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Income: The Proposal
Under the proposal being considered by the Bureau, the lender would be required to verify the amount and timing of a consumer’s income either through bank statements, benefit statements, or paystubs. Many lenders in the short-term credit markets already obtain a paystub or benefits award statement from consumers. However, despite this common practice, the Bureau understands that some lenders disregard income information because they rely heavily on their preferred repayment position extending from their right to obtain repayment directly from the consumer’s account or their security interest in the consumer’s vehicle.*
Clarity’s Clear Ability to Pay Solution addresses a 12 month reported net income range along with 90 – 180- days up to 1 yr median net income.
Housing: The Proposal
The proposals under consideration would require lenders to obtain and verify information about the amount and timing of the consumer’s major financial obligations. Major financial obligations are those expenses that are significant in their amount and that cannot be readily eliminated or reduced in the short term. In the proposal being considered, major financial obligations would include housing payments (including mortgage or rent payments), required payments on debt obligations, child support, and other legally required payments. The Bureau has also considered an alternative proposal that would define major financial obligations more broadly to include utility payments, regular medical expenses, and potentially other obligations.*
The Clear Ability to Pay Solution’s Housing section helps independently determine how long an applicant has lived at an address and validates if the past reported housing status matches the current application.
Cash Flow Analysis: The Proposal
Under the proposals being considered, as noted above, a lender would be required to make a good-faith, reasonable determination that the consumer has the ability to repay the covered loan without reborrowing or defaulting. The proposals under consideration would require the lender to determine whether, given the amount and timing of the consumer’s income and major financial obligations, the consumer will have enough remaining income to be able to repay the loan after paying these major financial obligations and necessary living expenses.*
This section of the Clear Ability to Pay Solution provides the approximate monthly payment obligations of the applicant.
Alternative Credit Reporting: The Proposal
The Bureau is considering proposals that would generally cover consumer loans with a contractual duration of 45 days or less. This would include short-term payday loans with a single payment, short-term vehicle title loans, open-end lines of credit where the credit plan is to terminate within 45 days or the credit is repayable in full within 45 days, and multi-payment loans where the loan is due in full within 45 days.
To address the practices that result in many consumers taking out unaffordable loans, the Bureau is considering proposals to require lenders to determine a consumer’s ability to repay covered short-term loans.*
Clarity’s Clear Ability to Pay Solution shows monthly payment obligations reported through both traditional credit bureaus and through Clarity’s proprietary data collected from alternative lending sources.
Ability to Pay: The Proposal
The Bureau is considering proposals to require lenders to determine a consumer’s ability to repay covered longer-term loans. These proposals seek to address consumer harm caused by the failure to underwrite loans when the lender has a security interest in the consumer’s vehicle or access to repayment from a consumer’s account or wages. The proposals described below are similar in many regards to the proposals under consideration to require lenders to determine a consumer’s ability to repay covered short-term loans. The proposal under consideration would require a lender, as a condition of making a covered longer-term loan, to first make a good-faith, reasonable determination that the consumer has the ability to repay the covered longer-term loan without reborrowing or defaulting. This determination would require the lender to find that a consumer is able to make all projected payments under the covered longer-term loan as those payments are due while still fulfilling her other major financial obligations and meeting living expenses.*
This section of the Clear Ability to Pay Solution shows estimated expenses that are not reported to credit bureaus.
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*Source: CFPB, 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