1 EXECUTIVE SUMMARY: PAYDAY, VEHICLE TITLE, AND CERTAIN HIGH-COST INSTALLMENT LOANS

1700 G Street NW, Washington, DC 20552

October 5, 2017

Executive Summary of the Payday, Vehicle 

Title, and Certain High-Cost Installment 

Loans Rule

The Consumer Financial Protection Bureau (Bureau) has issued a final rule governing the 

underwriting of certain personal loans with short term or balloon-payment structures, as well as 

lenders’ payment withdrawal practices for those loans and certain additional installment loan 

products (Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule or Rule). For 

such short-term and balloon structure personal loans, the Rule requires lenders to choose 

between two ability-to-repay underwriting methodologies and requires lenders to report and 

obtain information about a consumer’s financial obligations and borrowing history from certain 

consumer reporting agencies that are required to register with the Bureau. For all covered 

loans, the Rule limits certain repeated payment withdrawal attempts from a consumer’s 

transaction account and requires lenders to provide disclosures related to certain withdrawal 

attempts. 

Generally, the Rule is effective 21 months after publication in the Federal Register. However, 

certain provisions related to the registration of information systems are effective 60 days after 

publication of the Rule in the Federal Register.

Although this executive summary provides a high-level overview of the Payday, Vehicle Title, 

and Certain High-Cost Installment Loans Rule, it is not a substitute for reviewing the Rule. The 

Rule, available at https://www.consumerfinance.gov/policy-compliance/rulemaking/finalrules/payday-vehicle-title-and-certain-high-cost-installment-loans/, is the definitive source 

regarding its requirements. 

This summary is current as of the 

date on the first page. It has not 

been updated to reflect any rules, 

guidance, or other interpretations 

issued or released after that date.
2 EXECUTIVE SUMMARY: PAYDAY, VEHICLE TITLE, AND CERTAIN HIGH-COST INSTALLMENT LOANS

Coverage

The Rule applies to lenderswho regularly extend credit to consumersprimarily for personal, 

family, or household purposes. Such lenders are required to comply with the Rule only for loans 

that are covered by the Rule. 

The Rule applies in its entirety to two types of open-end and closed-end loans:

1. Short-term loans that have terms of 45 days or less. Closed-end loans are covered shortterm loans if the consumer is required to repay substantially the entire amount of the 

loan within 45 days of consummation. Open-end loans are covered short-term loans if 

the consumer is required to repay substantially the entire amount of any advance within 

45 days of the advance. 

2. Longer-term balloon-payment loans. Closed-end loans and open-end loans are covered 

longer term balloon-payment loans if the consumer is required to repay substantially the 

entire balance or substantially the entire amount of a single advance more than 45 days 

after consummation in either a single payment or through at least one payment that is 

more than twice as large as any other payment. A loan is also a covered longer-term 

balloon-payment loan if: 1)it is structured as a loan with multiple advances where

paying the required minimum payments may not fully amortize the outstanding balance 

by a specified date or time; and 2) 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.

A third type of loan, which the Rule refers to as a covered longer-term loan, is subject only to the 

Rule’s requirements concerning payment withdrawal practices, related disclosures, and 

recordkeeping. Loans are considered covered longer-term loans under the Rule if they have:(1) 

a cost of credit that exceeds 36 percent annual percentage rate; and (2) a form of leveraged 

payment mechanism that gives the lender a right to initiate transfers from the consumer’s 

account without further action by the consumer.

1

Certain types of credit are excluded or exempted under the Rule. The excluded loans are 

described in more detail in the Rule, but generally include: loans extended solely to finance the 

purchase of an automobile or other consumer good in which the automobile or other good 

secures the loan; home mortgages and other loans secured by real property or a dwelling if 

 

1 A lev eraged payment mechanism under the Rule does not include initiating a on e-time transfer immediately after 

th e consumer proffers a check or authorizes an electronic transfer.
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recorded or perfected within the term of the loan; credit cards; student loans; non-recourse 

pawn loans; overdraft services and overdraft lines of credit; wage advance programs; and certain 

no-cost advances. The Rule also exempts two categories of loans:

1. Alternative loans, which are loans that generally conform to the National Credit Union 

Administration’s (NCUA) requirements for the Payday Alternative Loan (PAL) program 

but may be offered by any type of lender. In order to be alternative loans under the Rule, 

such loans must be amortizing closed-end loans with terms of 1 to 6 months that do not 

carry any charges other than the rate and application fees permissible under the NCUA 

PAL program and meet certain other requirements. 

2. Accommodation loans, provided that lenders together with their affiliates do not 

originate more than 2500 covered loans in a calendar year and did not derive more than 

10 percent of their receipts from covered loans during the previous tax year.

ABILITY-TO-REPAY

The Rule identifies as unfair and abusive the practice of making or increasing the credit 

available under covered short-term loans or covered longer-term balloon payment loanswithout 

reasonably determining that consumers have the ability-to-repay the loans according to their

terms. The Rule generally requires that, before making such a loan or advance, a lender must 

reasonably determine that the consumer will be able to make the payments2 on the loan while 

also meetingmajor financial obligations3 and basic living expenses4without needing to reborrow over the next 30 days. A lender is also required to make this determination for an openend line of credit if a consumer seeks an advance more than 90 days after the lender’s last 

determination that the consumer has the ability to repay the loan according to its terms.

To make an ability-to-repay determination, a lender is required to:

 

2 For a line of credit, a payment is calculated using the assumption that the consumer will utilize the full amount of 

cr edit under the covered loan a s soon as the credit is available; and that the consumer will make only minimum 

r equ ired payments under the cov ered loan for a s long as permitted under the loan agreement.

3 Th e Rule defines major financial obligations as a consumer’s housing expense, minimum payments under debt 

obligations (including outstanding cov ered loans), child support obligations, and alimony obligations.

4 Th e Rule defines basic living expenses as expenditures, other than payments for major financial obligations, that a 

con sumer makes for goods and services that are n ecessary to maintain the consumer’s h ealth, welfare, and ability to 

pr oduce income, and the health and welfare of the members of the consumer’s household who are financially 

dependent on the consumer.
4 EXECUTIVE SUMMARY: PAYDAY, VEHICLE TITLE, AND CERTAIN HIGH-COST INSTALLMENT LOANS

1. Obtain a consumer’s written statement of the consumer’s net income and the amount of 

payments required to meet the consumer’s major financial obligations.

2. Verify the consumer’s net monthly income5(unless a reliable record of such income is 

not reasonably available), and the amount of payments required for the consumer’s 

major debt obligations using a national consumer report, a report from a registered 

information system, and the records of the lender and its affiliates.

3. Determine the consumer’s ability-to-repay the loan based on the lender’s projections of 

either the consumer’s residual income or debt-to-income ratio during the calendar 

month with the highest payment(s) under the loan. 

4. Ensure that making the loan will not result in the consumer having a sequence of more 

than three covered short-term or balloon-payment loans taken out within 30 days of 

each other. Once a consumer has had a three-loan sequence, there is a mandatory 30-

day cooling off period under the Rule before the consumer can take out additional 

covered short-term or balloon-payment loans. A consumer cannot take out a covered 

short-term loan or a covered longer-term balloon-payment loan under the ability-torepay requirements for 30 days after an outstanding loan under the principal step-down 

option described below.

Principal Step-Down Option for Certain Covered Short-Term 

Loans

A lender may make a series of covered short-term loans that help the consumer step down the 

amount of principal over time without meeting all the specific ability -to-repay requirements set 

forth above, so long as the loans do not involve taking a security interest in the consumer’s 

motor vehicle, the consumer is provided with certain disclosures, and certain other 

requirements are met. 

 

5 Th e Rule defines net income as the total amount that a consumer r eceives after the payer deducts amounts for taxes, 

oth er obligations, and voluntary contributions, but before deductions of a ny payments made under a prospective 

cov ered short-term loan or cov ered longer-term balloon payment loan or for any major financial obligation. A 

len der may include in the consumer’s n et income the amount of a ny income of a nother person to which the 

con sumer has a r easonable expectation of a ccess if such access is v erified. 
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Generally, this principal step-down option for covered short-term loans must have the following 

features: 

1. The loan is not open-end credit; 

2. The first loan has a principal amount no larger than $500, and second and third loans 

made within 30 days of a prior loan reduce the principal amount by at least one-third 

from the prior loan. Once a consumer has had a sequence of three covered short-term 

loans under the principal step-down option, there is a mandatory 30-day cooling off 

period before the consumer can take out additional covered short-term loans under the 

principal step-down option.

3. The lender and any service provider do not take security interest in the consumer’s 

motor vehicle; and

4. The consumer has not in the past 30 days had an outstanding covered short-term loan or 

covered longer term balloon-payment loan. 

The principal step-down option cannot be used in certain circumstances, such as where a 

consumer has already been in debt on covered short-term loans for more than 90 days or has 

had six such loans in the last 6 months. Where such limitations apply, lenders would have to 

use the general ability-to-repay analysis to determine whether the consumer could afford 

another covered short-term loan. After making a covered short-term loan under the principal 

step-down option, a lender and its affiliates cannot make any other type of loan to that 

consumer while the principal step-down is outstanding and for 30 days thereafter.

A lender that provides the principal step-down option must provide certain disclosures to the 

consumer. The disclosures required for these step-down covered short-term loans must be 

substantially similar to those provided as the model forms in Appendix A of the Rule and must 

be provided in writing or through electronic delivery and in a retainable form. These required

disclosures must be separate from all other written materials provided to the consumer in 

connection with the loan. For these alternative short-term loans, the lender must provide the 

consumer certain disclosures at two points in time: 

1. When a lender makes a first loan in a sequence of loans. This disclosures provide a 

consumer with notice that, among other things, the consumer shouldnot take out the 

loan if the consumer is unsure of being able to repay the total amount of principal and 

finance charges on the loan by the contractual due date and contains a statement that 

informs the consumer that Federal law requires a similar loan taken out within the next 

30 days to be for a smaller amount. This disclosure also informs the consumer of the 

principal step-down requirements for additional loans.
6 EXECUTIVE SUMMARY: PAYDAY, VEHICLE TITLE, AND CERTAIN HIGH-COST INSTALLMENT LOANS

2. When a lender makes a third loan in a sequence. This disclosure provides a consumer 

with notice that, among other things, the lender’s records show that the consumer has 

had two similar loans without taking at least a 30-day break between them and a 

statement that informs the consumer that Federal law requires the loan to be smaller in 

amount than previous loans in the loan sequence. This disclosure also contains a 

statement that informs the consumer that the consumer cannot take out a similar loan 

for at least 30 days after repaying this loan. 

PAYMENT WITHDRAWALS

The Rule also imposes two types of requirements regarding lenders’ repeated attempts to 

withdraw payments from consumers’ transaction accounts after prior attempts have failed due 

to insufficient funds. 

First, a lender is required to provide a written notice before its first attempt to withdraw 

payment for a covered loan from a consumer’s account and before subsequent attempts that 

deviate from scheduled amounts or dates or involve a different payment channel than the prior

attempt.6 The notice must contain key information about the upcoming payment attempt and, if 

applicable, alert the consumer to such payment attempts. A lender is permitted to provide 

electronic notices as long as the consumer consents to electronic communications. The Rule 

also defines certain requirements and conditions for payment transfers to collect a late fee or 

returned item fee.

 

Second, where two consecutive withdrawal attempts have failed due to insufficient funds, the 

Rule prohibits a lender from attempting another withdrawal from the same account unless the 

lender obtains the consumer’s new and specific authorization to make further withdrawals from 

the account. This prohibition on further withdrawal attempts applies whether the two failed 

attempts are initiated through a single payment channel or different channels, such as the 

automated clearinghouse system and the check network. 

REGISTERED INFORMATION SYSTEMS

For lenders who are making loans under the ability -to-repay requirements or under the 

principal step-down option, the Rule generally requires them to furnish certain loan data 

 

6 Un der the Rule, payment channel refers to the specific payment method, including the network that the transfer will 

tr avel through and the form of the transfer. For example, ACH transfers, checks, remotely created checks, remotely 

cr eated payment orders, internal transfers, PIN debit card payments, and signature debit card network payments. 
7 EXECUTIVE SUMMARY: PAYDAY, VEHICLE TITLE, AND CERTAIN HIGH-COST INSTALLMENT LOANS

covered under this Rule to information systems that are registered with the Bureau and to pull a 

consumer report from one such system in the course of making a covered short-term or longerterm balloon payment loan. Specifically, lenders are required to report certain information to

all registered information systems at origination, to update the information if it changes over 

time, and to report certain information when the loan ceases to be outstanding.

The Rule prescribes processes and criteria for entities to apply to the Bureau to become 

registered information systems and their obligations as registered information systems, 

including the receipt of furnished information from lenders and their provision of consumer 

reports to lenders under the Rule. Registered information systems under the Rule must meet 

certain eligibility criteria which include having: (1) the capability to receive furnished 

information and to generate consumer reports; (2) a Federal consumer financial law compliance 

program (as demonstrated by an independent assessment); (3) a comprehensive information 

security program (as demonstrated by an independent assessment); and (4) the ability to 

facilitate compliance with the Rule. Entities that apply to the Bureau to become registered 

information systems must either be subject to or consent to the Bureau’s supervisory authority. 

RECORD RETENTION AND COMPLIANCE PROGRAM 

REQUIREMENTS

Lenders must develop and follow policies and procedures designed to ensure compliance with 

the Rule. Lenders must also retain evidence of compliance for 36 months. The Rule outlines the 

types and format of information that lenders must retain.