The Consumer Financial Protection Bureau (CFPB) will publish the long-anticipated amendments to Regulation Z to implement the ability to repay rules today. The rule will be effective next year.
CFPB Director Richard Cordray will officially announce the new rule in an event scheduled for later today in Baltimore. The is the first of several final rules scheduled to be published by the end of next week.
The rule imposes a range of obligations and restrictions on lenders, including bans on the risky “interest-only” and “no documentation” loans that helped inflate the housing bubble. Lenders will be required to verify and inspect borrowers’ financial records. The rule also limits features like teaser rates that adjust upwards and large “balloon payments.”
The rule creates several exceptions aimed at ensuring a smooth phase-in and protecting access to credit for underserved groups. For example, the strict cap on how much debt consumers may take on will not apply immediately. Loans that meet separate federal standards also would be permitted for the first seven years. Balloon payments would be allowed for certain small lenders that operate in rural or underserved communities.
The CFPB is also expected to propose amendments that would exempt from the rules some loans made by community banks, credit unions and nonprofit lenders that work with low- and moderate-income consumers.
We will publish another article later today, once the rule is published, that will include a link to the regulation.