At Clarity, we pride ourselves on being proactive when it comes to regulations. We stay focused on implementing compliance solutions for our customers so they can focus on running their businesses. Clarity has proposed solutions for each of the following items from the CFPB’s rules proposal1 (“Proposed Rules”), created to help our customers achieve compliance and avoid disruptions.
The following summaries are just a representative sample of the Proposed Rules.
Under the Proposed Rules, lenders would be required to make a good-faith, reasonable determination that the consumer has the ability to repay the loan without reborrowing or defaulting. The lender would have to verify and consider the consumer’s income, major financial obligations, and borrowing history.
Clear Ability to Pay™
Clear Ability to Pay™ is a real-time credit report that combines traditional and non-traditional debt obligations to give a comprehensive view of an applicant’s ability to pay. This solution includes income verification along with approximate monthly payment obligations to provide a monthly cash flow analysis and debt-to-income ratio.
Alternative requirements for certain covered short-term loans
Under the Proposed Rules, lenders would be required to verify and comply with several rules and restrictions including, but not limited to, the following:
- The consumer does not currently have a covered loan outstanding with any lender
- The consumer takes out no more than three loans in a sequence, and has not completed a three-loan sequence of alternative loans from any lender within the past 60 days
- After repayment of the third loan in a sequence, the consumer has a “cooling off” period of 60 days
- Following completion of the contractual loan term, the consumer will not have been in debt on covered short-term loans for more than 90 days in the aggregate during a rolling 12-month period
Clear Recent History™ is a valuable 90-day snapshot of a consumer’s loan performance, open tradelines and recent inquiries. Certain fields provide a one-year lookback period. With a glance, you can evaluate if you are compliant with the 90-day indebtedness rule, as well as any required cooling off periods. In addition, Clarity developed a reporting method called Temporary Account Record that will provide lenders with real-time information on pending loan applications that a consumer may have outstanding.
Common operational impacts on small entities making covered loans
Under the Proposed Rules, lenders would be required to consider borrowing history with other lenders and would have to use a commercially available reporting system to obtain information about the consumer’s borrowing history across lenders. To facilitate consideration of borrowing history, lenders would be required to submit records of covered loans they originate to commercially available reporting systems.
Clarity’s Web Inquiry Reporting Engine (WIRE)
The Clarity WIRE is a web portal for lenders to quickly and easily comply with upcoming regulations at no cost. There is no integration process, just a simple web site that lenders can access as needed. This one-stop portal will allow lenders to submit inquiries, enter new tradelines or update existing ones, as well as run credit reports for underwriting. With this new tool, Clarity makes it easier for you to comply with the Proposed Rules!
1 Consumer Financial Protection Bureau, “Small Business Advisory Review Panel for Potential Rulemakings for Payday, Vehicle Title, and Similar Loans: Outline of Proposals Under Consideration and Alternatives Considered,” March 26, 2015.