summarize_sections is a wrapper for textrank_sentences that first splits a rule into sections and then returns a summary for each. It takes three inputs:

Rule text extracted from a Federal Register xml file with the xml_rule_text() function (or any other data frame with a column called “text”).
The number of sentences to return, n_sentences (optional)–this controls the length of the summary. Do you want each section summarized in one sentence summary or five? The current default is two sentences per rule section, but I plan to make this vary by a section’s length (longer sections may deserve a longer summary).
The maximum number of sentences per section to summarize max_sentences (optional). Fewer sentences makes textrank go faster, but we will often want to use all sentences. The default is 100 sentences per rule section.

You can download it here or load it in R with source("https://raw.githubusercontent.com/judgelord/rulemaking/master/functions/textrank.R")

For more on textrank and the steps involved in applying it to a rule, see the PDF that Chris shared.

# load summarize_sections() function
source("https://raw.githubusercontent.com/judgelord/rulemaking/master/functions/textrank.R")

The Volcker Rule

Proposed Rule

xml_rule_text("https://www.federalregister.gov/documents/full_text/xml/2011/11/07/2011-27184.xml") %>% 
  summarize_sections(n_sentences = 2,
                     max_sentences = 100) %>% 
  kablebox()

section	summary
SUMMARY:	Summary the occ, board, fdic, and sec which contains certain prohibitions and restrictions on the ability of a banking entity and nonbank financial company supervised by the board to engage in proprietary trading and have certain interests in, or relationships with, a hedge fund or private equity fund. Dates comments should be received on or before january, addresses interested parties are encouraged to submit written comments jointly to all of the agencies.
I. Background	The dodd frank act was enacted on july, section of the dodd frank act added a new section to the bank holding company act of, subject to certain exemptions. New section of the bhc act also provides for nonbank financial companies supervised by the board that engage in such activities or have such interests or relationships to be subject to additional capital requirements, quantitative limits, or other restrictions.
A. Rulemaking Framework	Section of the bhc act requires that implementation of its provisions occur in several stages. First, the council was required to conduct a study, in formulating this proposal.
B. Section 13 of the BHC Act	Section of the bhc act generally prohibits banking entities from engaging in proprietary trading or from acquiring or retaining any ownership interest in, or sponsoring, a covered fund. However, section of that act expressly includes exemptions from these prohibitions for certain permitted activities, including investments in small business investment companies and public interest investments; organizing and offering a covered fund ; foreign covered fund activities by non u.s. banking entities.
A. General Approach	In formulating the proposed rule, the agencies have attempted to reflect the structure of section of the bhc act, which is to prohibit a banking entity from engaging in proprietary trading or acquiring or retaining an ownership interest in, or having certain relationships with, a covered fund, while permitting such entities to continue to provide client oriented financial services. However, the delineation of what constitutes a prohibited or permitted activity under section of the bhc act often involves subtle distinctions that are difficult both to describe comprehensively within regulation and to evaluate in practice.
B. Proprietary Trading Restrictions	Subpart b of the proposed rule implements the statutory prohibition on proprietary trading and the various exemptions to this prohibition included in the statute. Section. of the proposed rule contains the core prohibition on proprietary trading and defines a number of related terms, including proprietary trading and trading account.
C. Covered Fund Activities and Investments	Subpart c of the proposed rule implements the statutory prohibition on, as principal, directly or indirectly, acquiring and retaining an ownership interest in, or having certain relationships with, a covered fund, as well as the various exemptions to this prohibition included in the statute. Section. of the proposed rule contains the core prohibition on covered fund activities and investments and defines a number of related terms, including covered fund and ownership interest.
D. Compliance Program Requirement	Subpart d of the proposed rule requires a banking entity engaged in covered trading activities or covered fund activities to develop and implement a program reasonably designed to ensure and monitor compliance with the prohibitions and restrictions on covered trading activities and covered fund activities and investments set forth in section of the bhc act and the proposed rule. Section. of the proposed rule specifies six elements that each compliance program established under subpart d must, at a minimum, include internal written policies and procedures reasonably designed to document, describe, and monitor the covered trading activities and covered fund activities and investments of the banking entity to ensure that such activities comply with section of the bhc act and the proposed rule; a system of internal controls reasonably designed to monitor and identify potential areas of noncompliance with section of the bhc act and the proposed rule in the banking entity’s covered trading and covered fund activities and to prevent the occurrence of activities that are prohibited by section of the bhc act and the proposed rule; a management framework that clearly delineates responsibility and accountability for compliance with section of the bhc act and the proposed rule; independent testing for the effectiveness of the compliance program, conducted by qualified banking entity personnel or a qualified outside party; training for trading personnel and managers, as well as other appropriate personnel, to effectively implement and enforce the compliance program; and making and keeping records sufficient to demonstrate compliance with section of the bhc act and the proposed rule, which a banking entity must promptly provide to the relevant agency upon request and retain for a period of no less than years.
E. Conformance Provisions	Subpart e of the board’s proposed rule incorporates, with minor technical and conforming edits, the final rule which the board, after soliciting and considering public comment, issued regarding the conformance periods for entities engaged in prohibited proprietary trading or covered fund activities and investments. That rule implements the conformance period and extended transition period, as applicable, during which a banking entity and nonbank financial company supervised by the board must bring its activities, investments and relationships into compliance with the prohibitions and restrictions on proprietary trading and acquiring an ownership interest in, or having certain relationships with, a covered fund.
F. Treatment of Smaller, Less-Complex Banking Entities	In formulating the proposed rule, the agencies have carefully considered and taken into account the potential impact of the proposed rule on small banking entities and banking entities that engage in little or no covered trading activities or covered fund activities and investments, including the burden and cost that might be associated with such banking entities’ compliance with the proposed rule. In particular, the agencies have proposed to reduce the effect of the proposed rule on such banking entities by limiting the application of certain requirements, such as the reporting and recordkeeping requirements of. and appendix a of the proposed rule and the compliance program requirements contained in subpart d and appendix c of the proposed rule, to those banking entities that engage in little or no covered trading activities or covered fund activities and investments.
G. Application of Section 13 of the BHC Act to Securitization Vehicles or Issuer…	Many issuers of asset backed securities may be included within the definition of covered fund since they would be an investment company but for the exclusions contained in section of the investment company act. In recognition of these concerns, the agencies have requested comment throughout this supplementary information on the potential effects of section of the bhc act and the proposed rule on the securitization industry and issuers of asset backed securities.
Section _.1: Authority, Purpose, Scope, and Relationship to Other Authorities…	Section. of the proposed rule describes the authority under which each agency is issuing the proposed rule, the purpose of the proposed rule, and the banking entities to which each agency’s rule applies. In addition, of the bhc act, which provides that the prohibitions and restrictions of section apply to the activities of a banking entity regardless of whether such activities are authorized for a banking entity under other applicable provisions of law.
Section _.2: Definitions	Section. of the proposed rule defines a variety of terms used throughout the proposed rule, including banking entity, which defines the scope of entities to which the proposed rule applies. Consistent with the statutory definition of that term, of the bhc act specifically contemplates such investments.
Section _.3: Prohibition on Proprietary Trading	Section. of the proposed rule describes the scope of the prohibition on proprietary trading and defines a number of terms related to proprietary trading. The agencies note that the definition of proprietary trading in the statute and under the proposed rule is broad.
Section _.4: Permitted Underwriting and Market Making-Related Activities	Section. of the proposed rule implements section addresses permitted market making related activities. Section.
B. Market Making-Related Hedging	Section. of the proposed rule and described in detail in part iii.b. of this supplementary information. Those criteria are intended to clearly define the scope of appropriate risk mitigating hedging activities, to foreclose reliance on the exemption for prohibited proprietary trading that is conducted in the context of, or mischaracterized as, hedging activity, and to require documentation regarding the hedging purpose of certain transactions that are established at a level of organization that is different than the level of organization establishing or responsible for the underlying risk or risks that are being hedged, which in the context of the market making related activity would generally be the trading desk.
Section _.5: Permitted Risk-Mitigating Hedging Activities	Section. of the proposed rule permits a banking entity to purchase or sell a covered financial position if the transaction is made in connection with, and related to, individual or aggregated positions, contracts, or other holdings of a banking entity and is designed to reduce the specific risks to the banking entity in connection with and related to such positions, contracts, or other holdings of the bhc act, which provides an exemption from the prohibition on proprietary trading for certain risk mitigating hedging activities. Like market making related activities, risk mitigating hedging activities present certain implementation challenges because of the potential that prohibited proprietary trading could be conducted in the context of, or mischaracterized as, a hedging transaction.
Section _.6: Other Permitted Trading Activities	Section. of the proposed rule permits a banking entity to engage in certain other trading activities described in section of the bhc act. Several of these exemptions appear, either by plain language or by implication, to be intended to apply only to covered fund activities and investments, and so the agencies have not proposed to include them in the proposed rule’s proprietary trading provisions.
Section _.7: Reporting and Recordkeeping Requirements Applicable to Trading A…	Section. of the proposed rule, which implements in part section of the bhc act, requires certain banking entities to comply with the reporting and recordkeeping requirements specified in appendix a of the proposed rule. In addition, requires banking entities to comply with the recordkeeping requirements in. of the proposed rule, related to the banking entity’s compliance program, as well as any other reporting or recordkeeping requirements that the relevant agency may impose to evaluate the banking entity’s compliance with the proposed rule.
Section _.8: Limitations on Permitted Trading Activities	Section. of the proposed rule implements section of the proposed rule provides that no transaction, class of transactions, or activity is permissible under. through. of the proposed rule if the transaction, class of transactions, or activity would involve or result in a material conflict of interest between the banking entity and its clients, customers, or counterparties; result, directly or indirectly, in a material exposure by the banking entity to a high risk asset or a high risk trading strategy; or pose a threat to the safety and soundness of the banking entity or u.s. financial stability. The proposed rule further defines material conflict of interest, high risk asset, and high risk trading strategy for these purposes.
C. Subpart C—Covered Fund Activities and Investments	As noted above, except as otherwise permitted, section of that act. Additionally, subpart c contains a discussion of the internal controls, reporting and recordkeeping requirements applicable to covered fund activities and investments, and incorporates by reference the minimum compliance standards for banking entities contained in subpart d of the proposed rule, as well as appendix c, to the extent applicable.
Section _.10: Prohibition of Acquisition or Retention of Ownership Interests …	Section. of the proposed rule defines the scope of the prohibition on acquisition or retention of ownership interests in, and certain relationships with, a covered fund, as well as defines a number of key terms related to such prohibition. Section. of the bhc act and prohibits a banking entity from, as principal, directly or indirectly, acquiring or retaining an equity, partnership, or other ownership interest in, or acting as sponsor to, a covered fund, unless otherwise permitted under subpart c of the proposed rule.
Section _.11: Permitted Organizing and Offering of a Covered Fund	Section. of the proposed rule implements section of the bhc act and permits a banking entity to organize and offer a covered fund, including acting as sponsor of the fund, if certain criteria are met. This exemption is designed to permit a banking entity to be able to engage in certain traditional asset management and advisory businesses in compliance with section of the bhc act.
Section _.12: Permitted Investment in a Covered Fund	Section. of the proposed rule describes the limited circumstances under which a banking entity may acquire or retain, as an investment, an ownership interest in a covered fund that the banking entity or one of its subsidiaries or affiliates organizes and offers. This section implements section the aggregate value of all investments in all covered funds made by the banking entity.
Section _.13: Other Permitted Covered Fund Activities and Investments	Section of the proposed rule implements the statutory exemptions described in sections of the bhc act that the agencies have determined apply, either by plain language or by implication, to investments in or relationships with a covered fund. Section. of the proposed rule would permit a banking entity to be a shareholder, general partner, managing member, or trustee of an sbic without regard to whether the interest is a controlling or non controlling interest.
Section _.14: Covered Fund Activities and Investments Determined To Be Permis…	Section. of the proposed rule, which implements section remain subject to other provisions of section of the bhc act, including the sections limiting conflicts of interest and high risk assets or trading strategies, as well as the section designed to prevent evasion of section of the bhc act. The agencies have proposed to permit three activities at this time under this authority.
Section _.15: Internal Controls, Reporting and Recordkeeping Requirements App…	Section. of the proposed rule, which implements section such other reporting and recordkeeping requirements as the relevant supervisory agency may deem necessary to appropriately evaluate the banking entity’s compliance with this subpart c. These requirements are discussed in detail in part iii.d of this supplementary information.
Section _.16: Limitations on Relationships With a Covered Fund	Section between the banking entity and covered fund is subject to section b of the fr act, which, in general, requires that the transaction be on market terms or on terms at least as favorable to the banking entity as a comparable transaction by the banking entity with an unaffiliated third party. Section of the proposed rule includes this prohibition.
Section _.17: Other Limitations on Permitted Covered Funds Activities	Section. of the proposed rule implements section of the bhc act, which places certain limitations on the permitted covered fund activities and investments in which a banking entity may engage. Consistent with the statute and. of the proposed rule, provides that no transaction, class of transactions, or activity is permissible under. through. of the proposed rule if the transaction, class of transactions, or activity would involve or result in a material conflict of interest between the banking entity and its clients, customers, or counterparties; result, directly or indirectly, in a material exposure by the banking entity to a high risk asset or a high risk trading strategy; or pose a threat to the safety and soundness of the banking entity or the financial stability of the united states.
D. Subpart D (Compliance Program Requirement) and Appendix C (Minimum Standards …	Subpart d of the proposed rule, which implements section of the bhc act, requires certain banking entities to develop and provide for the continued administration of a program reasonably designed to ensure and monitor compliance with the prohibitions and restrictions on covered trading activities and covered fund activities and investments set forth in section of the bhc act and the proposed rule. This compliance program requirement forms a key part of the proposal’s multi faceted approach to implementing section of the bhc act, and is intended to ensure that banking entities establish, maintain and enforce compliance procedures and controls to prevent violation or evasion of the prohibitions and restrictions on covered trading activities and covered fund activities and investments.
Section _.20: Compliance Program Mandate	The proposed rule adopts a tiered approach to implementing the compliance program mandate, requiring a banking entity engaged in covered trading activities or covered fund activities and investments to establish a compliance program that contains specific elements and, if the banking entity’s activities are significant, meet a number of minimum standards. If a banking entity does not engage in covered trading activities and covered fund activities and investments, it must ensure that its existing compliance policies and procedures include measures that are designed to prevent the banking entity from becoming engaged in such activities and making such investments and must develop and provide for the required compliance program under proposed. of the proposed rule prior to engaging in such activities or making such investments, but is not otherwise required to meet the requirements of subpart d of the proposed rule.
Appendix C—Minimum Standards for Programmatic Compliance	Appendix c of the proposed rule specifies a variety of minimum standards applicable to the compliance program of a banking entity with significant covered trading activities or covered fund activities and investments. Section i.a of proposed appendix c sets forth the purpose of the required compliance program, which is to ensure that each banking entity establishes, maintains, and enforces an effective compliance program, consisting of written policies and procedures, internal controls, a management framework, independent testing, training, and recordkeeping, that is designed to clearly document, describe, and monitor the covered trading activities and covered fund activities or investments and the risks of the banking entity related to such activities or investments, identify potential areas of noncompliance, and prevent activities or investments prohibited by, or that do not comply with, section of the bhc act and the proposed rule; specifically addresses the varying nature of activities or investments conducted by different units of the banking entity’s organization, including the size, scope, complexity, and risks of the individual activity or investment; subjects the effectiveness of the compliance program to independent review and testing; makes senior management and intermediate managers accountable for the effective implementation of the compliance program, and ensures that the board of directors or chief executive officer review the effectiveness of the compliance program; and facilitate supervision of the banking entity’s covered trading activities and covered fund activities or investments by the agencies.
Section _.21: Termination of Activities or Investments; Penalties for Violati…
E. Subpart E—Conformance Provisions	Section of the bhc act, was issued on february, as noted in its issuing release, this period is intended to give markets and firms an opportunity to adjust to section of the bhc act. As part of the current proposal, the board is proposing to relocate the board’s conformance rule, which was added as. of the board’s regulation y, to subpart e of the board’s proposed rule.
Request for Comments
V. Solicitation of Comments on Use of Plain Language	Section of the gramm leach bliley act, public law, sec., stat., requires the occ, board and fdic to use plain language in all proposed and final rules published after january, the occ, board and fdic invite public comments on how to make this proposal easier to understand. For example have we organized the material to suit your needs?
The Economic Impact of the Proposed Rule Under Section 13 of the BHC Act—Req…	Section of the bhc act imposes on all banking entities prohibitions and restrictions on proprietary trading and certain interests in, and relationships with, a covered fund, which apply to banking entities whether or not the agencies adopt implementing rules. In formulating the proposed rule to implement these provisions, which is required by statute, the agencies have chosen a multi faceted approach to establish a regulatory framework that provides for clear, robust, and effective implementation of the statute’s provisions in a consistent manner, while also not unduly constraining the ability of banking entities to engage in permitted activities and investments.
Any other economic impacts of the proposal.	In addition, to assist with potential estimates of the proposed rule’s quantitative impacts, we request specific comment on the potential costs and benefits or other quantitative impacts of various aspects of the proposed rule, such as the compliance program requirement, the required reporting of quantitative measurements, and the conditions and requirements for relying on the proposed exemptions. To further facilitate public comment on the economic effects of the manner in which the proposed rule implements the statute, the agencies have identified below a number of significant aspects of the proposed rule and potential economic impacts that may result from section of the bhc act’s requirements, as proposed to be implemented.
Definition of Trading Account	Section. of the proposed rule, which implements the statutory definition of trading account, provides a multi pronged definition of that term that is intended to ensure that banking entities do not engage in hidden proprietary trading by characterizing trading activity as being conducted outside a trading account. In addition to positions taken principally for the purpose of short term resale, benefitting from short term price movements, realizing short term arbitrage profits, or hedging another trading account position, the proposed definition also includes in connection with their activities that require such registration or notice.
Exemption for Underwriting Activities	Section the potential costs that may arise from constraints on legitimate underwriting activities. The agencies have proposed to use, wherever practicable, common terms from existing laws and regulations in the context of underwriting to facilitate market participants’ understanding and use of the exemption and to promote consistency across laws and regulations.
Exemption for Market Making-Related Activities	Section potential costs that may arise from constraints on legitimate market making related activities. The agencies have proposed to use, where practicable, terms and concepts used in current laws and regulations in the context of market making to promote clarity and consistency.
Exemption for Risk-Mitigating Hedging Activities	Section provides an exemption from the prohibition on proprietary trading for risk mitigating hedging activities in connection with and related to individual or aggregated positions, contracts, or other holdings of a banking entity that are designed to reduce the specific risks to the banking entity in connection with and related to such positions, contracts, or other holdings. The proposed exemption requires that the hedging transaction be reasonably correlated to these risks that the transaction is intended to hedge or otherwise mitigate.
Compensation Related to Permitted Activities	The proposed rule would require that the compensation arrangements of persons performing underwriting, market making related, and risk mitigating hedging activities be designed not to reward proprietary risk taking. These proposed requirements are intended to reduce incentives for personnel of the banking entity to violate the statutory prohibition on proprietary trading and expose the banking entity to risks arising from prohibited proprietary trading.
Exemption for Trading on Behalf of Customers	Section. of the bhc act, which permits a banking entity, notwithstanding the prohibition on proprietary trading, to purchase or sell a covered financial position on behalf of customers. Because the statute does not define when a transaction would be conducted on behalf of customers, the proposed rule identifies three categories of transactions that would qualify under this exemption.
Exemption for Trading Outside of the United States	Section. of the bhc act. Despite the reference to section of the bhc act imposes additional competitive differences, beyond those recognized above, and the potential economic impact of such competitive differences.
Quantitative Measurements	Section. of the proposed rule, which implements in part section identifying certain trading activities resulting in material exposure to high risk assets or high risk strategies. In combination, and appendix a of the proposed rule provide a quantitative overlay designed to help banking entities and the agencies identify trading activities that warrant further analysis or review in a variety of levels and contexts.
B. Covered Fund Activities	Subpart c implements the statutory provisions of section of the bhc act, which prohibit banking entities from acquiring or retaining any equity, partnership, or other ownership interest in, or sponsoring, a covered fund, and other provisions of section of the bhc act which provide exemptions from, or otherwise relate to, that prohibition. In implementing the covered funds provisions of section of the bhc act, the agencies have proposed to define and interpret several terms used in implementing these provisions and the goals of section.
General Scope	For banking entities that invest in, sponsor or have relationships with one or more covered funds, the economic impact of complying with the statute and the implementing rule will vary, depending on the size, scope and complexity of their respective business, operations and relationships with clients, customers and counterparties. Moreover, the types of covered funds advised or sponsored by an adviser, the types of business and other relationships that an adviser may conduct with such funds and the adviser’s other business activities, including relationships with other third party advised covered funds, will affect whether a covered fund activity would be subject to the statutory prohibition, eligible for a particular exemption or subject to particular internal control requirements as specified by the proposed rule.
Exemptions	In implementing the covered funds provisions of section of the bhc act, the agencies also have interpreted or defined terms contained in the three principal exemptions related to covered fund activities by a banking entity the exemption for covered fund activities outside of the united states. We request comment generally on the potential impact of these statutory exemptions, as implemented by the proposed rule.
Securitizations	The agencies recognize that by defining covered fund and banking entity broadly, securitization vehicles may be affected by the restrictions and requirements of the proposed rule, and this may give rise to various economic effects. The agencies preliminarily believe that the proposed rule should mitigate the impact of securitization market participants and investors in some non loan asset classes by excluding loan securitizations from the restrictions on sponsoring or acquiring and retaining ownership interests in covered funds.
C. Limitations on Permitted Activities for Material Conflicts of Interest and Hi…	Section of the bhc act provides that an otherwise permitted activity would not qualify for a statutory exemption if it would involve or result in a material conflict of interest. The proposed rule’s definition of material conflict of interest, as discussed in more detail in part ii of the supplementary information, would provide flexibility to banking entities and their clients, customers, and counterparties with respect to how transactions are structured, while also establishing a structure to prevent banking entities from engaging in transactions and activities in reliance on a statutory exemption when the transaction or activity would have a materially adverse effect on the clients, customers, or counterparties of the banking entity.
D. Compliance Program	Under. of the proposed rule, all covered banking entities that are engaged in covered trading activities or covered fund activities or investments would be required to have a compliance program that provides for the following six elements, at a minimum, the proposed rule would ensure that agency examiners and supervisors can effectively review a banking entity’s activities and investments to assess compliance and, where a banking entity is not in compliance with the proposed rule, take appropriate action. Beyond the benefits recognized above, the individual elements of the proposed compliance program should also provide certain benefits.
E. Additional Request for Comment	In addition to the requests for comment discussed above, we seek commenters’ views on the following additional questions related to the potential economic impacts of the proposed framework for implementing section of the bhc act question. What are the expected costs and benefits of complying with the requirements of the proposed rule?
A. Paperwork Reduction Act Analysis Request for Comment on Proposed Information …	In accordance with section of the paperwork reduction act of. The board reviewed the proposed rule under the authority delegated to the board by omb.
B. Initial Regulatory Flexibility Act Analysis	The regulatory flexibility act of the rfa, the regulatory flexibility analysis otherwise required under sections and of the rfa is not required if an agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. The agencies have considered the potential impact of the proposed rule on small entities in accordance with the rfa.
C. OCC Unfunded Mandates Reform Act of 1995 Determination	Section of the unfunded mandates reform act of, public law, requires that an agency prepare a budgetary impact statement before promulgating any rule likely to result in a federal mandate that may result in the expenditure by state, local, and tribal governments, in the aggregate, or by the private sector of million or more, as adjusted by inflation, in any one year. If a budgetary impact statement is required, section of the unfunded mandates act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule.
D. SEC: Small Business Regulatory Enforcement Fairness Act	Under the small business regulatory enforcement fairness act of, a rule is major if it has resulted, or is likely to result, in an annual effect on the u.s. economy of million or more; a major increase in costs or prices for consumers or individual industries; or significant adverse effects on competition, investment, or innovation. The sec requests comment on whether its proposed rule would be a major rule for purposes of the small business regulatory enforcement fairness act.
Statutory authority	Section. of the proposed rule implementing section of the bhc act cites section of the bhc act, pursuant to which the sec is adopting the entirety of the proposed rule with respect to covered banking entities, as that term is defined in the sec’s proposed rule. Section. also cites the sec’s independent authority under certain sections of the exchange act to adopt., , and appendices a and c of the proposed rule.
“Covered Banking Entity” Definition	The proprietary trading and covered fund activity prohibition set forth in section of the bhc act, as proposed to be implemented in. of the proposed rule implementing section of bhc act would define the term covered banking entity. This term is used in each agency’s proposed rule to describe the specific types of banking entities to which that agency’s rule would apply.
B. Consideration of the Impact of Reporting and Recordkeeping and Compliance Pro…	Section. As discussed above in part iii.b. of the supplementary information, of the proposed rule and proposed appendix a, a larger number of quantitative measurements are required to be calculated and reported by covered banking entities that, together with their affiliates and subsidiaries, have over billion gross trading assets and liabilities.
C. Registered Investment Advisers	As discussed above, under the proposed rule, a covered banking entity as defined in.. The covered fund restrictions of section of the bhc act and the proposed implementing rules make reference to or incorporate a number of banking law and supervision concepts that traditionally appear in federal banking law and are interpreted and applied by the federal banking agencies.

Final Rule

xml_rule_text("https://www.federalregister.gov/documents/full_text/xml/2014/01/31/2013-31511.xml") %>% 
  summarize_sections() %>% 
  kablebox()

section	summary
SUMMARY:	Summary the occ, board, fdic, and sec. Section contains certain prohibitions and restrictions on the ability of a banking entity and nonbank financial company supervised by the board to engage in proprietary trading and have certain interests in, or relationships with, a hedge fund or private equity fund.
I. Background	The dodd frank act was enacted on july, section of the dodd frank act added a new section to the bank holding company act of would be subject to additional capital requirements, quantitative limits, or other restrictions if the company engages in certain proprietary trading or covered fund activities. Section of the bhc act generally prohibits banking entities from engaging as principal in proprietary trading for the purpose of selling financial instruments in the near term or otherwise with the intent to resell in order to profit from short term price movements.
Notice of Proposed Rulemaking: Summary of General Comments	Authority for developing and adopting regulations to implement the prohibitions and restrictions of section of the bhc act is divided among the board, the federal deposit insurance corporation of the bhc act, the board, occ, fdic, and sec in october invited the public to comment on proposed rules implementing that section’s requirements. The period for filing public comments on this proposal was extended for an additional days, until february, in january, the cftc requested comment on a proposal for the same common rule to implement section with respect to those entities for which it is the primary financial regulatory agency and invited public comment on its proposed implementing rule through april, the statute requires the agencies, in developing and issuing implementing rules, to consult and coordinate with each other, as appropriate, for the purposes of assuring, to the extent possible, that such rules are comparable and provide for consistent application and implementation of the applicable provisions of section of the bhc act.
Overview of Final Rule	The agencies are adopting this final rule to implement section of the bhc act with a number of changes to the proposal, as described further below. The final rule adopts a risk based approach to implementation that relies on a set of clearly articulated characteristics of both prohibited and permitted activities and investments and is designed to effectively accomplish the statutory purpose of reducing risks posed to banking entities by proprietary trading activities and investments in or relationships with covered funds.
A. General Approach and Summary of Final Rule	The agencies have designed the final rule to achieve the purposes of section of the bhc act, which include prohibiting banking entities from engaging in proprietary trading or acquiring or retaining an ownership interest in, or having certain relationships with, a covered fund, while permitting banking entities to continue to provide, and to manage and limit the risks associated with providing, client oriented financial services that are critical to capital generation for businesses of all sizes, households and individuals, and that facilitate liquid markets. These client oriented financial services, which include underwriting, market making, and asset management services, are important to the u.s. financial markets and the participants in those markets.
B. Proprietary Trading Restrictions	Subpart b of the final rule implements the statutory prohibition on proprietary trading and the various exemptions to this prohibition included in the statute. Section. of the final rule contains the core prohibition on proprietary trading and defines a number of related terms, including proprietary trading and trading account.
C. Restrictions on Covered Fund Activities and Investments	Subpart c of the final rule implements the statutory prohibition on, directly or indirectly, acquiring and retaining an ownership interest in, or having certain relationships with, a covered fund, as well as the various exemptions to this prohibition included in the statute. Section. of the final rule contains the core prohibition on covered fund activities and investments and defines a number of related terms, including covered fund and ownership interest.
D. Metrics Reporting Requirement	Under the final rule, a banking entity that meets relevant thresholds specified in the rule must furnish the following quantitative measurements for each of its trading desks engaged in covered trading activity calculated in accordance with appendix a the final rule raises the threshold for metrics reporting from the proposal to capture only firms that engage in significant trading activity, identified at specified aggregate trading asset and liability thresholds, and delays the dates for reporting metrics through a phased in approach based on the size of trading assets and liabilities. Specifically, the agencies have delayed the reporting of metrics until june, for the largest banking entities that, together with their affiliates and subsidiaries, have trading assets and liabilities the average gross sum of which equal or exceed billion on a worldwide consolidated basis over the previous four calendar quarters.
E. Compliance Program Requirement	Subpart d of the final rule requires a banking entity engaged in covered trading activities or covered fund activities to develop and implement a program reasonably designed to ensure and monitor compliance with the prohibitions and restrictions on covered trading activities and covered fund activities and investments set forth in section of the bhc act and the final rule. To reduce the overall burden of the rule, the final rule provides that a banking entity that does not engage in covered trading activities or covered fund activities and investments need only establish a compliance program prior to becoming engaged in such activities or making such investments.
Section __.3: Prohibition on Proprietary Trading and Related Definitions	Section of the bhc act defines proprietary trading, in relevant part, as engaging as principal for the trading account of the banking entity in any transaction to purchase or sell, or otherwise acquire or dispose of, a security, derivative, contract of sale of a commodity for future delivery, or other financial instrument that the agencies include by rule. Section. of the bhc act and clarified that proprietary trading does not include acting solely as agent, broker, or custodian for an unaffiliated third party.
Repurchase and Reverse Repurchase Arrangements and Securities Lending	The proposed rule’s definition of trading account excluded an account used to acquire or take one or more covered financial positions that arise under a transaction in which the banking entity lends or borrows a security temporarily to or from another party pursuant to a written securities lending agreement under which the lender retains the economic interests of an owner of such security and has the right to terminate the transaction and to recall the loaned security on terms agreed to by the parties. Positions held under these agreements operate in economic substance as a secured loan and are not based on expected or anticipated movements in asset prices.
Liquidity Management Activities	The proposed definition of trading account excluded an account used to acquire or take a position for the purpose of bona fide liquidity management, subject to certain requirements. The preamble to the proposed rule explained that bona fide liquidity management seeks to ensure that the banking entity has sufficient, readily marketable assets available to meet its expected near term liquidity needs, not to realize short term profit or benefit from short term price movements.
Transactions of Derivatives Clearing Organizations and Clearing Agencies	A banking entity that is a central counterparty for clearing and settlement activities engages in the purchase and sale of financial instruments as an integral part of clearing and settling those instruments. The proposed definition of trading account excluded an account used to acquire or take one or more covered financial positions by a derivatives clearing organization registered under the commodity exchange act or a clearing agency registered under the securities exchange act of in connection with clearing derivatives or securities transactions.
Excluded Clearing-Related Activities of Clearinghouse Members	In addition to the exclusion for trading activities of a derivatives clearing organization or clearing agency, some commenters requested an additional exclusion from the definition of trading account for clearing related activities of members of these entities. These commenters noted that the proposed definition of trading account provides an exclusion for positions taken by registered derivatives clearing organizations and registered clearing agencies and requested a corresponding exclusion for certain clearing related activities of banking entities that are members of a clearing agency or members of a derivatives clearing organization.
Satisfying an Existing Delivery Obligation	A few commenters requested additional or expanded exclusions from the definition of trading account for covering short sales or failures to deliver. These commenters alleged that a banking entity engages in this activity for purposes other than to benefit from short term price movements and that it is not proprietary trading as defined in the statute.
Satisfying an Obligation in Connection With a Judicial, Administrative, Self-…	The agencies recognize that, under certain circumstances, a banking entity may be required to purchase or sell a financial instrument at the direction of a judicial or regulatory body. For example, an administrative agency or self regulatory organization may require a banking entity to purchase or sell a financial instrument in the course of disciplinary proceedings against that banking entity.
Acting Solely as Agent, Broker, or Custodian	The proposal clarified that proprietary trading did not include acting solely as agent, broker, or custodian for an unaffiliated third party. Commenters generally supported this aspect of the proposal.
Purchases or Sales Through a Deferred Compensation or Similar Plan	While the proposed rule provided that the prohibition on covered fund activities and investments did not apply to certain instances where the banking entity acted through or on behalf of a pension or similar deferred compensation plan, no such similar treatment was given for proprietary trading. One commenter argued that the proposal restricted a banking entity’s ability to engage in principal based trading as an asset manager that serves the needs of the institutional investors, such as through erisa pension and plans.
Collecting a Debt Previously Contracted	Several commenters argued that the final rule should exclude collecting and disposing of collateral in satisfaction of debts previously contracted from the definition of proprietary trading. Commenters argued that acquiring and disposing of collateral in satisfaction of debt previously contracted does not involve trading with the intent of profiting from short term price movements and, thus, should not be proprietary trading for purposes of this rule.
Section __.4(a): Underwriting Exemption	After carefully considering comments on the proposed underwriting exemption, the agencies are adopting the proposed underwriting exemption substantially as proposed, but with certain refinements and clarifications to the proposed approach to better reflect the range of securities offerings that an underwriter may help facilitate on behalf of an issuer or selling security holder and the types of activities an underwriter may undertake in connection with a distribution of securities to facilitate the distribution process and provide important benefits to issuers, selling security holders, or purchasers in the distribution. The agencies are adopting such an approach because the statute specifically permits banking entities to continue providing these beneficial services to clients, customers, and counterparties.
Proposed Underwriting Exemption	Section of the bhc act provides an exemption from the prohibition on proprietary trading for the purchase, sale, acquisition, or disposition of securities and certain other instruments in connection with underwriting activities, to the extent that such activities are designed not to exceed the reasonably expected near term demands of clients, customers, or counterparties. Section. the compensation arrangements of persons performing underwriting activities be designed not to reward proprietary risk taking.
Comments on Proposed Underwriting Exemption	As a general matter, a few commenters expressed overall support for the proposed underwriting exemption. Some commenters indicated that the proposed exemption is too narrow and may negatively impact capital markets.
Final Underwriting Exemption	After considering the comments received, the agencies are adopting the underwriting exemption substantially as proposed, but with important modifications to clarify provisions or to address commenters’ concerns. As discussed above, some commenters were generally supportive of the proposed approach to implementing the underwriting exemption, but noted certain areas of concern or uncertainty.
Acting as an Underwriter for a Distribution of Securities	Section. of the proposed rule required that the purchase or sale be effected solely in connection with a distribution of securities for which a banking entity is acting as underwriter. As discussed below, the agencies proposed to define the terms distribution and underwriter in the proposed rule.
Near Term Customer Demand Requirement	Like the statute, of the proposed rule required that the underwriting activities of the banking entity with respect to the covered financial position be designed not to exceed the reasonably expected near term demands of clients, customers, or counterparties. Both the statute and the proposed rule require a banking entity’s underwriting activity to be designed not to exceed the reasonably expected near term demands of clients, customers, or counterparties.
Compliance Program Requirement	Section. of the proposed exemption required a banking entity to establish an internal compliance program, as required by. of the proposed rule, that is designed to ensure the banking entity’s compliance with the requirements of the underwriting exemption, including reasonably designed written policies and procedures, internal controls, and independent testing. This requirement was proposed so that any banking entity relying on the underwriting exemption would have reasonably designed written policies and procedures, internal controls, and independent testing in place to support its compliance with the terms of the exemption.
Compensation Requirement	Another provision of the proposed underwriting exemption required that the compensation arrangements of persons performing underwriting activities at the banking entity must be designed not to encourage proprietary risk taking. In connection with this requirement, the proposal clarified that although a banking entity relying on the underwriting exemption may appropriately take into account revenues resulting from movements in the price of securities that the banking entity underwrites to the extent that such revenues reflect the effectiveness with which personnel have managed underwriting risk, the banking entity should provide compensation incentives that primarily reward client revenues and effective client service, not proprietary risk taking.
Registration Requirement	Section. of the proposed rule would have required that a banking entity have the appropriate dealer registration or be exempt from registration or excluded from regulation as a dealer to the extent that, in order to underwrite the security at issue, a person must generally be a registered securities dealer, municipal securities dealer, or government securities dealer. Further, if the banking entity was engaged in the business of a dealer outside the united states in a manner for which no u.s. registration is required, the proposed rule would have required the banking entity to be subject to substantive regulation of its dealing business in the jurisdiction in which the business is located.
Source of Revenue Requirement	Under. designed to compensate the underwriter for its services. This requirement provided that activities conducted in reliance on the underwriting exemption should demonstrate patterns of revenue generation and profitability consistent with, and related to, the services an underwriter provides to its customers in bringing securities to market, rather than changes in the market value of the underwritten securities.
Section __.4(b): Market-Making Exemption	In adopting the final rule, the agencies are striving to balance two goals of section of the bhc act to allow market making, which is important to well functioning markets as well as to the economy, and simultaneously to prohibit proprietary trading, unrelated to market making or other permitted activities, that poses significant risks to banking entities and the financial system. In response to comments on the proposed market making exemption, the agencies are adopting certain modifications to the proposed exemption to better account for the varying characteristics of market making related activities across markets and asset classes, while requiring that banking entities maintain a robust set of risk controls for their market making related activities.
Proposed Market-Making Exemption	Section of the bhc act provides an exemption from the prohibition on proprietary trading for the purchase, sale, acquisition, or disposition of securities, derivatives, contracts of sale of a commodity for future delivery, and options on any of the foregoing in connection with market making related activities, to the extent that such activities are designed not to exceed the reasonably expected near term demands of clients, customers, or counterparties. Section. of the proposed rule would have implemented this statutory exemption by requiring that a banking entity’s market making related activities comply with seven standards.
Comments on the Proposed Market-Making Exemption	The agencies received significant comment regarding the proposed market making exemption. In this part, the agencies highlight the main issues, concerns, and suggestions raised by commenters with respect to the proposed market making exemption.
Final Market-Making Exemption	After carefully considering comment letters, the agencies are adopting certain refinements to the proposed market making exemption. The agencies are adopting a market making exemption that is consistent with the statutory exemption for this activity and designed to permit banking entities to continue providing intermediation and liquidity services.
Requirement To Routinely Stand Ready to Purchase and Sell	Section. of the proposed rule would have required the trading desk or other organizational unit that conducts the purchase or sale in reliance on the market making exemption to hold itself out as being willing to buy and sell, including through entering into long and short positions in, the financial instrument for its own account on a regular or continuous basis. The proposal stated that a banking entity could rely on the proposed exemption only for the type of financial instrument that the entity actually made a market in.
Market Making-Related Hedging	In the proposal, certain hedging transactions related to market making were considered to be made in connection with a banking entity’s market making related activity for purposes of the market making exemption. The agencies explained that where the purpose of a transaction is to hedge a market making related position, it would appear to be market making related activity of the type described in section of the proposed rule.
Compensation Requirement	Section. of the proposed market making exemption would have required that the compensation arrangements of persons performing market making related activities at the banking entity be designed not to reward proprietary risk taking. In the proposal, the agencies noted that activities for which a banking entity has established a compensation incentive structure that rewards speculation in, and appreciation of, the market value of a financial instrument position held in inventory, rather than success in providing effective and timely intermediation and liquidity services to customers, would be inconsistent with the proposed market making exemption.
Registration Requirement	Under. of the proposed rule, a banking entity relying on the market making exemption with respect to trading in securities or certain derivatives would be required to be appropriately registered as a securities dealer, swap dealer, or security based swap dealer, or exempt from registration or excluded from regulation as such type of dealer, under applicable securities or commodities laws. Further, if the banking entity was engaged in the business of a securities dealer, swap dealer, or security based swap dealer outside the united states in a manner for which no u.s. registration is required, the banking entity would be required to be subject to substantive regulation of its dealing business in the jurisdiction in which the business is located.
Source of Revenue Analysis	To qualify for the market making exemption, the proposed rule required that the market making related activities of the trading desk or other organizational unit be designed to generate revenues primarily from fees, commissions, bid ask spreads or other income not attributable to appreciation in the value of financial instrument positions it holds in trading accounts or the hedging of such positions. This proposed requirement was intended to ensure that activities conducted in reliance on the market making exemption demonstrate patterns of revenue generation and profitability consistent with, and related to, the intermediation and liquidity services a market maker provides to its customers, rather than changes in the market value of the positions or risks held in inventory.
Appendix B of the Proposed Rule	The proposed market making exemption would have required that the market making related activities of the trading desk or other organizational unit of the banking entity be consistent with the commentary in proposed appendix b. In this proposed appendix, the agencies provided overviews of permitted market making related activity and prohibited proprietary trading activity.
Use of Quantitative Measurements	Consistent with the fsoc study and the proposal, the agencies continue to believe that quantitative measurements can be useful to banking entities and the agencies to help assess the profile of a trading desk’s trading activity and to help identify trading activity that may warrant a more in depth review. The agencies will not use quantitative measurements as a dispositive tool for differentiating between permitted market making related activities and prohibited proprietary trading.
Section __.5: Permitted Risk-Mitigating Hedging Activities	Section. of the proposed rule implemented section. Section. of the final rule implements the hedging exemption with a number of modifications from the proposed rule to respond to commenters’ concerns as described more fully below.
Compliance Program Requirement	The first criterion of the proposed hedging exemption required a banking entity to establish an internal compliance program designed to ensure the banking entity’s compliance with the requirements of the hedging exemption and conduct its hedging activities in compliance with that program. While the compliance program under the proposal was expected to be appropriate for the size, scope, and complexity of each banking entity’s activities and structure, the proposal would have required each banking entity with significant trading activities to implement robust, detailed hedging policies and procedures and related internal controls and independent testing designed to prevent prohibited proprietary trading in the context of permitted hedging activity.
Hedging of Specific Risks and Demonstrable Reduction of Risk	Section. of the proposed rule required that a qualifying transaction hedge or otherwise mitigate one or more specific risks, including market risk, counterparty or other credit risk, currency or foreign exchange risk, interest rate risk, basis risk, or similar risks, arising in connection with and related to individual or aggregated positions, contracts, or other holdings of a banking entity. This criterion implemented the essential element of the hedging exemption that the transaction be risk mitigating.
Compensation	The proposed rule required that the compensation arrangements of persons performing risk mitigating hedging activities be designed not to reward proprietary risk taking. In the proposal, the agencies stated that hedging activities for which a banking entity has established a compensation incentive structure that rewards speculation in, and appreciation of, the market value of a covered financial position, rather than success in reducing risk, are inconsistent with permitted risk mitigating hedging activities.
Documentation Requirement	Section. of the proposed rule would have imposed a documentation requirement on certain types of hedging transactions. Specifically, for any transaction that a banking entity conducts in reliance on the hedging exemption that involved a hedge established at a level of organization different than the level of organization establishing or responsible for the positions, contracts, or other holdings the risks of which the hedging transaction is designed to reduce, the banking entity was required, at a minimum, to document the risk mitigating purpose of the transaction; the risks of the individual or aggregated positions, contracts, or other holdings of a banking entity that the transaction is designed to reduce; and the level of organization that is establishing the hedge.
Section __.6(a)-(b): Permitted Trading in Certain Government and Municipal Ob…	Section. of the proposed rule permitted a banking entity to engage in trading activities that were authorized by section of the bhc act, including trading in certain government obligations, trading on behalf of customers, trading by insurance companies, and trading outside of the united states by certain foreign banking entities. Section. of the final rule generally incorporates these same statutory exemptions.
Section __.6(c): Permitted Trading on Behalf of Customers	Section of the bhc act provides an exemption from the prohibition on proprietary trading for the purchase, sale, acquisition, or disposition of financial instruments on behalf of customers. The statute does not define when a transaction or activity is conducted on behalf of customers.
Section __.6(d): Permitted Trading by a Regulated Insurance Company	Section. The proposal implemented both these exemptions with respect to activities of insurance companies, in each case subject to the restrictions discussed below.
Section __.6(e): Permitted Trading Activities of a Foreign Banking Entity	Section. The statute does not define when a foreign banking entity’s trading occurs solely outside of the united states.
Section __.7: Limitations on Permitted Trading Activities	Section. of the proposed rule implemented section if the activity would involve or result in a material conflict of interest between the banking entity and its clients, customers, or counterparties; result, directly or indirectly, in a material exposure by the banking entity to a high risk asset or a high risk trading strategy; or pose a threat to the safety and soundness of the banking entity or u.s. financial stability. The agencies sought comment on proposed definitions of the terms material conflict of interest, high risk asset, and high risk trading strategy for these purposes.
Proposed Rule	Section., or involves a significant asymmetry of information or transactional data among participants. In all cases, the existence of a material conflict of interest depends on the specific facts and circumstances.
Comments on the Proposed Limitation on Material Conflicts of Interest	Commenters expressed a variety of views regarding the treatment of material conflicts of interest under the proposal, including the manner in which conflicts may be mitigated or eliminated. One commenter believed that the proposed material conflict of interest provisions would be effective.
Final Rule	After considering carefully comments received on the proposal as well as the purpose and language of section of the bhc act, the agencies have adopted the final rule largely as proposed. Under the final rule, a banking entity that engages in any transaction, class of transactions, or activity that would involve or result in the banking entity’s interests being materially adverse to the interests of its client, customer, or counterparty with respect to the transaction, class of transactions, or activity, must address and mitigate the conflict of interest, where possible, through either timely and effective disclosure or informational barriers.
Comments on Proposed Limitations on High-Risk Assets and Trading Strategies	With respect to the prohibition on transactions or activities that expose banking entities to high risk assets or high risk trading strategies, one commenter stated the provisions were effective, while other commenters stated the proposed rule was too vague and implied that banking entities may be required to exit positions in periods of market stress, further reducing liquidity. A few commenters suggested the agencies identify and prohibit certain types of high risk assets or high risk trading strategies under the rule.
B. Subpart C—Covered Fund Activities and Investments	As noted above and except as otherwise permitted, section of the bhc act contains certain exemptions to this prohibition. Subpart c of the final rule implements these and other provisions of section related to covered funds.
Section __.10: Prohibition on Acquisition or Retention of Ownership Interests…	Section. of the final rule defines the scope of the prohibition on the acquisition and retention of ownership interests in, and certain relationships with, a covered fund. It also defines a number of key terms, including the definition of covered fund.
Foreign Covered Funds	In order to prevent evasion of the prohibition and purposes of section, the proposal included within the definition of covered fund any issuer organized or offered outside of the united states that would be a covered fund were it organized or offered in the united states. Commenters expressed concern that the proposed treatment of foreign covered funds was overly broad, exceeded the agencies’ statutory authority, was not consistent with principles of national treatment, and violated international treaties.
Commodity Pools	Under the proposal, the agencies proposed to use their authority to expand the definition of covered fund to include a commodity pool as defined in section a of the commodity exchange act. A commodity pool is defined in the commodity exchange act to mean any investment trust, syndicate, or similar form of enterprise operated for the purpose of trading in commodity interests.
Entities Regulated Under the Investment Company Act	The proposed rule did not specifically include registered investment companies of the investment company act and are instead registered or regulated in accordance with the investment company act. Many commenters argued that registered investment companies and business development companies would be treated as covered funds under the proposed definition if commodity pools are treated as covered funds.
Foreign Public Funds	As discussed above, under the proposal a covered fund was defined to include the foreign equivalent of any covered fund in order to address the potential for circumvention. Many commenters argued that the proposed definition could capture non u.s. public retail funds, such as ucits.
Wholly-Owned Subsidiaries	Under the proposed rule, a banking entity would have been permitted to invest in or sponsor a wholly owned subsidiary that relies on the exclusion contained in section of the investment company act to avoid being an investment company under that act if the subsidiary was carried on the balance sheet of its parent and was engaged principally in performing bona fide liquidity management activities. Commenters argued that, instead of providing a permitted activity exemption for banking entities to invest in or sponsor certain wholly owned subsidiaries as proposed, all wholly owned subsidiaries should be excluded from the definition of covered fund under the final rule because wholly owned subsidiaries are typically used for organizational convenience and generally do not have the characteristics, risks, or purpose of a hedge fund or private equity fund, which involves unaffiliated investors owning interests in the structure for the purpose of sharing in the profits and losses from investment activities.
Joint Ventures	The proposed rule would have permitted a banking entity to invest in or manage a joint venture between the banking entity and any other person, provided that the joint venture was an operating company and did not engage in any activity or any investment not permitted under the proposed rule. As noted in the proposal, many joint ventures rely on the exclusion contained in section of the investment company act.
Acquisition Vehicles	Similar to wholly owned subsidiaries and joint ventures, the proposed rule would have permitted a banking entity to invest in or sponsor an acquisition vehicle provided that the sole purpose and effect of the acquisition vehicle was to effectuate a transaction involving the acquisition or merger of an entity with or into the banking entity or one of its affiliates. As noted in the proposal, banking entities often form corporate vehicles for the purpose of accomplishing a corporate merger or asset acquisition.
Foreign Pension or Retirement Funds	Under the proposed rule, a foreign pension plan that relied on section, would have been a covered fund. Commenters argued that including pension funds within the definition of covered fund would produce many unexpected results for pension plans as well as plan participants.
Insurance Company Separate Accounts	Under the proposed rule, insurance company separate accounts would have been covered funds to the extent that the separate accounts relied on section, subject to certain restrictions. Various state or foreign laws allow regulated insurance companies to create separate accounts that are generally not separate legal entities but represent a segregated pool of assets on the balance sheet of the insurance company that support a specific policy claim on the insurance company.
Bank Owned Life Insurance Separate Accounts	As explained above, bank owned life insurance is generally offered through a separate account held by an insurance company. In recognition of the fact that banking entities have for many years invested in life insurance policies that covered key employees, in accordance with supervisory policies established by the federal banking agencies, the proposal contained a provision that would permit banking entities to invest in and sponsor boli separate accounts.
Exclusion for Loan Securitizations and Definition of Loan	The proposal defined the term loan for purposes of the restrictions on proprietary trading and the covered funds provisions and, as discussed in more detail below, provided an exemption for loan securitizations in two separate sections of the proposed rule. As proposed, loan was defined as any loan, lease, extension of credit, or secured or unsecured receivable.
Asset-Backed Commercial Paper Conduits	Under the proposed rule, certain securitization vehicles, including abcp conduits, would not have been covered by the loan securitization exclusion and, therefore, would have been deemed to be a covered fund. Abcp is a type of liability that is typically issued by a special purpose vehicle at regular intervals.
Financial Market Utilities	Several commenters contended that financial market utilities for an exclusion from the definition of investment company under the investment company act and may not qualify for an alternative exemption. These commenters argued that banking entities have long been investors in domestic and foreign fmus, such as securities clearing agencies, derivatives clearing organizations, securities exchanges, derivatives boards of trade and alternative trading systems.
Cash Collateral Pools	Some commenters expressed concern that cash collateral pools, which are part of securities lending programs, could be included in the definition of covered fund. According to these commenters, banking entities, including bank custodians acting as lending agent for customer’s securities lending activities, typically manage these pools as fiduciaries for their customers.
Pass-through REITS	Some banking entities may issue real estate investment trust. Some commenters urged the agencies to provide an exclusion for pass through reits from the definition of covered fund.
Municipal Securities Tender Option Bond Transactions	The agencies received a number of comments addressing how the final rule should treat municipal securities tender option bond vehicles. A number of commenters argued that issuers of municipal securities tender option bonds would fall under the definition of covered fund in the proposed rule because these issuers typically rely on the exclusion contained in section.
Venture Capital Funds	Some private equity funds that make investments in early stage start up companies or other companies with significant growth potential of the investment company act. Venture capital funds would therefore qualify as a covered fund under the proposal.
Credit Funds	Several commenters requested that the final rule explicitly exclude from the definition of covered fund entities that are generally formed as partnerships with third party capital and invest in loans or make loans or otherwise extend the type of credit that banks are authorized to undertake on their own balance sheet indicates that congress did not intend section of the bhc act to limit a banking entity’s ability to extend credit. They argued that lending is a fundamental banking activity, whether accomplished through direct loans or through a fund structure.
Employee Securities Companies	Several commenters argued that employee securities companies of the investment company act. After considering carefully the comments received on the proposed rule, the final rule does not provide a specific exclusion for escs because the agencies believe that these vehicles may avoid being a covered fund by either complying with the conditions of another exclusion from the definition of covered fund or seeking and receiving an exemption available under section.
B. Definition of Sponsor With Respect to Securitizations	Commenters on the definition of sponsor in the context of securitization vehicles generally argued that the proposed definition of sponsor was too broad and requested clarification that various roles that banking entities might serve within a securitization structure would be excluded from the definition of sponsor, including servicers; backup servicers and master servicers; collateral agents and administrators; custodians; indenture trustees; underwriters, distributors, placement agents; arrangers, structuring agents; originators, depositors, securitizers; sponsors under the sec’s regulation ab; administrative agents; and securities administrators and remarketing agents. Commenters argued that these parties should not be included in the definition of sponsor because such parties have clearly defined and extremely limited authority and discretion, do not have the right to control the decision making and operational functions of the issuer, and would not have control under bhc act control precedent.
Section __.11: Activities Permitted in Connection With Organizing and Offerin…	Section of the bhc act permits a banking entity to make investments in and sponsor covered funds within certain limits in connection with organizing and offering the covered fund. Section. of the final rule implements this statutory exemption, and includes several changes from the proposed rule in response to concerns raised by commenters as described in detail below.
Fiduciary Services	In order to qualify for the exemption for activities related to organizing and offering a covered fund, section generally requires that a banking entity provide bona fide trust, fiduciary, investment advisory, or commodity trading advisory services, that the covered fund be organized and offered in connection with providing these services, and that the banking entity providing those services offer the covered fund only to persons that are customers of those services of the banking entity. These requirements were largely mirrored in the proposed rule.
Compliance With Investment Limitations	Section of the bhc act limits the ability of a banking entity that organizes and offers a covered fund to acquire or retain an ownership interest in that covered fund as an investment. Both the proposed rule and the final rule implement this provision by requiring that a banking entity limit its investments in a covered fund that the banking entity organizes and offers as provided in.
Compliance With Section 13(f) of the BHC Act	Section. of the bhc act prohibits certain transactions or relationships that would be covered by section a of the federal reserve act, and provides that any permitted transaction is subject to section b of the federal reserve act, in each instance as if such banking entity were a member bank and such covered fund were an affiliate thereof. These limitations apply in several contexts, and are contained in. of the final rule, discussed in detail below in part iv.b..
No Guarantees or Insurance of Fund Performance	Section. of the bhc act and was intended to prevent a banking entity from engaging in bailouts of a covered fund in which the banking entity has an interest. There were only a few comments received on this aspect of the proposal.
Limitation on Name Sharing With a Covered Fund	Section. of the bhc act. The proposed rule also prohibited the covered fund from using the word bank in its name.
Limitation on Ownership by Directors and Employees	Section., to acquire or retain an ownership interest in a covered fund that aligns the manager or adviser’s incentives with those of the banking entity’s customers. One commenter argued that only employees or directors who provide investment advisory services should be allowed to make an investment in the fund and that the rule should not allow employees or directors who provide other, unspecified services to invest in a fund.
Disclosure Requirements	Section. the role of the banking entity and its affiliates, subsidiaries, and employees in sponsoring or providing any services to the covered fund. The proposed rule also required banking entities to comply with any additional rules of the appropriate agency designed to ensure that losses in any covered fund are borne solely by the investors in the covered fund and not by the banking entity.
Section __.12: Permitted Investment in a Covered Fund	Section. of the proposed rule implemented section. Commenters argued that it is essential to serving their customers efficiently that a banking entity be permitted to acquire and retain an ownership interest in a covered fund that it organizes and offers as a de minimis investment or for the purpose of establishing the fund.
Section __.13: Other Permitted Covered Fund Activities	Section with respect to a compensation arrangement with an employee of the banking entity that directly provides investment advisory or other services to that fund. The proposed rule imposed specific requirements on a banking entity seeking to rely on this exemption.
Foreign Banking Entities Eligible for the Exemption	The statutory language of section provides that, in order to be eligible for the foreign funds exemption, the banking entity must not be directly or indirectly controlled by a banking entity that is organized under the laws of the united states or of one or more states. Consistent with this statutory language, the proposed rule limited the scope of the exemption to banking entities that are organized under foreign law and, as applicable, controlled only by entities organized under foreign law.
Activities or Investments Solely Outside of the United States	As noted above, the proposed rule adopted a transaction based approach to implementing the foreign fund exemption and focused on the extent to which the foreign fund transactions occur within, or are carried out by personnel, subsidiaries or affiliates within, the united states. In particular, no ownership interest in such covered fund is offered for sale or sold to a resident of the united states.
Offered for Sale or Sold to a Resident of the United States	The proposed rule provided that no ownership interest in the covered fund be offered for sale or sold to a resident of the united states, a requirement of the statute. Numerous commenters focused on the definition of resident of the united states in the proposed rule and the manner in which the restriction on offers and sales to such persons would interrelate with regulation s under the securities act of.
Definition of “Resident of the United States”	As discussed in greater detail above in part iv.b. section of the bhc act provides that a foreign banking entity may acquire or retain an ownership interest in or act as sponsor to a covered fund, but only if that activity is conducted according to the requirements of the statute, including that no ownership interest in the covered fund is offered for sale or sold to a resident of the united states. As noted above in part iv.b..f describing the definition of resident of the united states, the statute does not define this term.
Section __.14: Limitations on Relationships With a Covered Fund	Section between the banking entity and covered fund to section b of the fr act. In general, section b of the fr act requires that the transaction be on market terms or on terms at least as favorable to the banking entity as a comparable transaction by the banking entity with an unaffiliated third party.
Permitted Investments and Ownerships Interests	The proposed rule permitted a banking entity to acquire or retain an ownership interest in a covered fund in accordance with the requirements of section. This was consistent with the text of section prohibiting covered transactions under section a of the fr act, which includes acquiring or retaining an interest in securities issued by an affiliate.
Prime Brokerage Transactions	Section. However, the statute does not define prime brokerage transaction.
Section __.15: Other Limitations on Permitted Covered Fund Activities	Like., of the proposed rule implemented section pose a threat to the safety and soundness of the banking entity or the financial stability of the united states. Section. of the proposed rule defined material conflict of interest, high risk assets, and high risk trading strategies for these purposes in a fashion identical to the definitions of the same terms for purposes of. of the proposed rule related to proprietary trading.
C. Subpart D and Appendices A and B—Compliance Program, Reporting, and Violation…	Subpart d of the proposed rule implemented section of the bhc act and required certain banking entities to develop and provide for the continued administration of a program reasonably designed to ensure and monitor compliance with the prohibitions and restrictions on activities and investments set forth in section and the proposed rule. As explained in detail below, in response to comments on the compliance program requirements and appendix c and to conform to modifications to other sections of the proposed rule, the agencies are adopting a variety of modifications to subpart d of the proposed rule, which requires certain banking entities to develop and provide for the continued administration of a program reasonably designed to ensure and monitor compliance with the prohibitions and restrictions on proprietary trading activities and covered fund activities and investments set forth in section of the bhc act and the final rule.
Section __.20: Compliance Program Mandate	A number of commenters argued that the compliance program requirements of the proposal were overly specific, too prescriptive and complex to be workable, and not justified by the costs and benefits of having a compliance program. For instance, one commenter expressed concern that the complexity of the proposed compliance regime would undermine compliance efforts because the requirements were overlapping, imprecise, and did not provide sufficient clarity to traders or banking entities as to what types or levels of activities would be viewed as permissible trading.
Appendix B: Enhanced Minimum Standards for Compliance Programs	The proposed rule contained an appendix which specified a variety of minimum standards applicable to the compliance program of a banking entity with significant covered trading activities or covered fund activities and investments. The agencies proposed to include these minimum standards as part of the regulation itself, rather than as accompanying guidance, reflecting the compliance program’s importance within the general implementation framework for the rule.
Section __.20(d) and Appendix A: Reporting and Recordkeeping Requirements App…	Section. of the proposed rule, which the agencies proposed to implement in part section of the bhc act, required certain banking entities to comply with the reporting and recordkeeping requirements specified in appendix a of the proposed rule. In addition, required banking entities to comply with the recordkeeping requirements in. of the proposed rule, related to the banking entity’s compliance program, as well as any other reporting or recordkeeping requirements that the relevant agency may impose to evaluate the banking entity’s compliance with the proposed rule.
Section __.21: Termination of Activities or Investments; Authorities for Viol…	Section. implements section further provides that this paragraph shall not be construed to limit the inherent authority of any federal agency or state regulatory authority to further restrict any investments or activities under otherwise applicable provisions of law. The proposed rule implemented section, the agency may, by order, direct the entity to restrict, limit, or terminate the activity and, as relevant, dispose of the investment.
A. Use of Plain Language	Section of the gramm leach bliley act requires the federal banking agencies to use plain language in all proposed and final rules published after january, the occ, board and fdic invited comment on whether the proposed rule was written plainly and clearly, or whether there were ways the federal banking agencies could make the rule easier to understand. The federal banking agencies received no comments on these matters and believe that the final rule is written plainly and clearly.
B. Paperwork Reduction Act Analysis	Certain provisions of the final rule contain collection of information requirements within the meaning of the paperwork reduction act. The board reviewed the final rule under the authority delegated to the board by omb.
C. Regulatory Flexibility Act Analysis	In general, section of the regulatory flexibility act of the rfa, a frfa is not required if an agency certifies that the final rule will not have a significant economic impact on a substantial number of small entities. The agencies have considered the potential economic impact of the final rule on small banking entities in accordance with the rfa.
D. OCC Unfunded Mandates Reform Act of 1995 Determination	The unfunded mandates reform act of, public law in any one year. If a budgetary impact statement is required, section of the umra also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule.
Part 44 is amended by:a. Removing “[Agency]” wherever it appears and adding i…	For the reasons set forth in the supplementary information, the board of governors of the federal reserve system is adding the text of the common rule as set forth at the end of the supplementary information as part to cfr chapter ii as follows part proprietary trading and certain interests in and relationships with covered funds. The authority for part is added to read as follows authority u.s.c., u.s.c. et seq.
Section 248.1 is revised to read as follows:§ 248.1 Authority, purpose, scope…	For the reasons set forth in the supplementary information, the federal deposit insurance corporation is adding the text of the common rule as set forth at the end of the supplementary information as part to chapter iii of title, code of federal regulations, modified as follows part proprietary trading and certain interests in and relationships with covered funds. The authority for part is added to read as follows authority u.s.c. ; et seq.; et seq.; and.

CFPB’s Payday Loan Rule

2016 Proposed Rule

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SUMMARY:	Summary the bureau of consumer financial protection is proposing to establish cfr, which would contain regulations creating consumer protections for certain consumer credit products. The proposed regulations would cover payday, vehicle title, and certain high cost installment loans.
I. Summary of the Proposed Rule	The bureau is issuing this notice to propose consumer protections for payday loans, vehicle title loans, and certain high cost installment loans to identify and prevent unfair, deceptive, and abusive acts and practices. The bureau is also using authorities under section of the dodd frank act to prescribe rules and make exemptions from such rules as is necessary or appropriate to carry out the purposes and objectives of the consumer federal consumer financial laws, section of the dodd frank act to facilitate supervision of certain non bank financial service providers, and section of the dodd frank act to require disclosures to convey the costs, benefits, and risks of particular consumer financial products or services.
A. Scope of the Proposed Rule	The bureau’s proposal would apply to two types of covered loans. First, it would apply to short term loans that have terms of days or less, including typical day and day payday loans, as well as short term vehicle title loans that are usually made for day terms.
B. Proposed Ability-to-Repay Requirements and Alternative Requirements for Cover…	The proposed rule would identify it as an abusive and unfair practice for a lender to make a covered short term loan without reasonably determining that the consumer will have the ability to repay the loan. The proposed rule would prescribe requirements to prevent the practice.
C. Proposed Ability-to-Repay Requirements and Alternative Requirements for Cover…	The proposed rule would identify it as an abusive and unfair practice for a lender to make a covered longer term loan without reasonably determining that the consumer will have the ability to repay the loan. The proposed rule would prescribe requirements to prevent the practice.
D. Proposed Payments Practices Rules	The proposed rule would identify it as an abusive and unfair practice for a lender to attempt to withdraw payment from a consumer’s account in connection with a covered loan after the lender’s second consecutive attempt to withdraw payment from the account has failed due to a lack of sufficient funds, unless the lender obtains from the consumer a new and specific authorization to make further withdrawals from the account. This prohibition on further withdrawal attempts would apply 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.
E. Additional Requirements	The bureau is proposing to require lenders to furnish to registered information systems basic information for most covered loans at origination, any updates to that information over the life of the loan, and certain information when the loan ceases to be outstanding. The registered information systems would have to meet certain eligibility criteria prescribed in the proposed rule.
F. Effective Date	The bureau is proposing that, in general, the final rule would become effective months after publication of the final rule in the federal register. The bureau is proposing that certain provisions necessary to implement the consumer reporting components of the proposal would become effective days after publication of the final rule in the federal register to facilitate an orderly implementation process.
A. Introduction	For most consumers, credit provides a means of purchasing goods or services and spreading the cost of repayment over time. This is true of the three largest consumer credit markets the market for mortgages can be used.
B. Single-payment and Other Short-Term Loans	At around the beginning of the twentieth century, concern arose with respect to companies that were responding to liquidity needs by offering to purchase a consumer’s paycheck in advance of it being paid. These companies charged fees that, if calculated as an annualized interest rate, were as high as percent.
C. Longer-Term, High-Cost Loans	As discussed above, beginning in the s, a number of states created carve outs from their usury laws to permit single payment payday loans at annualized rates of between percent and percent. Although this lending initially focused primarily on loans lasting for a single income cycle, lenders have introduced newer, longer forms of liquidity loans over time.
D. Initiating Payment from Consumers’ Accounts	As discussed above, payday and payday installment lenders nearly universally obtain at origination one or more authorizations to initiate withdrawal of payment from the consumer’s account. There are a variety of payment options or channels that they use to accomplish this goal, and lenders frequently obtain authorizations for multiple types.
A. Research and Stakeholder Outreach	The bureau has undertaken extensive research and conducted broad outreach with a multitude of stakeholders in the years leading up to the release of this notice of proposed rulemaking. All of the input and feedback the bureau received from this outreach has assisted the bureau in the development of this notice.
B. Small Business Review Panel	In april, the bureau convened a small business review panel with the chief counsel for advocacy of the sba and the administrator of the office of information and regulatory affairs within the office of management and budget, which it posted on its web site for review and comment by the general public as well as the small entities participating in the panel process. Prior to formally convening, the panel participated in teleconferences with small groups of the small entity representatives to introduce the small business review panel outline and to obtain feedback.
C. Consumer Testing	In developing this notice, the bureau engaged a third party vendor, fors marsh group expired authorization notices that alerted consumers that lenders would no longer be able to attempt to withdraw money from the consumers’ accounts. Observations and feedback from the testing were incorporated into the model forms proposed by the bureau.
Legal Authority	The bureau is issuing this proposed rule pursuant to its authority under the dodd frank act. The proposed rule relies on rulemaking and other authorities specifically granted to the bureau by the dodd frank act, as discussed below.
A. Section 1031 of the Dodd-Frank Act	Section the bureau’s authority to identify and prevent udaaps section of the dodd frank act further provides that, rules under this section may include requirements for the purpose of preventing such acts or practice. Given similarities between the dodd frank act and the federal trade commission act to provide the same degree of discretion to the bureau with respect to the imposition of requirements to prevent acts or practices that are identified by the bureau as abusive.
B. Section 1032 of the Dodd-Frank Act	Dodd frank act section provides that, in prescribing rules pursuant to section of the dodd frank act, the bureau shall consider available evidence about consumer awareness, understanding of, and responses to disclosures or communications about the risks, costs, and benefits of consumer financial products or services. Dodd frank act section provides that, any covered person that uses a model form included with a rule issued under this section shall be deemed to be in compliance with the disclosure requirements of this section with respect to such model form.
C. Other Authorities Under the Dodd-Frank Act	Section and. Section.
D. Section 1041 of the Dodd-Frank Act	Section further provides that, a determination regarding whether a statute, regulation, order, or interpretation in effect in any state is inconsistent with the provisions of [title x] may be made by the bureau on its own motion or in response to a nonfrivolous petition initiated by any interested person. The requirements of the proposed rule would set minimum standards at the federal level for regulation of covered loans.
V. Section-by-Section Analysis	Proposed. provides that the rule is issued pursuant to title x of the dodd frank act 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 and to prescribe requirements to ensure that the features of those consumer credit transactions are fully, accurately, and effectively disclosed to consumers. It also notes the proposed part also prescribes processes and criteria for registration of information systems.
Borrower Characteristics	A number of studies have focused on the characteristics of payday borrowers. For instance, the fdic and the u.s.
Circumstances of Borrowing	Several surveys have asked borrowers why they took out their loans or for what purpose they used the loan proceeds. These are challenging questions to study.
Loan Structure	The single payment structure and short duration of these loans makes them difficult to repay within the space of a single income or expense cycle, a consumer with little to no savings cushion and who has borrowed to meet an unexpected expense or income shortfall, or who chronically runs short of funds, is unlikely to have the available cash needed to repay the full amount borrowed plus the finance charge on the loan when it is due and to cover other ongoing expenses. This is true for loans of a very short duration regardless of how the loan may be categorized.
Marketing	The general positioning of short term products in marketing and advertising materials as a solution to an immediate liquidity challenge attracts consumers facing these problems, encouraging them to focus on short term relief rather than the likelihood that they are taking on a new longer term debt. Lenders position the purpose of the loan as being for use until next payday or to tide over the consumer until she receives her next paycheck.
Failure To Assess Ability To Repay	As discussed in part ii, storefront payday, online payday, and vehicle title lenders generally gather some basic information about borrowers before making a loan. They normally collect income information, although that may just be self reported or stated income.
Encouraging Long Loan Sequences	After lenders attract borrowers in financial crisis, encourage them to think of the loans as a short term solution, and fail to screen out those for whom the loans are likely to become a long term debt cycle, lenders then actively encourage borrowers to reborrow and continue to be indebted rather than pay down or pay off their loans. Although storefront payday lenders typically take a post dated check which could be presented in a manner timed to coincide with deposit of the borrower’s paycheck or government benefits, lenders usually encourage or even require borrowers to come back to the store to redeem the check and pay in cash.
Payment Mechanisms and Vehicle Title	Where lenders collect payments through post dated checks, ach authorizations, and or obtain security interests in borrowers’ vehicles, these mechanisms also can be used to encourage borrowers to reborrow to avoid negative consequences for their transportation or bank account. For example, consumers may feel significantly increased pressure to return to a storefront to roll over a payday or vehicle title loan that includes such features rather than risk suffering vehicle repossession or fees in connection with an attempt to deposit the consumer’s post dated check, such as an overdraft fee or an nsf fees from the bank and returned item fee from the lender if the check were to bounce.
Failure to Assess ATR	As discussed part ii.c, lenders that make payday installment and longer term vehicle title loans generally gather some basic information about borrowers before making a loan. They normally collect income information, although that in some cases is limited to be self reported or stated income.
Pricing structure	Because loan losses are so high in the absence of underwriting for affordability, lenders structure these loans with very high financing costs to ensure profitability. Lenders can thus earn very high returns on the loans that are repaid in full.
Leveraged Payment Mechanisms and Vehicle Security	Lenders also rely heavily on mechanisms that increase their ability to collect these expensive payments even if the loan proves ultimately unaffordable for the consumer. In particular, lenders’ ability to withdraw payments from borrowers’ deposit accounts, and to time those payments to borrowers’ receipt of income, increases the likelihood that borrowers will repay, regardless of whether a payment is affordable.
Delinquency and Default	As discussed above, many borrowers, when faced with unaffordable payments, will be late making loan payments and may ultimately cease making payments altogether and default on their loans. The bureau is concerned that lenders’ ability to withdraw funds from consumers’ accounts and to exercise their right to repossess consumers’ transportation in the case of vehicle title loans often cause consumers to continue paying on unaffordable loans long past the point that the consumers might otherwise cease making payments on the loan.
Reborrowing Spurred by Balloon Payment Loan Structures	In cfpb report on supplemental findings, the bureau analyzed several aspects of refinancing and reborrowing behavior of borrowers taking out vehicle title installment loans. For a longer term loan with a balloon payment at the end, the data analyzed by the bureau demonstrated a large increase in borrowing around the time of the balloon payment, relative to loans without a balloon payment feature.
Collateral Harms From Making Unaffordable Payments	In addition to the harms discussed above, the bureau is concerned that borrowers who take out these loans may experience other financial hardships as a result of making payments on unaffordable loans. Even if there are sufficient funds in the account, extraction of the payment through leveraged payment mechanisms places control of the timing of the payment with the lender, leading to the risk that the borrower’s remaining funds will be insufficient to make payments for other obligations or to meet basic living expenses.
Consumers Lack Understanding of Material Risks and Costs	As discussed in markets concerns longer term loans, hybrid payday, payday installment and vehicle title installment loans can and frequently do lead to a range of negative consequences for consumers, including high levels of default, being unable to pay other obligations or basic living expenses as a result of making unaffordable payments, and in some cases refinancing or reborrowing, especially where, as is true of hybrid payday loans, the loan includes an unaffordable balloon payment. All of these including the direct costs that may be payable to lenders and the collateral consequences that may flow from the loans are risks or costs of these loans, as the bureau understands and reasonably interprets that phrase.
Consumers Are Unable To Protect Their Interests	Under of the dodd frank act, an act or practice is abusive if it takes unreasonable advantage of the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service. Consumers who lack an understanding of the material risks and costs of a consumer financial product or service often will also have an inability to protect their interests in selecting or using that consumer financial product or service.
Practice Takes Unreasonable Advantage of Consumer Vulnerabilities	Congress, through section of the dodd frank act, has made it unlawful for a lender to take unreasonable advantage of certain specified consumer vulnerabilities in the context of consumer financial products or services. Those specified vulnerabilities include, in relevant part, a consumer’s lack of understanding of the material risks, costs, or conditions of a product or service and a consumer’s inability to protect her interests in selecting and using a product or service.
Causes or Is Likely To Cause Substantial Injury	As noted in part iv, the bureau’s interpretation of the various prongs of the unfairness test is informed by the ftc act, the ftc policy statement on unfairness, and ftc and other federal agency rulemakings and related case law. Under these authorities, as discussed in part iv, substantial injury may consist of a small amount of harm to a large number of individuals or a larger amount of harm to a smaller number of individuals.
Consumer Injury Not Reasonably Avoidable	As previously noted in part iv, under the ftc act unfairness standard, the ftc policy statement on unfairness, ftc and other federal agency rulemakings, and related case law, which informs the bureau’s interpretation and application of the unfairness test, an injury is not reasonably avoidable where some form of seller behavior.. unreasonably creates or takes advantage of an obstacle to the free exercise of consumer decision making, or put another way, unless consumers have reason to anticipate the injury and the means to avoid it. It appears that many consumers cannot reasonably avoid the injury that results when a lender makes a covered longer term loan and does not determine that the loan payments are within the consumer’s ability to repay.
Injury Not Outweighed by Benefits to Consumers or Competition	As noted in part iv, the bureau’s interpretation of the various prongs of the unfairness test is informed by the ftc act, the ftc policy statement on unfairness, and ftc and other federal agency rulemakings and related case law. Under those authorities, it generally is appropriate for purposes of the countervailing benefits prong of the unfairness standard to consider both the costs of imposing a remedy and any benefits that consumers enjoy as a result of the practice, but the determination does not require a precise quantitative analysis of benefits and costs.
Public Policy	Section of the dodd frank act states that the bureau may consider established public policies as evidence to be considered with all other evidence in determining whether an act or practice is unfair. In addition to the evidence described above and in markets concerns longer term loans, established public policy appears to support a finding that it is an unfair practice for lenders to make covered longer term loans without making a reasonable determination that the consumer will have the ability to repay the loan.
Variation in Timing, Frequency, and Amount of Payments	As discussed above in part ii d, obtaining authorization to initiate withdrawals from consumers’ transaction accounts is a standard practice among payday and payday installment lenders. Lenders often control the parameters of how these authorizations are used.
Cumulative Impacts	These practices among payday and payday installment lenders have substantial cumulative impacts on consumers. Industry analyses, outreach, and bureau research suggest that the industry is an extreme outlier with regard to the rate of returned items.
Limited Consumer Control	Consumers’ ability to protect their accounts from these types of presentment problems is limited due to a combination of factors, including the nature of the lender practices themselves, lender revocation procedures, costs imposed by consumers’ depository institutions in connection with attempting to stop presentment attempts, and operational limits of individual payment methods. In some cases, revocation and stopping payment may be infeasible, and at a minimum they are generally both difficult and costly.
Private Network Protections Have Limited Impact	Finally, while payday industry presentment practices are so severe that they have prompted recent actions by the private rulemaking body that governs the ach network, the bureau is concerned that these efforts will be insufficient to solve the problems discussed above. As discussed above in part ii b. the private nacha rules provide some protections in addition to those currently provided by law.
Injury Not Reasonably Avoidable	As previously noted in part iv, under the ftc act and federal precedents that inform the bureau’s interpretation and application of the unfairness test, an injury is not reasonably avoidable where some form of seller behavior.. unreasonably creates or takes advantage of an obstacle to the free exercise of consumer decision making, or, unless consumers have reason to anticipate the injury and the means to avoid it. The bureau believes that in a significant proportion of cases, unless the lender obtains the consumer’s new and specific authorization to make further payment withdrawals from the account, consumers may be unable to reasonably avoid the injuries that result from the lender practice of attempting to withdraw payment from a consumer’s account in connection with a covered loan after two consecutive payment withdrawal attempts by the lender have failed.
Injury Not Outweighed by Countervailing Benefits to Consumers or Competition	As noted in part iv, the bureau’s interpretation of the various prongs of the unfairness test is informed by the ftc act, the ftc policy statement on unfairness, and ftc and other federal agency rulemakings and related case law. Under those authorities, it generally is appropriate for purposes of the countervailing benefits prong of the unfairness standard to consider both the costs of imposing a remedy and any benefits that consumers enjoy as a result of the practice, but the determination does not require a precise quantitative analysis of benefits and costs.
A. Overview	In developing this proposed rule, the bureau has considered the potential benefits, costs, and impacts as required by section, including the potential reduction of access by consumers to consumer financial products or services, the impact on depository institutions and credit unions with billion or less in total assets as described in section of the dodd frank act, and the impact on consumers in rural areas. The bureau requests comment on the preliminary analysis presented below as well as submissions of additional data that could inform the bureau’s analysis of the benefits, costs, and impacts of the proposed rule.
B. Need for the Regulation	As discussed in market concerns short term loans, market concerns longer term loans, and market concerns payments above, the bureau is concerned that practices in the markets for payday, vehicle title, and payday installment loans pose significant risk of harm to consumers. In particular, the bureau is concerned about the harmful impacts on consumers of the practice of making these loans without making a reasonable determination that the consumer can afford to repay the loan while paying for other major financial obligations and basic living expenses.
C. Provisions to be Considered
Requirements for registered information systems.	The discussions of impacts are organized into the five main categories of provisions listed above; those relating to covered short term loans, those relating to covered longer term loans, those relating to limitations of payment practices, recordkeeping requirements, and requirements for registered information systems. Within each of these main categories, the discussion is organized to facilitate a clear and complete consideration of the benefits, costs, and impacts of the major provisions of the proposed rule.
Provisions Relating to Covered Short-Term Loans	The provision relating to covered short term loans would apply to lenders who make those loans. The definition of a covered short term loan is provided in proposed..
Provisions Relating to Covered Longer-Term Loans	The provisions relating to covered longer term loans would apply to lenders who make those loans. The definition of a covered longer term loan is provided in proposed..
Provisions Relating to Payment Practices, and Related Notices	The provisions relating to payment practices and related notices would apply to any lender making a covered loan, either short term or longer term, for which the lender has obtained authorization to withdraw payment directly from a borrower’s deposit account or prepaid account. These provisions would affect online lenders, who normally receive payments via ach.
Recordkeeping Requirements
Registered Information System Requirements	The provisions relating to applying to become a registered information system would apply to any firm that applied. The provisions relating to the requirements to operate as a registered information system would apply to any firm that became a registered information system.
E. Data Limitations and Quantification of Benefits, Costs and Impacts	The analysis presented below relies on data that the bureau has obtained from industry, other regulatory agencies, and publically available sources, including the findings of other researchers. General economic principles and the bureau’s expertise in consumer financial markets, together with the data and findings that are available, provide insight into the potential benefits, costs, and impacts of the proposed regulation.
F. Potential Benefits and Costs of the Proposed Rule to Consumers and Covered Pe…	This section discusses the impacts of the provisions of the proposal that specifically relate to covered short term loans. The benefits and costs of these provisions may be affected by other provisions of the proposed rule.
Benefits and Costs to Covered Persons	The proposed rule would impose a number of procedural requirements on lenders making covered short term loans, as well as impose restrictions on the number of covered short term loans that could be made. This section first discusses the benefits and costs of the procedural requirements for lenders using the atr approach with regard to originating loans and furnishing certain related information to registered information systems over the life of the loan, then discusses the benefits and costs of the procedural requirements for lenders using the alternative approach.
Benefits and Costs to Consumers	The proposal would benefit consumers by reducing the harm they suffer from the costs of extended sequences of payday loans and single payment auto title loans, from the costs of delinquency and default on these loans, and from the costs of defaulting on other major financial obligations or being unable to cover basic living expenses in order to pay off covered short term loans. Borrowers would also benefit when lenders adjusted their loan terms or product mix so that future loans are more predictable and ultimate repayment is more likely.
G. Potential Benefits and Costs of Proposed Rule to Covered Persons and Consumer…	This section discusses the impacts of the provisions of the proposal that specifically relate to covered longer term loans. These provisions include the requirement that lenders determine that applicants for these covered loans have the ability to repay the loan while still meeting their major financial obligations and paying basic living expenses proposed in., as well as the alternative approaches to making covered longer term loans proposed in. and.
Benefits and Costs of ATR Requirements	The proposed rule would impose a number of procedural requirements on lenders making covered longer term loans using the atr approach, as well as impose restrictions on the covered loans that could be made. In order to present a clear analysis of the benefits and costs of the proposal, this section first describes the benefits and costs of the proposal to lenders and then discusses the implications of the proposal for the overall markets for these products.
Impacts of Portfolio and PAL Approaches	As noted above, the bureau believes that most covered longer term loans would be made using the atr approach. The portfolio and pal approaches would each allow lenders making certain types of loans to avoid many of the procedural costs associated with the atr approach.
H. Potential Benefits and Costs of Proposals to Consumers and Covered Persons—Pr…	The proposed rule would limit how lenders initiate payments on a covered loan from a borrower’s account and impose two notice requirements relating to those payments. Specifically, lenders would be prohibited from continuing to attempt to withdraw payment from a borrower’s account, by any means, if two consecutive prior attempts to withdraw payment directly from the account had failed due to insufficient funds, unless the lender obtains a new and specific authorization to make further withdrawals from the consumer’s account.
Limitation on Payment Withdrawal Attempts	The proposed rule would prevent lenders from attempting to withdraw payment from a consumer’s account if two consecutive prior payment attempts made through any channel are returned for nonsufficient funds. The lender could resume initiating payment if the lender obtained from the consumer a new and specific authorization to collect payment from the consumer’s account.
Required Notice Prior To Attempt To Collect Directly from a Borrower’s Accoun…	The proposal would also require lenders to provide consumers with a notice prior to every lender initiated attempt to withdraw payment from consumers’ accounts, including ach entries, post dated signature checks, remotely created checks, remotely created payment orders, and payments run through the debit networks. The notice would be required to include the date the lender would initiate the payment request; the payment channel; the amount of the payment; the breakdown of that amount to principal, interest, and fees; the loan balance remaining if the payment succeeds; the check number if the payment request is a signature check or rcc; and contact information for the consumer to reach the lender.
Required Notice When Lender Could No Longer Collect Directly From a Borrower’…	The proposal would require a lender that has made two consecutive unsuccessful attempts to collect payment directly from a borrower’s account to provide a borrower, within three business days of learning of the second unsuccessful attempt, with a consumer rights notice explaining that the lender is no longer able to attempt to collect payment directly from the borrower’s account, along with information identifying the loan and a record of the two failed attempts to collect funds. This provision may benefit lenders if it leads to consumers contacting the lender to provide a new authorization to withdraw payments from the borrower’s account or make other payment arrangements.
I. Potential Benefits and Costs of the Proposed Rule to Consumers and Covered Pe…	The proposed rule would require lenders to maintain sufficient records to demonstrate compliance with the proposed rule. This would include, among other records, loan records; materials collected during the process of originating loans, including the information used to determine whether a borrower had the ability to repay the loan, if applicable; records of reporting loan information to a registered information system, as required; records of attempts to withdraw payments directly from borrowers accounts, and the outcomes of those attempts; and, for lenders utilizing the portfolio approach, records of the calculation of the portfolio default rate.
J. Potential Benefits and Costs of the Proposed Rule to Consumers and Covered Pe…	As discussed above, the proposed rule would generally require lenders to report covered loans to registered information systems in close to real time. Entities wishing to become registered information systems would need to apply to the bureau for approval.
K. Alternatives Considered	In preparing the proposed rule, the bureau has considered a number of alternatives to the provisions proposed. In this section the major alternatives are briefly described and their impacts relative to the proposed provisions are discussed.
Limits on Reborrowing of Covered Short-Term Loans Without an Ability-to-Repay…	The bureau considered not imposing a requirement that lenders making covered short term loans determine the ability of borrowers to repay the loans, and instead proposing solely to limit the number of times that a lender could make a covered short term loan to a borrower. Such a restriction could take the form of either a limit on the number of loans that could be made in sequence or a limit on the number of loans that could be made in a certain period of time, as discussed above in connection with alternatives to the presumptions framework in proposed..
An Ability-to-Repay Requirement for Short-Term Loans With No Alternative Appr…	The bureau also considered proposing the atr approach without proposing the alternative approach for covered short term loans. This would have a larger impact on the total volume of payday loans that could be originated than would the proposal.
Disclosures as an Alternative to the Ability-to-Repay Requirement	The bureau considered whether to require disclosures to borrowers warning of the risk of reborrowing or default, rather than the atr approach and the several alternatives to the atr approach. The bureau believes that a disclosure only approach would have lower procedural costs for lenders than would the atr approach, the alternative approach, the portfolio approach, or the pal approach.
Limitations on Withdrawing Payments From Borrowers’ Account Without Associate…	The bureau considered including the proposed limitation on lenders continuing to attempt to withdraw payment from borrowers’ accounts after two sequential failed attempts to do so, but not including the required disclosures of upcoming payments or the notice that would be sent when a lender could no longer continue to attempt to collect payments from a borrower account. The impacts of excluding the upcoming payment notices would simply be to not cause lenders and borrowers to experience the benefits and costs that are described in the discussion of the impacts of those provisions.
L. Potential Impact on Depository Creditors With $10 Billion or Less in Total As…	The bureau believes that depository institutions and credit unions with less than billion dollars in assets rarely originate loans that would be covered short term loans. The bureau believes that some of these institutions do originate loans that would be covered longer term loans.
M. Impact on Consumers in Rural Areas	Consumers in rural areas would have a greater reduction in the availability of covered short term loans originated through storefronts than would consumers living in areas that are not rural. As described in parts vi.f. still had physical access to a payday store.
N. Request for Information	The bureau will further consider the benefits, costs and impacts of the proposed provisions and additional proposed modifications before finalizing the proposal. As noted above, there are a number of areas in which additional information would allow the bureau to better estimate the benefits, costs, and impacts of this proposal and more fully inform the rulemaking.
Regulatory Flexibility Act Analysis
Description of the Reasons Why Agency Action Is Being Considered	As discussed in market concerns short term loans, market concerns longer term loans, and market concerns payments above, the bureau is concerned that practices in the market for payday, vehicle title, and installment loans pose significant risk of harm to consumers. In particular, the bureau is concerned about the harmful impacts on consumers of the practice of making these loans without making a reasonable determination that the consumer can afford to repay the loan while paying for major financial obligations and basic living expenses.
Statement of the Objectives of, and Legal Basis for, the Proposed Rule	The bureau is issuing the proposed rule pursuant to its authority under the dodd frank act in order to identify certain unfair and abusive acts or practices in connection with certain consumer credit transactions, to set forth requirements for preventing such acts or practices, to exempt loans meeting certain conditions from those requirements, to prescribe requirements to ensure that the features of those consumer credit transactions are fully, accurately, and effectively disclosed to consumers, and to prescribe processes and criteria for registration of information systems. In particular, section of the dodd frank act sets forth the standard for abusive acts or practices.
Description and, Where Feasible, Provision of an Estimate of the Number of Sm…	As discussed in the small business review panel report, for purposes of assessing the impacts of the proposed rule on small entities, small entities is defined in the rfa to include small businesses, small nonprofit organizations, and small government jurisdictions. A small business is determined by application of sba regulations and reference to the north american industry classification system that do not exceed. million.
Projected Reporting, Recordkeeping, and Other Compliance Requirements of the …	The proposed rule imposes new reporting, recordkeeping, and compliance requirements on certain small entities. These requirements and the costs associated with them are discussed below.
Provisions Relating to Payment Practices:	The discussions of the impacts are organized into the three main categories of provisions listed above those relating to covered short term loans, those relating to covered longer term loans, and those relating to limitations of payment practices. Within each of these main categories, the discussion is organized to facilitate a clear and complete consideration of the impacts of the major provisions of the proposed rule on small entities.
Identification, to the Extent Practicable, of All Relevant Federal Rules Whic…	The proposed rule would impose additional requirements on certain forms of credit that are currently subject to the federal consumer financial laws. In addition to the dodd frank act, several other federal laws regulate certain matters related to the extension, servicing, and reporting of credit that would be covered by the proposals under consideration by the bureau these laws are described below.
Description of Any Significant Alternatives to the Proposed Rule Which Accomp…	Section of the rfa requires that bureau to describe in the irfa any significant alternatives to the proposed rule which accomplish the stated objectives of applicable statutes and which minimize any significant economic impact of the proposed rule on small entities. In developing the proposed rule, the bureau has considered several alternatives and believes that none of the alternatives, discussed below, would accomplish the stated objectives of the applicable provisions of title x of the dodd frank act while minimizing the impact of the proposed rule on small entities.
Limitations on withdrawing payments from borrowers’ account without associate…	In addition to the major alternatives outlined above, the bureau has considered and solicits comment on numerous alternatives to specific provisions of the proposed rule, discussed in detail in the section by section analysis of each corresponding section. As an alternative to the proposed ability to repay requirements in proposed. and. for covered short term loans, the bureau considered a limitation on the overall number of covered short term loans that a consumer could take in a loan sequence or within a short period of time.
Discussion of Impact on Cost of Credit for Small Entities	Section. To satisfy these statutory requirements, the bureau provided notification to the chief counsel that the bureau would collect the advice and recommendations of the same small entity representatives identified in consultation with the chief counsel through the sbrefa process concerning any projected impact of the proposed rule on the cost of credit for small entities.
Paperwork Reduction Act	Under the paperwork reduction act of, u.s.c. et seq. Federal agencies are generally required to seek approval from the omb for information collection requirements prior to implementation.

2017 Final Rule

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SUMMARY:	Summary the bureau of consumer financial protection as appropriate to protect consumers. Dates effective date this regulation is effective january, compliance date sections. through., , and. have a compliance date of august, application deadline the deadline to submit an application for preliminary approval for registration pursuant to. is april, for further information contact sarita frattaroli, counsel; mark morelli, michael g.
I. Summary of the Final Rule	On june, the bureau issued proposed consumer protections for payday loans, vehicle title loans, and certain high cost installment loans. The proposal was published in the federal register on july, following a public comment period and review of comments received, the bureau is now issuing this final rule with consumer protections governing the underwriting of covered short term and longer term balloon payment loans, including payday and vehicle title loans.
A. Scope of the Rule	The rule applies to two types of covered loans. First, it applies to short term loans that have terms of days or less, including typical day and day payday loans, as well as short term vehicle title loans that are usually made for day terms, and longer term balloon payment loans.
B. Ability-to-Repay Requirements and Alternative Requirements for Covered Short-…	The rule identifies it as an unfair and abusive practice for a lender to make covered short term or longer term balloon payment loans without reasonably determining that the consumers will have the ability to repay the loans according to their terms. The rule prescribes requirements to prevent this practice and thus the specific harms to consumers that the bureau has identified as flowing from the practice, including extended loan sequences for a substantial population of consumers.
C. Payment Practices Rules	The rule identifies it as an unfair and abusive practice for a lender to make attempts to withdraw payment from consumers’ accounts in connection with a short term, longer term balloon payment, or high cost longer term 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. The bureau found that in these circumstances, further attempted withdrawals are highly unlikely to succeed, but clearly impose harms on consumers who are affected.
D. Additional Requirements	The rule requires lenders to furnish to provisionally registered and registered information systems certain information concerning covered short term and longer term balloon payment loans at loan consummation, during the period that the loan is an outstanding loan, and when the loan ceases to be an outstanding loan. To be eligible to become a provisionally registered or registered information system, an entity must satisfy the eligibility criteria prescribed in the rule.
E. Effective and Compliance Dates/Application Deadline 6	The final rule will become effective january, days after publication of the final rule in the federal register. Compliance with. through., , and. will be required beginning august, months after publication of the final rule in the federal register.
A. Introduction	For most consumers, credit provides a means of purchasing goods or services and spreading the cost of repayment over time. This is true of the three largest consumer credit markets the market for mortgages can be used.
B. Short-Term, Hybrid, and Balloon-Payment Loans	Providing short term loans for liquidity needs has been a long term challenge in the consumer financial services market due to the fixed costs associated with loan origination regardless of loan size. At the beginning of the twentieth century, concern arose with respect to companies that were responding to liquidity needs by offering to purchase a consumer’s paycheck in advance of it being paid.
C. Longer-Term, High-Cost Loans	In addition to short term loans, certain longer term, high cost loans will be covered by the payments protections provisions of this rule. These are longer term, high cost loans with a leveraged payment mechanism, as described in more detail in part ii.d and markets concerns payments.
D. Initiating Payment From Consumers’ Accounts	As discussed above, payday and payday installment lenders nearly universally obtain at origination one or more authorizations to initiate withdrawal of payment from the consumer’s account. There are a variety of payment options or channels that they use to accomplish this goal, and lenders frequently obtain authorizations for multiple types.
Summary of the Rulemaking Process	As described in more detail below, the bureau has conducted broad outreach with a multitude of stakeholders on a consistent basis over more than five years to learn more about the market for small dollar loans of various kinds. This outreach has comprised many public events, including field hearings, and hundreds of meetings with both consumer and industry stakeholders on the issues raised by small dollar lending.
A. Bureau Outreach to Stakeholders	Birmingham field hearing. The bureau’s formal outreach efforts on this subject began in january, when it held its first public field hearing in birmingham, alabama, focused on small dollar lending.
B. Supervisory and Enforcement Activity	In addition to these many channels of outreach, the bureau has developed a broader understanding of small dollar lending through its supervisory and enforcement work. This work is part of the foundation of the bureau’s expertise and experience with this market, which is informed by frequent contact with certain small dollar lenders and the opportunity to scrutinize their operations and practices up close through supervisory examinations and enforcement investigations.
C. Research and Analysis of Small-Dollar Loans	Bureau white papers. In april, the bureau issued a white paper on payday loans and deposit advance products, including findings by bureau staff.
D. Small Business Review Panel	Small business regulatory enforcement fairness act, which it posted on its web site for review and comment by the general public as well as the small entities participating in the panel process. Before formally convening, the panel took part in teleconferences with small groups of the small entity representatives to introduce the outline and get feedback on the outline, as well as a series of questions about their business operations and other issues.
E. Consumer Testing	In developing the disclosures for this rule, the bureau engaged a third party vendor, fors marsh group expired authorization notices that alerted consumers that lenders would no longer be able to attempt to withdraw money from the consumers’ accounts. Observations and feedback from the testing were incorporated into the model forms developed by the bureau.
F. The Bureau’s Proposal	Overview. In june, the bureau released for public comment a notice of proposed rulemaking on payday, vehicle title, and certain high cost installment loans, which were referred to as covered loans.
G. Public Comments on the Proposed Rule	Overview. Reflecting the broad public interest in this subject, the bureau received more than. million comments on the proposed rulemaking.
Legal Authority	The bureau is issuing this final rule pursuant to its authority under the dodd frank act. The rule relies on rulemaking and other authorities specifically granted to the bureau by the dodd frank act, as discussed below.
A. Section 1031 of the Dodd-Frank Act	Section the bureau’s authority to identify and prevent udaaps section of the act further provides that, rules under this section may include requirements for the purpose of preventing such acts or practice. There are notable similarities between the dodd frank act and the federal trade commission act of the dodd frank act.
B. Section 1032 of the Dodd-Frank Act	Section of the dodd frank act provides that the bureau may prescribe rules to ensure that the features of any consumer financial product or service, both initially and over the term of the product or service, are fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the product or service, in light of the facts and circumstances. This authority is broad, and empowers the bureau to prescribe rules regarding the disclosure of the features of consumer financial products and services generally.
C. Other Authorities Under the Dodd-Frank Act	Section and. Section of the act, see part vii below.
D. Section 1041 of the Dodd-Frank Act and Preemption	Section of the act provides that, for purposes of section, a statute, regulation, order, or interpretation in effect in any state is not inconsistent with the title x provisions if the protection that such statute, regulation, order, or interpretation affords to consumers is greater than the protection provided under title x. This section further provides that a determination regarding whether a statute, regulation, order, or interpretation in effect in any state is inconsistent with the provisions of title x may be made by the bureau on its own motion or in response to a nonfrivolous petition initiated by any interested person.
E. General Comments on the Bureau’s Legal Authority	In addition to setting out the bureau’s legal authority for this rulemaking and responding to comments directed to specific sources of authority, it is necessary to address several more general comments that challenged or criticized certain aspects of the bureau’s ability to proceed to finalize this rule. They will be addressed here.
V. Section-by-Section Analysis	Proposed. provided that the rule is being issued pursuant to title x of the dodd frank wall street reform and consumer protection act. It also provided that the purpose of this part is to identify certain unfair and abusive acts or practices in connection with certain consumer credit transactions; to set forth requirements for preventing such acts or practices; and to prescribe requirements to ensure that the features of those consumer credit transactions are fully, accurately, and effectively disclosed to consumers.
Borrower Characteristics	In the proposal, the bureau noted that a number of studies have focused on the characteristics of payday borrowers. For instance, the fdic and the u.s.
Circumstances of Borrowing	The proposal discussed several surveys that have asked borrowers why they took out their loans or for what purpose they used the loan proceeds, and noted that these are challenging questions to study. Any survey that asks about past behavior or events runs some risk of recall errors.
Loan Structure	The proposal described how the single payment structure and short duration of these loans makes them difficult to repay. Within the space of a single income or expense cycle, a consumer with little to no savings cushion and who has borrowed to meet an unexpected expense or income shortfall, or who chronically runs short of funds, is unlikely to have the available cash needed to repay the full amount borrowed plus the finance charge on the loan when it is due and to cover other ongoing expenses.
Marketing	The proposal also noted that the general positioning of short term products in marketing and advertising materials as a solution to an immediate liquidity challenge attracts consumers facing these problems, encouraging them to focus on short term relief rather than the likelihood that they are taking on a new longer term debt. Lenders position the purpose of the loan as being for use until next payday or to tide over the consumer until she receives her next paycheck.
Failure To Assess Ability To Repay	As discussed in the proposal, the typical loan process for storefront payday, online payday, and single payment vehicle title lenders generally involves gathering some basic information about borrowers before making a loan. Lenders normally do collect income information, although the information they collect may just be self reported or stated income.
Encouraging Long Loan Sequences	In the proposal, the bureau recounted its assessment of the market by noting that lenders attract borrowers in financial crisis, encourage them to think of the loans as a short term solution, and fail to screen out those for whom the loans are likely to become a long term debt cycle. After that, lenders then actively encourage borrowers to re borrow and continue to be indebted rather than pay down or pay off their loans.
Payment Mechanisms and Vehicle Title	The proposal noted that where lenders can collect payments through post dated checks or ach authorizations, or obtain security interests in borrowers’ vehicles, these mechanisms also can be used to encourage borrowers to re borrow, as a way to avoid what otherwise could be negative consequences if the lender were to cash the check or repossess the vehicle. For example, consumers may feel significantly increased pressure to return to a storefront to roll over a payday or vehicle title loan that includes such features.
Failure To Assess Ability To Repay	Many lenders making longer term balloon payment loans like lenders making other types of longer term loans have constructed a business model that allow them to offer loans profitably despite very high loan level and sequence level default rates. Rather than assessing whether borrowers will have the ability to repay the loans, these lenders engage in limited up front screening to detect potential fraud and other first payment defaults, and otherwise rely heavily on loan features and practices that result in consumers continuing to make payments beyond the point at which they are affordable.
Causes or Is Likely To Cause Substantial Injury	As noted in part iv, the bureau’s interpretation of the various prongs of the unfairness test is informed by the ftc act, the ftc policy statement on unfairness, and ftc and other federal agency rulemakings and related case law. Under these authorities, substantial injury may consist of a small amount of harm to a large number of individuals or a larger amount of harm to a smaller number of individuals.
Injury Not Reasonably Avoidable	As previously noted in part iv, under the ftc act and federal precedents that inform the bureau’s interpretation and application of the unfairness test, an injury is not reasonably avoidable where some form of seller behavior.. unreasonably creates or takes advantage of an obstacle to the free exercise of consumer decision making, or unless consumers have reason to anticipate the injury and the means to avoid it. In the proposal, the bureau observed that in a significant proportion of cases, unless the lender obtains the consumer’s new and specific authorization to make further payment withdrawals from the account, consumers may be unable to reasonably avoid the injuries that result from the lender practice of attempting to withdraw payment from a consumer’s account in connection with a covered loan after two consecutive payment withdrawal attempts by the lender have failed.
Injury Not Outweighed by Countervailing Benefits to Consumers or Competition	As noted in part iv, the bureau’s interpretation of the various prongs of the unfairness test is informed by the ftc act, the ftc policy statement on unfairness, and ftc and other federal agency rulemakings and related case law. Under those authorities, the countervailing benefits prong of the unfairness standard makes it appropriate to consider both the costs of imposing a remedy and any benefits that consumers enjoy as a result of the practice; yet this determination does not require a precise quantitative analysis of benefits and costs.
Consideration of Public Policy	Section of the dodd frank act allows the bureau to consider established public policies as evidence to be considered with all other evidence in determining whether a practice is unfair, as long as the public policy considerations are not the primary basis of the determination. This is an optional basis for justifying the rule, and in the proposal the bureau did not make a preliminary determination to cite public policy as evidence to be considered in deciding that the identified payment practices are unfair.
Consumers Lack Understanding of Material Risks and Costs	In the proposal, the bureau stated that when consumers grant lenders an authorization to withdraw payment from their account, they understand as a general matter that they may incur an nsf fee from their account holding institution as well as a returned item fee charged by the lender. However, the bureau preliminarily found that such a generalized understanding does not suffice to establish that consumers understand the material costs and risks of a product or service.
Consumers Are Unable To Protect Their Interests	The bureau proposed that when a lender attempts to withdraw payment from a consumer’s account in connection with a covered loan after the lender’s second consecutive failed attempt, unless the lender obtains the consumer’s new and specific authorization to make further withdrawals from the account, consumers are unable to protect their interests. By the time consumers discover that lenders are using their authorizations in this manner, it is often too late for them to take effective action.
Practice Takes Unreasonable Advantage of Consumer Vulnerabilities	Under section of the dodd frank act, an act or practice is abusive when it takes unreasonable advantage of consumers’ lack of understanding of the material risks, costs, or conditions of selecting or using a consumer financial product or service or of their inability to protect their interests in selecting or using such a product or service. The bureau proposed that, with respect to covered loans, the lender act or practice of attempting to withdraw payment from a consumer’s account after two consecutive attempts have failed, unless the lender obtains the consumer’s new and specific authorization to make further withdrawals, may take unreasonable advantage of consumers’ lack of understanding and inability to protect their interests and is therefore abusive.
A. Section 1031(b)	Section of the dodd frank act authorizes the bureau to prescribe rules for the purpose of identifying unfair or abusive acts or practices, which rules may include requirements for the purpose of preventing such acts or practices. As discussed above, the bureau determined that it is an unfair and abusive practice to make a covered loan without determining that the consumer has the ability to repay the loan.
B. Section 1024(b)	Section, to ensure that such persons are legitimate entities and are able to perform their obligations to consumers. The provisions in proposed. including the criteria governing when the bureau may register or provisionally register information systems, suspend or revoke such registration or provisional registration, or deny applications for registration or provisional registration were proposed to facilitate supervision, enable the assessment and detection of risks to consumers, and ensure that registered information systems are legitimate entities able to perform their obligations to consumers.
C. Sections 1022(b), 1022(c), and 1021(c)(3)	Section further authorizes the bureau to prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person. Pursuant to the authorities described above, the bureau is thus finalizing subpart d.
Effective Date	The bureau proposed that, in general, the final rule would take effect months after publication in the federal register. The bureau believed that months struck the appropriate balance between providing consumers with necessary protections while giving covered persons adequate time to comply with all aspects of the final rule.
A. Overview	In developing this final rule, the bureau has considered the potential benefits, costs, and impacts as required by section calls for the bureau to consider the potential benefits and costs of a regulation to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services, the impact on depository institutions and credit unions with billion or less in total assets as described in section of the dodd frank act, and the impact on consumers in rural areas. In the proposal, the bureau set forth a preliminary analysis of these effects and requested comments that could inform the bureau’s analysis of the benefits, costs, and impacts of the proposal.
B. Major Provisions and Coverage	In this analysis, the bureau focuses on the benefits, costs, and impacts of the four major elements of the final rule the rule’s requirements concerning registered information systems. The discussion of impacts that follows is organized into these four main categories.
C. Baseline for Consideration of Benefits, Costs, and Impacts	In considering the potential benefits, costs, and impacts of the rule, the bureau takes as the baseline for the analysis the regulatory regime that currently exists for the covered products and covered persons. Given that the bureau takes the status quo as the baseline, the analysis below focuses on providers that currently offer short term loans and longer term loans with balloon features, the potential entrants into the market for registered information systems required under this rule, and, to a lesser extent, providers of covered longer term loans that face limits on their activities only through the intervention affecting payment practices.
D. Description of the Market Failure	The primary concern in this market, as described in market concerns underwriting and the section by section analysis of., is that many borrowers experience long and unanticipated durations of indebtedness. That is, the failures in the market do not necessarily impact the average borrower experience, but instead impact those borrowers who experience longer sequences of loans.
E. Major Impacts of the Rule	The primary impact of this rule, prior to any reforms it may prompt in market practices, will be a substantial reduction in the volume of short term payday and vehicle title loans, and a corresponding decrease in the revenues that lenders realize from these loans. Simulations based on the bureau’s data indicate that payday loan volumes will decrease by percent to percent, with a corresponding decrease in revenue.
F. Benefits and Costs of the Rule to Covered Persons and Consumers—Underwriting	This section discusses the impacts of the provisions of the loan origination portions of the rule. Those provisions specifically relate to covered short term loans and covered longer term balloon payment loans.
Benefits and Costs to Covered Persons	The rule imposes a number of procedural requirements on lenders making covered short term and longer term balloon payment loans, as well as imposing restrictions on the number of these loans that can be made. This section first discusses the benefits and costs of the procedural requirements for lenders using the atr approach with regard to originating loans and furnishing certain related information to registered information systems over the life of the loan.
Benefits and Costs to Consumers	The rule will benefit consumers by reducing the harm they suffer from the costs of extended sequences of payday loans and single payment auto title loans, from the costs of delinquency and default on these loans, from the costs of defaulting on other major financial obligations, and or from being unable to cover basic living expenses in order to pay off covered short term and longer term balloon payment loans. Borrowers will also benefit from lenders adjusting their loan terms or their product mix, so that future loans are more predictable and ultimate repayment is more likely.
G. Benefits and Costs of the Rule to Covered Persons and Consumers—Payments and …	The rule limits how lenders initiate payments on a covered loan from a borrower’s account and imposes two notice requirements relating to such payments. Specifically, if two consecutive prior attempts to withdraw payment through any channel from a borrower’s account have failed due to insufficient funds, lenders are prohibited from continuing to attempt to withdraw payment from a borrower’s account, unless the lender obtains a new and specific authorization to make further withdrawals from the consumer’s account.
Limitation on Payment Withdrawal Attempts	The rule prevents lenders from attempting to withdraw payment from a consumer’s account if two consecutive prior payment attempts made through any channel are returned for nonsufficient funds. The lender can resume initiating payment if the lender obtains from the consumer a new and specific authorization to collect payment from the consumer’s account.
Required Notice Prior To Attempt To Collect Directly From a Borrower’s Accoun…	The rule also requires lenders to provide consumers with a notice prior to the first lender initiated attempt to withdraw payment from consumers’ accounts, including ach entries, post dated signature checks, remotely created checks, remotely created payment orders, and payments run through the debit networks. The notice is required to include the date the lender will initiate the payment request; the payment channel; the amount of the payment; the breakdown of that amount to principal, interest, and fees; the loan balance remaining if the payment succeeds; the check number if the payment request is a signature check or rcc; and contact information for the consumer to reach the lender.
Required Notice When Lender Can No Longer Collect Directly From a Borrower’s …	The rule requires a lender to provide a borrower with a notice of consumer rights within three days of a second consecutive unsuccessful attempt to collect payment from a borrower’s account. This notice will identify the loan, explain that the lender is no longer able to attempt to collect payment directly from the borrower’s account, and provide the consumer a record of the two failed attempts to collect funds.
H. Benefits and Costs of the Rule to Covered Persons and Consumers—Recordkeeping…	The rule requires lenders to maintain sufficient records to demonstrate compliance with the rule. This includes, among other records, loan records; materials collected during the process of originating loans, including the information used to determine whether a borrower had the ability to repay the loan, if applicable; records of reporting loan information to a registered information system, as required; and, records of attempts to withdraw payments from borrowers accounts, and the outcomes of those attempts.
I. Benefits and Costs of the Rule to Covered Persons and Consumers—Registered In…	As discussed above, the rule will generally require lenders to report covered loans to registered information systems in close to real time. Entities wishing to become registered information systems must apply to the bureau to become registered.
J. Alternatives Considered	In preparing the rule, the bureau has considered a number of alternatives to the provisions. The alternatives discussed here are limits on re borrowing covered short term loans without an ability to repay requirement; an ability to repay requirement for short term loans with no principal step down approach; disclosures as an alternative to the ability to repay requirement; and limitations on withdrawing payments from borrowers’ accounts without such disclosures.
Limits on Re-Borrowing of Covered Short-Term Loans Without an Ability-To-Repa…	The bureau considered not imposing a requirement that lenders making covered short term and longer term balloon payment loans determine the ability of borrowers to repay the loans, and instead proposing solely to limit the number of times that a lender could make a covered short term loan to a borrower. Such a restriction could take the form of either a limit on the number of loans that could be made in sequence or a limit on the number of loans that could be made in a certain period of time.
An Ability-To-Repay Requirement for Short-Term Loans With No Principal Step-D…	The bureau also considered the atr approach without the principal step down approach for covered short term loans. Many consumer groups suggested this alternative.
Disclosures as an Alternative to the Ability-To-Repay Requirement	The bureau considered whether to require disclosures to borrowers warning of the risk of re borrowing or default, rather than the atr approach and the principal step down approach, and the bureau received a number of comments asserting that this approach would be sufficient or more advantageous, as discussed in the section by section analysis above. The bureau believes that a disclosure only approach would have lower procedural costs for lenders than would the atr approach or the principal step down approach.
Limitations on Withdrawing Payments From Borrowers’ Accounts Without Disclosu…	The bureau considered including the limitation on lenders continuing to attempt to withdraw payment from borrowers’ accounts after two sequential failed attempts to do so, but not including the required initial disclosure of usual payments or the additional disclosure in the event of unusual payments, or the notice that would be sent when a lender could no longer continue to attempt to collect payments from a borrower account. The impacts of excluding the upcoming payment notices would simply be to not cause lenders and borrowers to experience the benefits and costs that are described in the discussion of the impacts of those provisions.
K. Potential Impact on Depository Creditors With $10 Billion or Less in Total As…	The bureau believes that depository institutions and credit unions with less than billion dollars in assets rarely originate loans that are covered by this rule. To the extent depository institutions do make loans in this market, many of those loans would be exempted under. as alternative or accommodation loans.
L. Impact on Consumers in Rural Areas	Consumers in rural areas will have a greater reduction in the availability of covered short term and longer term balloon payment loans originated through storefronts relative to consumers living in non rural areas. As described in part vii.f..c, the bureau estimates that the restrictions on making these loans will likely lead to a substantial contraction in the markets for storefront payday loans and storefront single payment vehicle title loans.
Regulatory Flexibility Analysis	The regulatory flexibility act of any rule subject to notice and comment rulemaking requirements. These analyses must describe the impact of the proposed rule on small entities.
A. Overview of the Bureau’s Approach	In the proposal the bureau did not certify that the proposal would not have a significant impact on a substantial number of small entities within the meaning of the rfa. Accordingly, the bureau convened and chaired a small business review panel under the small business regulatory enforcement fairness act analysis and are also addressed in those parts.
B. Rationale and Objectives of the Final Rule	As discussed in market concerns underwriting and market concerns payments above, the bureau is concerned that practices in the market for payday, vehicle title, longer term balloon payment loans, and certain other longer term loans utilizing leveraged payment mechanisms pose significant risk of harm to consumers. In particular, the bureau is concerned about the harmful impacts on consumers of the practice of making these loans without making a reasonable determination that the consumer has the ability to repay the loan while paying for major financial obligations and basic living expenses.
Public Comments on the IRFA and the Bureau’s Views and Treatment of Those Com…	In accordance with section of the rfa, the bureau prepared an irfa. In the irfa, the bureau estimated the possible costs for small entities with respect to the reporting, recordkeeping, and compliance requirements of the proposed rule against a pre statute baseline.
Response to the Small Business Administration Chief Counsel for Advocacy	The sba office of advocacy provided a formal comment letter to the bureau in response to the proposed rule. Among other things, this letter expressed concern about the following issues the burden of complying with the ability to repay requirements; the lack of estimates for the impact of the ability to repay requirements on lender revenues; the length of the cooling off period; the lack of an exception for loans to address an emergency; the interaction of the rule with state laws; the impact of the rule on credit unions, small communities, and indian tribes; the lack of clarity of the business loan exemption; the effect of the rule on lender’s own cost of credit; and the implementation date of the final rule.
Description and Estimate of the Number of Small Entities to Which the Final R…	As discussed in the small business review panel report, for purposes of assessing the impacts of the rule on small entities, small entities is defined in the rfa to include small businesses, small nonprofit organizations, and small government jurisdictions. A small business is determined by application of sba regulations and reference to the north american industry classification system that do not exceed. million.
Projected Reporting, Recordkeeping, and Other Compliance Requirements of the …	The rule imposes new reporting, recordkeeping, and compliance requirements on certain small entities. These requirements and the costs associated with them are discussed below.
D. The Bureau’s Efforts To Minimize the Economic Impact on Small Entities	Section of the rfa requires the bureau to describe in the frfa the steps taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes. The bureau has taken numerous steps to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statues.
Consideration of Alternatives to the Final Rule and Their Impact on Small Ent…	In the irfa, four significant alternatives to the proposed rule were considered, but the bureau decided that none of them would accomplish the stated objectives of title x of the dodd frank act while minimizing the impact of the rule on small entities. In this section, the bureau presents its considerations in that regard.
The Bureau’s Efforts To Minimize Any Additional Cost of Credit for Small Enti…	Section of the rfa requires the bureau to consult with small entities about the potential impact of the proposed rule on the cost of credit for small entities and related matters. In the frfa, the bureau is required to provide a description of the steps taken to minimize any additional cost of credit for small entities.
Paperwork Reduction Act	Under the paperwork reduction act of for information collection requirements prior to implementation. Under the pra, the bureau may not conduct or sponsor and, notwithstanding any other provision of law, a person is not required to respond to an information collection unless the information collection displays a valid control number assigned by omb.

2019 Proposed Rule

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SUMMARY:	Summary the bureau of consumer financial protection. The provisions of the rule which the bureau proposes to rescind provide that it is an unfair and abusive practice for a lender to make a covered short term or longer term balloon payment loan, including payday and vehicle title loans, without reasonably determining that consumers have the ability to repay those loans according to their terms; prescribe mandatory underwriting requirements for making the ability to repay determination; exempt certain loans from the mandatory underwriting requirements; and establish related definitions, reporting, and recordkeeping requirements.
I. Summary of the Proposed Rule	On october, the bureau issued the final rule establishing consumer protection regulations for payday loans, vehicle title loans, and certain high cost installment loans, relying on authorities under title x of the dodd frank wall street reform and consumer protection act to reconsider certain provisions of the final rule and to address the rule’s compliance date. This is one of those proposals; the other is published separately in this issue of the federal register.
Background	The supplementary information accompanying the final rule contains background on the payday and vehicle title markets and on the consumers who use these products. The supplementary information also contains findings of the impacts that the mandatory underwriting provisions of the final rule would have on consumers and covered persons.
A. The Market for Short-Term and Balloon-Payment Loans	As the bureau observed in the final rule, consumers living paycheck to paycheck and with little to no savings often use credit as a means of coping with financial shortfalls. These shortfalls may be due to mismatched timing between income and expenses, income volatility, unexpected expenses or income shocks, or expenses that simply exceed income.
Payday Loans	Seventeen states and the district of columbia prohibit payday lending or impose interest rate caps that payday lenders find too low to enable them to make such loans profitably. The remaining states have either created a carve out from their general usury cap for payday loans or do not regulate interest rates on loans.
Single-Payment Vehicle Title Loans	The second major category of loans covered by the mandatory underwriting provisions of the final rule is single payment vehicle title loans. As explained in the final rule, in a title loan transaction, the borrower must provide identification and usually the title to the vehicle as evidence that the borrower owns the vehicle free and clear.
Longer-Term Balloon-Payment Loans	The third category of loans covered by the mandatory underwriting provisions of the final rule is longer term balloon payment loans which generally involve a series of small, often interest only, payments followed by a single larger lump sum payment. In, the bureau noted that there did not appear to be a large market for such loans.
B. The Mandatory Underwriting Provisions of the 2017 Final Rule	The supplementary information accompanying the final rule provides an explanation of the mandatory underwriting provisions of the rule. This part ii.b provides a high level summary of certain of those provisions that are most directly relevant to the bureau’s decision to propose their reconsideration.
C. The Estimated Impacts of the Mandatory Underwriting Provisions of the 2017 Fi…	The supplementary information accompanying the final rule contains regulatory impact analyses, including an analysis of the benefits and costs to consumers and covered persons as required by section as required by that act. The bureau does not here repeat all of that information and those findings.
Outreach	The bureau has engaged in efforts to monitor and support industry implementation since the final rule was issued. As a part of those efforts, the bureau has received input from a number of stakeholders regarding various aspects of the final rule.
Legal Authority	Part iv of the supplementary information that accompanied the final rule discussed the legal authorities for the rule. Commenters may refer to that discussion for information about the legal background relating to the rule.
V. Explanation of the Bases for This Proposal To Rescind the Mandatory Underwrit…	This part explains the bureau’s reasons for proposing to rescind the use of its unfairness and abusiveness authority under section of the dodd frank act in the mandatory underwriting provisions of the final rule. Part v.a reviews certain of the factual predicates and legal conclusions underlying this use of authority.
Unfairness	As noted above, section of the dodd frank act states that the bureau has no authority to declare an act or practice to be unfair unless the bureau has a reasonable basis to conclude that the act or practice causes or is likely to cause substantial injury which is not reasonably avoidable by consumers and that such substantial injury is not outweighed by countervailing benefits to consumers or to competition. In the final rule, the bureau found that the practice of making covered short term or longer term balloon payment loans to consumers without determining if the consumers have the ability to repay causes or is likely to cause substantial injury to consumers.
Abusiveness	Section the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service. The bureau, in imposing the mandatory underwriting provisions of the final rule, relied on both of these prongs of the abusiveness definition.
B. Reconsidering the Evidence for the Factual Findings in Light of the Impacts o…	In questioning here whether the evidence is sufficient for the bureau’s factual findings necessary to support the determinations that the identified practice was unfair and abusive and thereby warrants the imposition of the mandatory underwriting provisions of the final rule, the bureau is not addressing whether the evidence supporting the factual findings in the final rule would be sufficient to withstand judicial review under the administrative procedure act. Here, even if the evidence is sufficient for the factual findings necessary to support the bureau’s unfairness and abusiveness determinations on which the mandatory underwriting provisions are based, the bureau believes it is prudent as a policy matter to require a more robust and reliable evidentiary basis to support key findings in a rule that would eliminate most covered short term and longer term balloon payment loans and providers from the marketplace, thus restricting consumer access to these products.
The Mann Study and the Findings Based on It	As discussed in part v.a. in determining that the identified practice is unfair, in the final rule the bureau concluded, as required by section of the dodd frank act, that the practice causes or is likely to cause substantial injury to consumers and that this injury is not reasonably avoidable by consumers. That latter determination rested on the bureau’s finding that many consumers do not have a specific understanding of their personal risks and cannot accurately predict how long they will be in debt after taking out covered short term or longer term balloon payment loans.
Other Evidence on the Consumer Understanding of Risk	The bureau, in the final rule, pointed to other evidence and made a number of additional factual findings in support of its key finding, also principally based on the mann study, that consumers were not able to predict accurately the specific likelihood of their individual risk of entering a long reborrowing sequence from taking out a covered short term or longer term balloon payment loan. For instance, the bureau stated in the final rule that the way in which covered short term and longer term balloon payment loans are structured and marketed, in addition to lenders’ practices in encouraging consumers to reborrow, are factors that exacerbate and contribute to consumer confusion and lack of understanding as to whether they will end up in long reborrowing sequences.
The Pew Study and the Finding Based on It	As discussed in part v.a. above, the bureau in the final rule also found that consumers who use covered short term or longer term balloon payment loans lack the ability to protect their interests in selecting or using these loans, and that lenders’ practice of making such loans without assessing consumers’ ability to repay took unreasonable advantage of that vulnerability. The predicate finding that these consumers lack the ability to protect themselves relied heavily on a survey of payday borrowers conducted by the pew charitable trusts, discussed above, in which percent of borrowers answered in the affirmative to the question have you ever felt you were in such a difficult situation that you would take [a payday loan] on pretty much any terms offered?
Other Evidence Pertaining to Inability To Protect	In addition to the pew study, and as set out in part v.b. above, the bureau pointed in the final rule to the structure of the loans themselves, expressing the belief that their short repayment periods and balloon payments may make it substantially harder for consumers to work themselves out of debt than if they were subject to a longer, slower repayment schedule. As support for the findings in the final rule that the identified practice was abusive, the bureau also pointed to a host of lender practices before, during, and after origination that the bureau said tend to diminish consumers’ ability to avoid or mitigate harms and protect their own interests in selecting or using covered products.
Conclusion	Based on its analysis in parts v.b. through v.b. above, the bureau believes that the key evidentiary grounds relied upon in the final rule were insufficiently robust and reliable to support the findings of an unfair and abusive practice as identified in. The bureau preliminarily concludes that neither the bureau’s interpretation of limited data from the mann study nor other sources on which the bureau relied provide a sufficiently robust and representative evidentiary basis, in light of the expected impacts of the final rule, to conclude that consumers do not have a specific understanding of their personal risks and cannot accurately predict whether they will remain in long reborrowing sequences after taking out covered short term and longer term balloon payment loans.
C. The Legal Findings Under Section 1031 of the Dodd-Frank Act	In addition to, and independent from, its preliminary determination that the evidence relied upon in the final rule was insufficiently robust and reliable to support the bureau’s key findings underlying the unfairness and abusiveness determinations, the bureau also preliminarily determines that the standards for unfairness and abusiveness used in the final rule were problematic for the reasons discussed below. Specifically, as to the bureau’s unfairness findings in the final rule, the bureau is making this preliminary conclusion about how the final rule applied relating to the determination that lenders took unreasonable advantage of consumers by making covered short term and balloon payment loans without reasonably assessing borrowers’ ability to repay such loans according to their terms.
Reasonable Avoidability	The bureau determined in the final rule that making covered short term or longer term balloon payment loans without reasonably assessing a borrower’s ability to repay the loan according to its terms is an unfair act or practice. In making this determination, the bureau concluded that this practice that the injury was not outweighed by countervailing benefits to consumers or competition.
Countervailing Benefits to Consumers and to Competition	After determining in the final rule that the identified practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by them, the bureau went on to determine that such substantial injury is not outweighed by countervailing benefits to consumers or to competition. This is a necessary element of an unfairness determination under section of the dodd frank act.
Lack of Understanding of Material Risks, Costs, or Conditions	As discussed in part v.a. above, under section of the dodd frank act it is an abusive practice to take unreasonable advantage of a lack of understanding on the part of the consumer of the material risks, costs, or conditions of a consumer financial product or service. In the mandatory underwriting provisions of the final rule, the bureau took a similar approach to interpreting this provision as it took with respect to the reasonable avoidability element of unfairness.
Taking Unreasonable Advantage	The bureau is also reconsidering how the final rule applied section of the dodd frank act, which proscribes abusive conduct that takes unreasonable advantage of certain consumer vulnerabilities enumerated in the statute. As described above, the bureau focused on two such vulnerabilities in connection with evaluating lenders making covered loans without making an ability to repay determination both lack of consumer understanding and inability to protect their own interests.
D. Consideration of Alternatives	The bureau generally considers alternatives in its rulemakings. Here, the context for the consideration of alternatives is that the bureau is proposing to rescind the mandatory underwriting provisions of the final rule, which were based on the bureau’s discretionary authority, not a specific statutory directive.
E. Conclusion	The bureau believes that each of the concerns raised above are sufficiently serious in their own right to merit reconsideration of the final rule, and even more so when considered in combination. As described above, the bureau believes that, in light of the final rule’s dramatic market impacts, the studies on which it primarily relied in the rule do not provide a sufficiently robust and reliable basis for finding that consumers cannot reasonably avoid injury or protect their interests, and do not understand the material risks, costs, and conditions of the loans.
Section-by-Section Analysis	As described in greater detail in part v above, the bureau is proposing to rescind. and. of the final rule, which respectively identify the failure to reasonably determine whether consumers have the ability to repay certain covered loans as an unfair and abusive practice and establish certain underwriting requirements to prevent that practice. The bureau is also proposing to rescind certain derivative provisions that are premised on these two core sections, including a conditional exemption for certain loans in., two provisions that facilitate lenders’ ability to obtain certain information about consumers’ past borrowing history from information systems that have registered with the bureau, and certain recordkeeping requirements in.
Compliance and Effective Dates	The bureau is proposing that the final rule take effect days after publication in the federal register. As discussed above, the current compliance date for the mandatory underwriting provisions of the final rule is august, which the bureau has separately proposed elsewhere in this issue of the federal register to delay by months, to november, after considering comments received on that proposal, the bureau intends to publish a final rule with respect to the compliance date for the mandatory underwriting provisions of the final rule.
A. Overview	In developing this proposal, the bureau has considered the potential benefits, costs, and impacts as required by section of the dodd frank act calls for the bureau to consider the potential benefits and costs of a regulation to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services, the impact on depository institutions and credit unions with billion or less in total assets as described in section of the dodd frank act, and the impact on consumers in rural areas. In advance of issuing this proposal, the bureau has consulted with the prudential regulators and the federal trade commission, including consultation regarding consistency with any prudential, market, or systemic objectives administered by such agencies.
The Need for Federal Regulatory Action
Data and Evidence	In the section analysis that accompanied the final rule, the bureau endeavored to consider comprehensively the economic benefits and costs that were likely to result from that rule. These benefits and costs included direct pecuniary impacts, as well as non pecuniary impacts that the available evidence indicated were likely to result from the rule, if the proposal were to be adopted.
Major Provisions and Coverage of the Proposed Rule	In this analysis, the bureau focuses on the benefits, costs, and impacts of the three major elements of the proposal the revocation of the final rule’s requirements concerning furnishing provisions and their associated requirements for registered information systems. In the final rule, the bureau delineated two major classes of short term lenders it expected to be affected by the mandatory underwriting provisions payday unsecured short term lenders, both storefront and online, and short term vehicle title lenders.
Description of the Baseline	The major impact of the proposal on which the bureau is seeking public comment would be to eliminate the federal regulations requiring underwriting of covered short term and longer term balloon payment loans. No lenders are required to comply with the final rule until the compliance date and until the court in litigation challenging the final rule lifts its stay of the compliance date.
Major Impacts of the Proposal	The primary impact of this proposed rule relative to the baseline in which compliance with the mandatory underwriting provisions of the final rule becomes mandatory would be a substantial increase in the volume of short term payday and vehicle title loans analysis accompanying the final rule based on the bureau’s data indicate that relative to the chosen baseline payday loan volumes would increase by percent to percent, with an increase in revenue for payday lenders between percent and percent. Simulations of the impact on short term vehicle title lending predict an increase in loan volumes of percent to, percent relative to the chosen baseline, with an approximately equivalent increase in revenues.
B. Potential Benefits and Costs of the Proposal to Consumers and Covered Persons…	This section discusses the impacts of revoking the mandatory underwriting provisions of the final rule relative to the chosen baseline in which compliance with the rule was mandatory. Those provisions specifically relate to covered short term and longer term balloon payment loans, and the analyses of their benefits and costs contained in the final rule were sensitive to the potential shifting to products not covered by the mandatory underwriting provisions of the rule analysis contained therein; similarly the bureau does not attempt to assess here any strategic de evolution of the market that will result if compliance with the final rule becomes mandatory.
Benefits and Costs to Covered Persons	This proposal would rescind a number of operational requirements on lenders making covered short term and longer term balloon payment loans and remove restrictions on the number of these loans that can be made. As this proposal would rescind the requirements associated with the mandatory underwriting approach, it also obviates the need for the principal step down approach set out in. of the final rule as an alternative to the mandatory underwriting approach in. for making covered short term and longer term balloon payment loans.
Benefits and Costs to Consumers	The operational requirements of the mandatory underwriting provisions of the final rule would make the process of obtaining a loan more time consuming and complex for some borrowers. The restrictions on lending in the final rule will reduce the availability of storefront payday loans, online payday loans, single payment vehicle title loans, longer term balloon payment loans, and other loans covered by the mandatory underwriting provisions of the rule.
C. Potential Benefits and Costs of the Proposal to Consumers and Covered Persons…	The final rule requires lenders to maintain sufficient records to demonstrate compliance with the rule. Those requirements include, among other records to be kept, loan records; materials collected during the process of originating loans, including the information used to determine whether a borrower had the ability to repay the loan, if applicable; records of reporting loan information to rises, as required; and records of attempts to withdraw payments from borrowers’ accounts, and the outcomes of those attempts.
D. Potential Benefits and Costs of the Proposal to Consumers and Covered Persons…	As discussed above, the final rule requires lenders to report covered short term and longer term balloon payment loans to every ris. This requirement would be eliminated by this proposal, as would the potential benefits and costs from the existence of, and reporting to, every ris.
E. Other Unquantified Benefits and Costs	Some of the proposal’s impacts noted above are difficult if not impossible to quantify, because their magnitudes or values are unknown or unknowable. One of the most notable of these is the consumer welfare impact of increased access to short term vehicle title loans.
F. Potential Impact on Depository Creditors With $10 Billion or Less in Total As…	The bureau believes that depository institutions and credit unions with less than billion in assets are minimally constrained by the final rule’s mandatory underwriting provisions. To the limited extent depository institutions and credit unions did make loans in this market, many of those loans were conditionally exempted from the final rule under. as alternative or accommodation loans.
G. Potential Impact on Consumers in Rural Areas	Under the proposal, consumers in rural areas would have a greater increase in the availability of covered short term and longer term balloon payment loans originated through storefronts relative to consumers living in non rural areas. As described above, the bureau estimates that removing the restrictions in the final rule on making these loans would likely lead to a substantial increase in the markets for storefront payday loans and storefront single payment vehicle title loans.
Regulatory Flexibility Act Analysis	The regulatory flexibility act as amended by the small business regulatory enforcement fairness act of requires each agency to consider the potential impact of its regulations on small entities, including small businesses, small governmental units, and small not for profit organizations. The rfa defines a small business as a business that meets the size standard developed by the small business administration pursuant to the small business act.
X. Paperwork Reduction Act	Under the paperwork reduction act of. A revised supporting statement detailing the changes to the information collections and their effects on the rule’s overall burden will be made available for public comment on the electronic docket accompanying this proposed rule.
The authority citation for part 1041 continues to read as follows:
Revise the heading for subpart D to read as follows:	Subpart d recordkeeping, anti evasion, and severability. and. [Removed and reserved]
Amend § 1041.12 by revising paragraph (b)(1) and removing and reserving parag…	. Compliance program and record retention. a lender must retain or be able to reproduce an image of the loan agreement for each covered loan that the lender originates.
In appendix A to part 1041, remove Model Forms A-1 and A-2 and add reserved M…
In supplement I to part 1041:	Section. Definitions requires a lender to retain records regarding payment practices in electronic, tabular format.

2020 Final Rule

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section	summary
SUMMARY:	Summary the bureau of consumer financial protection is issuing this final rule to amend its regulations governing payday, vehicle title, and certain high cost installment loans. Specifically, the bureau is revoking provisions of those regulations that provide that it is an unfair and abusive practice for a lender to make a covered short term or longer term balloon payment loan, including payday and vehicle title loans, without reasonably determining that consumers have the ability to repay those loans according to their terms; prescribe mandatory underwriting requirements for making the ability to repay determination; exempt certain loans from the mandatory underwriting requirements; and establish related definitions, reporting, recordkeeping, and compliance date requirements.
Background
A. The Market for Short-Term and Balloon-Payment Loans	Consumers living paycheck to paycheck and with little to no savings often use credit as a means of coping with financial shortfalls. These shortfalls may be due to mismatched timing between income and expenses, income volatility, unexpected expenses or income shocks, or expenses that simply exceed income.
Payday Loans	Eighteen states and the district of columbia prohibit payday lending or impose interest rate caps that most payday lenders find too low to enable them to make such loans profitably. The remaining states have either created a carve out from their general usury caps for payday loans or do not regulate loan interest rates.
Single-Payment Vehicle Title Loans	The second major category of loans covered by the mandatory underwriting provisions is single payment vehicle title loans. As with payday loans, the states have taken different regulatory approaches with respect to single payment vehicle title loans.
Longer-Term Balloon-Payment Loans	The third category of loans covered by the mandatory underwriting provisions is longer term balloon payment loans which generally involve a series of small, often interest only, payments followed by a single larger lump sum payment. There does not appear to be a large market for such loans.
Short-Term Lending by Depository Institutions	Since the issuance of the final rule, prudential regulators have released additional regulations and guidance on small dollar lending by depository institutions. On october, the office of the comptroller of the currency issued a request for information on small dollar lending to encourage fdic supervised institutions to offer small dollar credit products that are responsive to customers’ needs and that are underwritten and structured prudently and responsibly.
B. The Mandatory Underwriting Provisions of the 2017 Final Rule	Section. contains an identification provision which provides that it is an unfair and abusive practice for a lender to make covered short term loans or covered longer term balloon payment loans without reasonably determining that consumers have the ability to repay the loans according to their terms. The preamble to the final rule sets out the legal reasoning and factual analysis in support of the unfairness and abusiveness findings to..
Outreach	In developing the nprm, the bureau took into account the input it received from stakeholders through its efforts to monitor and support industry implementation of the final rule, as well as comments received in response to other bureau initiatives, such as a series of requests for information the bureau published in. The bureau also held a series of briefing calls with various government, industry, and consumer group stakeholders on the nprm.
Legal Authority	The bureau adopted the mandatory underwriting provisions in principal reliance on the bureau’s authority under section of the dodd frank act further provides that rules under section may include requirements for the purpose of preventing such acts or practices. Section, the principles of which congress generally incorporated into section of the ftc act.
V. Amendments to 12 CFR Part 1041 To Eliminate the Mandatory Underwriting Provis…	The bureau has determined that the grounds provided in the final rule do not support its determination that the identified practice is unfair, thereby eliminating the basis for the mandatory underwriting provisions to address that conduct. This part explains the bureau’s reasons for determining that the identified practice in the final rule is not unfair under section of the dodd frank act.
A. Overview of the Factual Predicates and Legal Conclusions Underlying the Ident…	As noted above, section of the dodd frank act states that the bureau has no authority to declare an act or practice to be unfair unless the bureau has a reasonable basis to conclude that the act or practice causes or is likely to cause substantial injury which is not reasonably avoidable by consumers and that such substantial injury is not outweighed by countervailing benefits to consumers or to competition. In the final rule, the bureau found that the practice of making covered short term or longer term balloon payment loans to consumers without reasonably determining if the consumers have the ability to repay them according to their terms causes or is likely to cause substantial injury to consumers.
Reasonable Avoidability—Legal Standard	The bureau determined in the final rule that making covered short term or longer term balloon payment loans without reasonably assessing a borrower’s ability to repay the loan according to its terms is an unfair act or practice. In making this determination, the bureau concluded that this practice that such injury was not outweighed by countervailing benefits to consumers or competition.
Reconsidering the Evidence for the Factual Analysis of Reasonable Avoidabilit…	The bureau has decided to adopt a different, better interpretation of the level of understanding that payday borrowers need in order to reasonably avoid injury, as discussed in part v.b. But independent of that interpretive question, the bureau has concluded that it should withdraw the final rule’s determination regarding reasonable avoidability because it was supported by insufficiently robust and reliable evidence.
C. Countervailing Benefits to Consumers and to Competition	The nprm reconsidered whether the identified practice’s substantial injury to consumers which is not reasonably avoidable was outweighed by countervailing benefits to consumers or to competition pursuant to section of the dodd frank act. The bureau revisited the final rule’s determination regarding this element and preliminarily determined that certain countervailing benefits from the identified practice were greater than the bureau found in the final rule.
Reconsideration of the Dependence of the Unfairness Identification on the Pri…	Section of the dodd frank act to impose requirements for the purpose of preventing such acts or practices by adopting requirements in. for how lenders should go about making such an ability to repay determination. In the section analysis of the final rule, the bureau estimated that if lenders ceased to engage in the identified practice and instead followed the mandatory underwriting requirements designed to prevent that practice, only one third of current borrowers would be able to obtain any loans and, of those who obtained a loan, only one third would be able to obtain a subsequent loan.
Effect of Undervaluing Countervailing Benefits	In the nprm the bureau preliminarily determined that after fully accounting for the countervailing benefits including benefits it disregarded in the final rule because of its reliance on the principal step down exemption and also other benefits that the final rule undervalued that the substantial injury from the identified practice that consumers cannot reasonably avoid is outweighed by the aggregate countervailing benefits to consumers and competition of that practice. As the final rule noted and the nprm reiterated, the relevant question under section.
Conclusion on Countervailing Benefits	Accordingly, the bureau concludes that the identified practice’s countervailing benefits to consumers and to competition must be reweighed. After doing so, the bureau concludes that these countervailing benefits in the aggregate outweigh any substantial, not reasonably avoidable injury to consumers where lenders make covered loans to them without determining consumers’ ability to repay those loans.
D. Conclusion on Unfairness	Based on its analysis in parts v.b through v.c above, the bureau concludes that it should no longer identify an unfair under section of the dodd frank act that the bureau should no longer use given the identification of better interpretations of these statutory provisions. Second, as set out in part v.b. the bureau determined that even under the final rule’s interpretation of reasonable avoidability, the evidence underlying this finding is insufficiently robust and reliable.
Amendments to the 2017 Final Rule To Eliminate Its Mandatory Underwriting Pr…	The bureau determines that the factual and legal grounds provided in the final rule do not support its conclusion that the identified practice is abusive under section of the dodd frank act, thereby eliminating that as a basis for the mandatory underwriting provisions to address that conduct. Part vi.a considers the core principles of abusiveness under dodd frank act section of the dodd frank act, the bureau no longer identifies the practices as abusive under an inability to protect theory as set out in. of the final rule.
A. Background on Abusiveness	Section. The statutory standard for what the bureau has authority to declare an abusive act or practice is set forth in section the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.
B. Overview of the Factual Predicates and Legal Conclusions Underlying the Ident…	Section the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service. The bureau, in imposing the mandatory underwriting provisions, relied on both of these prongs of the abusiveness standard.
Takes Unreasonable Advantage of Consumers’ Lack of Understanding of Material …	In the nprm, the bureau reconsidered how the final rule applied section of the dodd frank act, which proscribes abusive conduct that takes unreasonable advantage of certain consumer vulnerabilities enumerated in the statute. As described above, the bureau in the final rule focused on two such vulnerabilities in connection with evaluating lenders making covered loans without making an ability to repay determination both lack of consumer understanding and inability to protect their own interests.
Takes Unreasonable Advantage of Consumers’ Inability To Protect Themselves	For the reasons set out above in part vi.c..a, the bureau finalizes the nprm and concludes that the factors cited in the final rule do not constitute unreasonable advantage taking of consumers’ inability to protect themselves. The bureau withdraws its determination in the final rule that the four factors it identified atypicality, taking advantage of particular vulnerabilities, reliance on a business model inconsistent with the manner in which the product is marketed to consumers, and limitations on means of reducing or mitigating harm for many consumers constituted unreasonable advantage taking of consumers’ inability to protect themselves, assumed for purposes of this analysis.
D. Conclusion on Abusiveness Theories	As set out in part vi.c above, the bureau determines that there are insufficient factual and legal bases for the final rule to identify the practice as abusive. As to the lack of understanding theory of abusiveness, there are three discrete and independent grounds that justify revoking the identification of an abusive practice that the evidence was insufficiently robust and reliable in support of a factual determination that consumers lack understanding.
A. Consideration of Alternatives	The bureau generally considers alternatives in its rulemakings. Here, the context for the consideration of alternatives is that the bureau, for the reasons set forth above, is revoking the mandatory underwriting provisions of the final rule, which were based on the bureau’s discretionary authority, not a specific statutory directive.
Section-by-Section Analysis	As described in greater detail in parts v, vi and vii above, the bureau is revoking. and. and related provisions of the final rule, which respectively identify the failure to reasonably determine whether consumers have the ability to repay certain covered loans as an unfair and abusive practice and establish certain underwriting requirements to prevent that practice. The bureau is also revoking certain derivative provisions that are premised on these two core sections, including a principal step down exemption for certain loans in., two provisions that facilitate lenders’ ability to obtain certain information about consumers’ past borrowing history from information systems that have registered with the bureau, and certain recordkeeping requirements in.
Compliance and Effective Dates	The bureau proposed that this final rule take effect days after publication in the federal register. As discussed above, the current compliance date for the mandatory underwriting provisions of the final rule was changed from august, as originally set out in the final rule, to november, as set out in the final rule delaying this compliance date.
A. Overview	In developing this rule, the bureau considered the potential benefits, costs, and impacts as required by section of the dodd frank act calls for the bureau to consider the potential benefits and costs of a regulation to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services, the impact on depository institutions and credit unions with billion or less in total assets as described in section of the dodd frank act, and the impact on consumers in rural areas. In advance of issuing this rule, the bureau has consulted with the prudential regulators and the ftc, including consultation regarding consistency with any prudential, market, or systemic objectives administered by such agencies.
The Need for Federal Regulatory Action
Data and Evidence	In this section analysis, the bureau endeavors to consider comprehensively the economic benefits and costs that are likely to result from revoking the mandatory underwriting provisions of the final rule, possibly including some indirect effects. Since the issuance of the final rule, the body of evidence bearing on benefits and costs has only slightly expanded.
Major Provisions and Coverage of the Rule	In this analysis, the bureau focuses on the benefits, costs, and impacts of the three major elements of the final rule the amendment of the final rule to eliminate requirements concerning lenders furnishing information to registered information systems as well as associated requirements. As discussed in the final rule, there are two major classes of short term lenders that would be affected by the mandatory underwriting provisions payday unsecured short term lenders, both storefront and online, and short term vehicle title lenders.
Description of the Baseline	The major impact of this final rule would be to eliminate the federal regulations requiring underwriting of covered short term and longer term balloon payment loans. No lenders are required to comply with the final rule until the compliance date and until the court in litigation challenging the final rule lifts its stay of the compliance date.
Major Impacts of the Rule	The primary impact of this final rule relative to the baseline in which compliance with the mandatory underwriting provisions of the final rule becomes mandatory will be a substantial increase in the volume of short term payday and vehicle title loans analysis accompanying the final rule based on the bureau’s data indicate that relative to the chosen baseline payday loan volumes will increase by percent to percent, with an increase in revenue for payday lenders between percent and percent. Simulations of the impact on short term vehicle title lending predict an increase in loan volumes of percent to, percent relative to the chosen baseline, with an approximately equivalent increase in revenues.
B. Potential Benefits and Costs of the Final Rule to Consumers and Covered Perso…	Eliminating the mandatory underwriting provisions, and the associated restrictions on reborrowing, is likely to have a substantial impact on the markets for these products relative to the markets that would exist under the mandatory underwriting provisions in the final rule. In order to present a clear analysis of the benefits and costs of this final rule, this section first describes the benefits and costs of this final rule to covered persons relative to the baseline if compliance with the mandatory underwriting provisions in the final rule were required and then discusses the implications of this compliance for the markets for these products.
Benefits and Costs to Covered Persons	As this final rule removes restrictions on the operational requirements for lenders, allowing them to not incur the costs associated with complying with the mandatory underwriting provisions in the final rule, this section discusses the overall benefits and costs to lenders associated with not having to comply with the mandatory underwriting provisions in the final rule rather than having to do so. Under this amendment to the final rule, lenders will not need to consult their own records and the records of their affiliates to determine whether the borrower has taken out any prior covered short term or longer term balloon payment loans that were still outstanding or were repaid within the prior days.
Benefits and Costs to Consumers	Borrowers would likely have experienced reduced access to new loans i.e. loans that are not part of an existing loan sequence from the restrictions and operational requirements of the mandatory underwriting provisions of the final rule. Some borrowers also would have been prevented from rolling loans over or reborrowing shortly after repaying a prior loan under the final rule.
C. Potential Benefits and Costs of the Final Rule to Consumers and Covered Perso…	The final rule requires lenders to maintain sufficient records to demonstrate compliance with the rule. Those requirements include, among other records to be kept, loan records; materials collected during the process of originating loans, including the information used to determine whether a borrower had the ability to repay the loan, if applicable; records of reporting loan information to rises, as required; and records of attempts to withdraw payments from borrowers’ accounts, and the outcomes of those attempts.
D. Potential Benefits and Costs of the Final Rule to Consumers and Covered Perso…	As discussed above, the final rule requires lenders to report covered short term and longer term balloon payment loans to every ris. This requirement will be eliminated as part of the elimination of the mandatory underwriting provisions, as will the potential benefits and costs from the existence of, and reporting to, every ris.
E. Other Unquantified Benefits and Costs	Some of these impacts noted above associated with eliminating the mandatory underwriting provisions in the final rule are difficult if not impossible to quantify, because their magnitudes or values are unknown or unknowable as described in the nprm. Additionally, there are other, less direct effects of this final rule that are also left unquantified.
F. Potential Impact on Depository Creditors With $10 Billion or Less in Total As…	The bureau believes that depository institutions and credit unions with less than billion in assets are minimally constrained by the final rule’s mandatory underwriting provisions. To the limited extent depository institutions and credit unions did make loans in this market, many of those loans were conditionally exempted from the final rule under. as alternative or accommodation loans.
G. Potential Impact on Consumers in Rural Areas	With the elimination of the mandatory underwriting provisions, consumers in rural areas will have a greater increase in the availability of covered short term and longer term balloon payment loans originated through storefronts relative to consumers living in non rural areas. As described above, the bureau estimates that removing the restrictions in the final rule on making these loans will likely lead to a substantial increase in the markets for storefront payday loans and storefront single payment vehicle title loans.
Regulatory Flexibility Act Analysis	The regulatory flexibility act as amended by the small business regulatory enforcement fairness act of requires each agency to consider the potential impact of its regulations on small entities, including small businesses, small governmental units, and small not for profit organizations. The rfa defines a small business as a business that meets the size standard developed by the sba pursuant to the small business act.
Paperwork Reduction Act	Under the paperwork reduction act of. This submission to omb was made under omb control number, which omb assigned for tracking purposes at the nprm stage of this rulemaking.
Congressional Review Act	Pursuant to the congressional review act, the bureau will submit a report containing this rule and other required information to the u.s. Senate, the u.s.
Signing Authority	The director of the bureau, having reviewed and approved this document, is delegating the authority to electronically sign this document to grace feola, a bureau federal register liaison, for purposes of publication in the federal register. List of subjects in cfr part banks, banking, consumer protection, credit, credit unions, national banks, reporting and recordkeeping requirements, savings associations, trade practices.
In appendix A to part 1041, remove and reserve Model Forms A-1 and A-2.

Rules summarized with textrank