer revokes consent to receive disclosures through that delivery method; or
(B) The lender receives notification that the consumer is unable to receive disclosures through that delivery method at the address or number used.
(5) Segregation requirements for notices. All notices required by this section must be segregated from all other written or provided materials and contain only the information required by this section, other than information necessary for product identification, branding, and navigation. Segregated additional content that is not required by this section must not be displayed above, below, or around the required content.
(6) Machine readable text in notices provided through electronic delivery. If provided through electronic delivery, the payment notice required by paragraph (b) of this section and the consumer rights notice required by paragraph (c) of this section must use machine readable text that is accessible via both web browsers and screen readers.
(7) Model forms —(i) Payment notice. The content, order, and format of the payment notice required by paragraph (b) of this section must be substantially similar to Model Forms A-3 through A-4 in appendix A to this part.
(ii) Consumer rights notice. The content, order, and format of the consumer rights notice required by paragraph (c) of this section must be substantially similar to Model Form A-5 in appendix A to this part.
(iii) Electronic short notice. The content, order, and format of the electronic short notice required by paragraph (b) of this section must be substantially similar to Model Clauses A-6 and A-7 in appendix A to this part. The content, order, and format of the electronic short notice required by paragraph (c) of this section must be substantially similar to Model Clause A-8 in appendix A to this part.
(8) Foreign language disclosures. Disclosures required under this section may be made in a language other than English, provided that the disclosures are made available in English upon the consumer's request.
(b) Payment notice —(1) General. Prior to initiating the first payment withdrawal or an unusual withdrawal from a consumer's account, a lender must provide to the consumer a payment notice in accordance with the requirements in this paragraph (b) as applicable.
(i) First payment withdrawal means the first payment transfer scheduled to be initiated by a lender for a particular covered loan, not including a single immediate payment transfer initiated at the consumer's request as defined in § 1041.8(a)(2).
(ii) Unusual withdrawal means a payment transfer that meets one or more of the conditions described in paragraph (b)(3)(ii)(C) of this section.
(iii) Exceptions. The payment notice need not be provided when the lender initiates:
(A) The initial payment transfer from a consumer's account after obtaining consumer authorization pursuant to § 1041.8(c), regardless of whether any of the conditions in paragraph (b)(3)(ii)(C) of this section apply; or
(B) A single immediate payment transfer initiated at the consumer's request in accordance with § 1041.8(a)(2).
(2) First payment withdrawal notice —(i) Timing —(A) Mail. If the lender provides the first payment withdrawal notice by mail, the lender must mail the notice no earlier than when the lender obtains payment authorization and no later than six business days prior to initiating the transfer.
(B) Electronic delivery. ( 1 ) If the lender provides the first payment withdrawal notice through electronic delivery, the lender must send the notice no earlier than when the lender obtains payment authorization and no later than three business days prior to initiating the transfer.
( 2 ) If, after providing the first payment withdrawal notice through electronic delivery pursuant to the timing requirements in paragraph (b)(2)(i) of this section, the lender loses the consumer's consent to receive the notice through a particular electronic delivery method according to paragraph (a)(4)(ii) of this section, the lender must provide notice of any future unusual withdrawal, if applicable, through alternate means.
(C) In person. If the lender provides the first payment withdrawal notice in person, the lender must provide the notice no earlier than when the lender obtains payment authorization and no later than three business days prior to initiating the transfer.
(ii) Content requirements. The notice must contain the following information and statements, as applicable, using language substantially similar to the language set forth in Model Form A-3 in appendix A to this part:
(A) Identifying statement. The statement, “Upcoming Withdrawal Notice,” using that phrase, and, in the same statement, the name of the lender providing the notice.
(B) Transfer terms —( 1 ) Date. Date that the lender will initiate the transfer.
( 2 ) Amount. Dollar amount of the transfer.
( 3 ) Consumer account. Sufficient information to permit the consumer to identify the account from which the funds will be transferred. The lender must not provide the complete account number of the consumer, but may use a truncated version similar to Model Form A-3 in appendix A to this part.
( 4 ) Loan identification information. Sufficient information to permit the consumer to identify the covered loan associated with the transfer.
( 5 ) Payment channel. Payment channel of the transfer.
( 6 ) Check number. If the transfer will be initiated by a signature or paper check, remotely created check (as defined in Regulation CC, 12 CFR 229.2(fff)), or remotely created payment order (as defined in 16 CFR 310.2(cc)), the check number associated with the transfer.
(C) Payment breakdown. In a tabular form:
( 1 ) Payment breakdown heading. A heading with the statement “Payment Breakdown,” using that phrase.
( 2 ) Principal. The amount of the payment that will be applied to principal.
( 3 ) Interest. The amount of the payment that will be applied to accrued interest on the loan.
( 4 ) Fees. If applicable, the amount of the payment that will be applied to fees.
( 5 ) Other charges. If applicable, the amount of the payment that will be applied to other charges.
( 6 ) Amount. The statement “Total Payment Amount,” using that phrase, and the total dollar amount of the payment as provided in paragraph (b)(2)(ii)(B)( 2 ) of this section.
( 7 ) Explanation of interest-only or negatively amortizing payment. If applicable, a statement explaining that the payment will not reduce principal, using the applicable phrase “When you make this payment, your principal balance will stay the same and you will not be closer to paying off your loan” or “When you make this payment, your principal balance will increase and you will not be closer to paying off your loan.”
(D) Lender name and contact information. Name of the lender, the name under which the transfer will be initiated (if different from the consumer-facing name of the lender), and two different forms of lender contact information that may be used by the consumer to obtain information about the consumer's loan.
(3) Unusual withdrawal notice —(i) Timing —(A) Mail. If the lender provides the unusual withdrawal notice by mail, the lender must mail the notice no earlier than 10 business days and no later than six business days prior to initiating the transfer.
(B) Electronic delivery. ( 1 ) If the lender provides the unusual withdrawal notice through electronic delivery, the lender must send the notice no earlier than seven business days and no later than three business days prior to initiating the transfer.
( 2 ) If, after providing the unusual withdrawal notice through electronic delivery pursuant to the timing requirements in paragraph (b)(3)(i)(B) of this section, the lender loses the consumer's consent to receive the notice through a particular electronic delivery method according to paragraph (a)(4)(ii) of this section, the lender must provide notice of any future unusual withdrawal attempt, if applicable, through alternate means.
(C) In person. If the lender provides the unusual withdrawal notice in person, the lender must provide the notice no earlier than seven business days and no later than three business days prior to initiating the transfer.
(D) Exception for open-end credit. If the unusual withdrawal notice is for open-end credit as defined in § 1041.2(a)(16), the lender may provide the unusual withdrawal notice in conjunction with the periodic statement required under Regulation Z, 12 CFR 1026.7(b), in accordance with the timing requirements of that section.
(ii) Content requirements. The unusual withdrawal notice must contain the following information and statements, as applicable, using language substantially similar to the language set forth in Model Form A-4 in appendix A to this part:
(A) Identifying statement. The statement, “Alert: Unusual Withdrawal,” using that phrase, and, in the same statement, the name of the lender that is providing the notice.
(B) Basic payment information. The content required for the first withdrawal notice under paragraphs (b)(2)(ii)(B) through (D) of this section.
(C) Description of unusual withdrawal. The following content, as applicable, in a form substantially similar to the form in Model Form A-4 in appendix A to this part:
( 1 ) Varying amount —( i ) General. If the amount of a transfer will vary in amount from the regularly scheduled payment amount, a statement that the transfer will be for a larger or smaller amount than the regularly scheduled payment amount, as applicable.
( ii ) Open-end credit. If the payment transfer is for open-end credit as defined in § 1041.2(a)(16), the varying amount content is required only if the amount deviates from the scheduled minimum payment due as disclosed in the periodic statement required under Regulation Z, 12 CFR 1026.7(b).
( 2 ) Date other than date of regularly scheduled payment. If the payment transfer date is not a date on which a regularly scheduled payment is due under the terms of the loan agreement, a statement that the transfer will be initiated on a date other than the date of a regularly scheduled payment.
( 3 ) Different payment channel. If the payment channel will differ from the payment channel of the transfer directly preceding it, a statement that the transfer will be initiated through a different payment channel and a statement of the payment channel used for the prior transfer.
( 4 ) For purpose of re-initiating returned transfer. If the transfer is for the purpose of re-initiating a returned transfer, a statement that the lender is re-initiating a returned transfer, a statement of the date and amount of the previous unsuccessful attempt, and a statement of the reason for the return.
(4) Electronic delivery —(i) General. When the consumer has consented to receive disclosures through electronic delivery, the lender may provide the applicable payment notice required by paragraph (b)(1) of this section through electronic delivery only if it also provides an electronic short notice, except for email delivery as provided in paragraph (b)(4)(iii) of this section.
(ii) Electronic short notice —(A) General content. The electronic short notice required by this paragraph (b) must contain the following information and statements, as applicable, in a form substantially similar to Model Clause A-6 in appendix A to this part:
( 1 ) Identifying statement, as required under paragraphs (b)(2)(ii)(A) and (b)(3)(ii)(A) of this section;
( 2 ) Transfer terms —( i ) Date, as required under paragraphs (b)(2)(ii)(B)( 1 ) and (b)(3)(ii)(B) of this section;
( ii ) Amount, as required under paragraphs (b)(2)(ii)(B)( 2 ) and (b)(3)(ii)(B) of this section;
( iii ) Consumer account, as required and limited under paragraphs (b)(2)(ii)(B)( 3 ) and (b)(3)(ii)(B) of this section; and
( 3 ) Web site URL. When the full notice is being provided through a linked URL rather than as a PDF attachment, the unique URL of a Web site that the consumer may use to access the full payment notice required by paragraph (b) of this section.
(B) Additional content requirements. If the transfer meets any of the conditions for unusual attempts described in paragraph (b)(3)(ii)(C) of this section, the electronic short notice must also contain the following information and statements, as applicable, using language substantially similar to the language in Model Clause A-7 in appendix A to this part:
( 1 ) Varying amount, as defined under paragraph (b)(3)(ii)(C)( 1 ) of this section;
( 2 ) Date other than due date of regularly scheduled payment, as defined under paragraph (b)(3)(ii)(C)( 2 ) of this section; and
( 3 ) Different payment channel, as defined under paragraph (b)(3)(ii)(C)( 3 ) of this section.
(iii) Email delivery. When the consumer has consented to receive disclosures through electronic delivery, and the method of electronic delivery is email, the lender may either deliver the full notice required by paragraph (b)(1) of this section in the body of the email or deliver the full notice as a linked URL Web page or PDF attachment along with the electronic short notice as provided in paragraph (b)(4)(ii) of this section.
(c) Consumer rights notice —(1) General. After a lender initiates two consecutive failed payment transfers from a consumer's account as described in § 1041.8(b), the lender must provide to the consumer a consumer rights notice in accordance with the requirements of paragraphs (c)(2) through (4) of this section.
(2) Timing. The lender must send the notice no later than three business days after it receives information that the second consecutive attempt has failed.
(3) Content requirements. The notice must contain the following information and statements, using language substantially similar to the language set forth in Model Form A-5 in appendix A to this part:
(i) Identifying statement. A statement that the lender, identified by name, is no longer permitted to withdraw loan payments from the consumer's account.
(ii) Last two attempts were returned. A statement that the lender's last two attempts to withdraw payment from the consumer's account were returned due to non-sufficient funds, or, if applicable to payments initiated by the consumer's account-holding institution, caused the account to go into overdraft status.
(iii) Consumer account. Sufficient information to permit the consumer to identify the account from which the unsuccessful payment attempts were made. The lender must not provide the complete account number of the consumer, but may use a truncated version similar to Model Form A-5 in appendix A to this part.
(iv) Loan identification information. Sufficient information to permit the consumer to identify any covered loans associated with the unsuccessful payment attempts.
(v) Statement of Federal law prohibition. A statement, using that phrase, that in order to protect the consumer's account, Federal law prohibits the lender from initiating further payment transfers without the consumer's permission.
(vi) Contact about choices. A statement that the lender may be in contact with the consumer about payment choices going forward.
(vii) Previous unsuccessful payment attempts. In a tabular form:
(A) Previous payment attempts heading. A heading with the statement “previous payment attempts.”
(B) Payment due date. The scheduled due date of each previous unsuccessful payment transfer attempted by the lender.
(C) Date of attempt. The date of each previous unsuccessful payment transfer initiated by the lender.
(D) Amount. The amount of each previous unsuccessful payment transfer initiated by the lender.
(E) Fees. The fees charged by the lender for each unsuccessful payment attempt, if applicable, with an indication that these fees were charged by the lender.
(viii) CFPB information. A statement, using that phrase, that the Consumer Financial Protection Bureau created this notice, a statement that the CFPB is a Federal government agency, and the URL to www.cfpb.gov/payday. This statement must be the last piece of information provided in the notice.
(4) Electronic delivery —(i) General. When the consumer has consented to receive disclosures through electronic delivery, the lender may provide the consumer rights notice required by paragraph (c) of this section through electronic delivery only if it also provides an electronic short notice, except for email delivery as provided in paragraph (c)(4)(iii) of this section.
(ii) Electronic short notice —(A) Content. The notice must contain the following information and statements, as applicable, using language substantially similar to the language set forth in Model Clause A-8 in appendix A to this part:
( 1 ) Identifying statement. As required under paragraph (c)(3)(i) of this section;
( 2 ) Last two attempts were returned. As required under paragraph (c)(3)(ii) of this section;
( 3 ) Consumer account. As required and limited under paragraph (c)(3)(iii) of this section;
( 4 ) Statement of Federal law prohibition. As required under paragraph (c)(3)(v) of this section; and
( 5 ) Web site URL. When the full notice is being provided through a linked URL rather than as a PDF attachment, the unique URL of a Web site that the consumer may use to access the full consumer rights notice required by paragraph (c) of this section.
(B) [Reserved]
(iii) Email delivery. When the consumer has consented to receive disclosures through electronic delivery, and the method of electronic delivery is email, the lender may either deliver the full notice required by paragraph (c)(1) of this section in the body of the email or deliver the full notice as a linked URL Web page or PDF attachment along with the electronic short notice as provided in paragraph (c)(4)(ii) of this section.
§§ 1041.10-1041.11   [Reserved]
§ 1041.12   Compliance program and record retention.
(a) Compliance program. A lender making a covered loan must develop and follow written policies and procedures that are reasonably designed to ensure compliance with the requirements in this part. These written policies and procedures must be appropriate to the size and complexity of the lender and its affiliates, and the nature and scope of the covered loan lending activities of the lender and its affiliates.
(b) Record retention. A lender must retain evidence of compliance with this part for 36 months after the date on which a covered loan ceases to be an outstanding loan.
(1) Retention of loan agreement for covered loans. To comply with the 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.
(2)-(3) [Reserved]
(4) Retention of records relating to payment practices for covered loans. To comply with the requirements in this paragraph (b), a lender must retain or be able to reproduce an image of the following documentation, as applicable, in connection with a covered loan:
(i) Leveraged payment mechanism(s) obtained by the lender from the consumer;
(ii) Authorization of additional payment transfer, as described in § 1041.8(c)(3)(iii); and
(iii) Underlying one-time electronic transfer authorization or underlying signature check, as described in § 1041.8(d)(2).
(5) Electronic records in tabular format regarding payment practices for covered loans. To comply with the requirements in this paragraph (b), a lender must retain electronic records in tabular format that include the following information for covered loans:
(i) History of payments received and attempted payment transfers, as defined in § 1041.8(a)(1), including:
(A) Date of receipt of payment or attempted payment transfer;
(B) Amount of payment due;
(C) Amount of attempted payment transfer;
(D) Amount of payment received or transferred; and
(E) Payment channel used for attempted payment transfer.
(ii) If an attempt to transfer funds from a consumer's account is subject to the prohibition in § 1041.8(b)(1), whether the lender or service provider obtained authorization to initiate a payment transfer from the consumer in accordance with the requirements in § 1041.8(c) or (d).
§ 1041.13   Prohibition against evasion.
A lender must not take any action with the intent of evading the requirements of this part.
§ 1041.14   Severability.
The provisions of this part are separate and severable from one another. If any provision is stayed or determined to be invalid, the remaining provisions shall continue in effect.
§ 1041.15   Effective and compliance dates.
(a) Effective date. The effective date of this part is January 16, 2018.
(b) April 16, 2018 application deadline. The deadline to submit an application for preliminary approval for registration pursuant to § 1041.11(c)(1) is April 16, 2018.
(c) August 19, 2019 compliance date. The compliance date for §§ 1041.2, 1041.3, 1041.7 through 1041.9, 1041.12(a), (b) introductory text and (b)(4) and (5), and 1041.13 is August 19, 2019.