CFPB Small-Dollar Rule Templates
The Consumer Financial Protection Bureau (CFPB) has updated the regulations regarding small-dollar loans. The new regulations go into effect in June 2022 and affect many lenders. This is a complex topic; but worry not, we have articles that cover the basics of the new rule and articles that dive into the specifics.
This article references the topics covered in those articles, so it may be a good idea to read over them before reading this one.
Here, we specifically discuss the new regulations that require lenders to notify their customers of specific events. The CFPB's regulations are specific in how the notices need to be sent and what they need to say. However, we will help you become and remain compliant with these new regulations with ease. Our customer communication tools are meant for you to set it and forget it: once your settings are up and running, you won't have to worry about them again.
We have created custom forms templates for the notices that lenders are required to send. This article displays examples of these templates and provides a description of the notice requirements. These templates are for you; HTML versions are available for download below, and they have been created to be customizable for your company with some small tweaking. Each of our custom forms have been modeled after the CFPB's notices to ensure compliance. While the CFPB does not require lenders to use their notice layouts, deviating too much from the requirements may result in fines. Thus, we encourage you to use them.
Once you have downloaded our custom forms templates, setting up trigger-based notifications will automate the process of sending the notices to your customers. The triggers are based on rules that you set within LoanPro, and they are customizable. If you are intimidated by the prospect of creating rules, or your lending model is more complex than typical, reach out to your customer success specialist—we'd be happy to help with this process.
With the use of trigger-based notifications, we can also help you notify your customers by mail. LoanPro's mail house tool will automatically send your notices by mail when a loan fits the criteria set by rules. Using a combination of our tools ensures you remain compliant with the CFPB's regulations with little involvement from you or your company.
When using any of the HTML templates listed below in LoanPro's custom form editor, make sure to paste the HTML text in the source code entry box. You can do so by clicking the source code button (a pair of arrow brackets < >) as shown in the screenshot below.
There are three events that you need to notify borrowers about: the first time that you initiate a withdrawal, an unusual withdrawal, and two consecutive failed payments. The CFPB's regulations allow for notices to be sent in short-form as long as they include a link to the full notice. These are referred to as Electronic Short Notices. You may want to use these to send a disclosure via a mobile app or text message. We will include examples of these with each of the full notices.
First Payment Withdrawal Notice
Lenders are required to notify borrowers when they obtain payment withdrawal authorization. Notices can be sent in several ways, and each method has a different set of timeframe requirements. If you plan on creating your own notice, all First Payment Notices require the following content:
- Identifying statement (phrased exactly as "Upcoming Withdrawal Notice" with the name of the lender)
- Transfer terms (including the date, dollar amount, borrower account, loan identification number, payment channel, and check number)
- Payment breakdown (including the phrase, "Payment Breakdown" as a heading; principal, interest, fees, and other charges; the phrase "Total Payment Amount" and total dollar amount; and explanation of interest-only or negatively amortizing payment)
- Lender name and contact information
Below is an example of how the First Payment Withdrawal Notice should be formatted.
And here is an example of the Electronic Short Notice version of the First Payment Withdrawal Notice.
Unusual Withdrawal Notices
The updated regulations require lenders to notify borrowers of withdrawals that are deemed unusual. Unusual withdrawals occur when the a withdrawal does not match the previous withdrawal in some way. For example, a variation in withdrawal amount, dates, or payment channels (or, in LoanPro terms, payment profiles). The required timeframes for notice delivery vary depending on the method of notice. If you plan on creating your own notice, all Unusual Payment Notices require the following content:
- Identifying statement (including the phrase "Alert: Unusual Withdrawal" and the name of the lender)
- Basic payment information
- Description of unusual withdrawal (including varying amount, open-end credit if applicable, date other than the regularly schedule payment, different payment channel, and purpose of re-initiating returned transfer)
There are multiple variations of Unusual Withdrawal Notices. Below, we will list brief descriptions of the variations and provide examples.
Varying Amount Notice
Lenders are required to send a Varying Amount Notice when the upcoming withdrawal amount varies from the regularly scheduled payment.
Different Payment Channel Notice
Lenders are required to send a Different Payment Channel Notice if the upcoming payment withdrawal will be made through a different channel (or payment profile, in LoanPro terms) than the withdrawal preceding it.
Re-initiating Returned Transfer Notice
Lenders are required to send a Re-initiating Return Transfer Notice when a payment withdrawal attempt fails and the lender plans on attempting to withdraw funds again.
Date Other Than Due Date
Lenders are required to send a Date Other Than Due Date Notice when a payment transfer date is not on which a regularly schedule payment is due under the terms of the loan agreement. This applies to lenders who schedule withdrawal transfers a few days early to accommodate for payment processors.
Consumer Rights Notice
Lenders are required to send a Consumer Rights Notice to borrowers when two consecutive failed payment attempts have been made. The lender is required to send the notice no later than three business days after the second failed payment, and the notice must be made via mail, phone call, or email. The following is an example of the Consumer Rights Notice. If you plan on creating your own notice, All First Payment Notices require the following content:
- Identifying statement
- Statement of last two attempts returned
- Consumer (borrower) account
- Loan identification information
- Statement of Federal law prohibition
- Statement of contact about choices
- Previous unsuccessful payment attempts (including the phrase "previous payment attempts" as a heading, payment due date, date of attempt, amount, and fees)
- CFPB information
Below is an example of how a Consumers Rights Notice should be formatted.