Th e CFPB rule aims to stop debt traps by putting in place strong ability-to-repay protections. Th ese protections apply to loans that require consumers to repay all or most of the debt at once. Under the new rule, lenders must conduct a “full-payment test” to determine upfront that borrowers can aff ord to repay their loans without re-borrowing. For certain short-term loans, lenders can skip the full-payment test if they off er a “principal-payoff option” that allows borrowers to pay off the debt more gradually. Th e rule requires lenders to use credit reporting sys-tems registered by the bureau to report and obtain information on certain loans covered by the proposal. Th e rule allows less-risky loan options, including certain loans typically off ered by community banks and credit unions, to forgo the full-payment test. Th e new rule also includes a “debit attempt cutoff ” for any short-term loan, balloon-payment loan or longer-term loan with an annual percentage rate higher than 36 percent that includes authorization for the lender to access the borrower’s checking or prepaid account. Under the rule: — Lenders are required to determine whether the borrower can aff ord the loan payments and still meet basic living expenses and major fi nancial obligations. For payday and auto title loans that are due in one lump sum, full payment means being able to aff ord to pay the total loan amount, plus fees and fi nance charg-es within two weeks or a month. For longer-term loans with a balloon payment, full payment means being able to aff ord the payments in the month with the highest total payments on the loan. Th e rule also caps the number of loans that can be made in quick succession at three. — Consumers may take out a short-term loan of up to $500 without the full-payment test if it is structured to allow the borrower to get out of debt more gradually. Under this option, consumers may take out one loan that meets the restrictions and pay it off in full. For those needing more time to repay, lenders may off er up to two extensions, but only if the borrower pays off at least one-third of the original principal each time. To prevent debt traps, these loans cannot be off ered to borrowers with recent or outstanding short-term or balloon-payment loans. Further, lenders cannot make more than three such loans in quick suc-cession, and they cannot make loans under this option if the consumer has already had more than six short-term loans or been in debt on short-term loans for more than 90 days over a rolling 12-month period. Th e principal-payoff option is not available for loans for which the lender takes an auto title as collateral. — Loans that pose less risk to consumers do not require the full-payment test or the principal-payoff option. Th is includes loans made by a lender who makes 2,500 or fewer covered short-term or balloon-payment loans per year and derives no more than 10 percent of its revenue from such loans. Th ese are usually small personal loans made by community banks or credit unions to existing customers or members. In addition, the rule does not cover loans that generally meet the parameters of “payday alternative loans” authorized by the National Credit Union Administration. Th ese are low-cost loans that cannot have a balloon pay-ment with strict limitations on the number of loans that can be made over six months. Th e rule also excludes from coverage certain no-cost advances and advances of earned wages made under wage-advance programs off ered by employers or their business partners. — A debit attempt cutoff is included that applies to short-term loans, balloon-payment loans, and longer-term loans with an annual percentage rate over 36 percent that includes authorization for the lender to access the borrower’s checking or prepaid account. After two straight unsuccessful attempts, the lender cannot debit the account again unless the lender gets a new authorization from the borrower. Th e lender must give consumers written notice before making a debit attempt at an irregular interval or amount. Th ese protections will give consumers a chance to dispute any unauthorized or errone-ous debit attempts, and to arrange to cover unanticipated payments that are due. Th is should mean fewer consumers being debited for payments they did not authorize or antici-pate, or charged multiplying fees for returned payments and insuffi cient funds. Th e rule takes eff ect 21 months after it is published in the Federal Register, although the provisions that allow for registra-tion of information systems take eff ect earlier. All lenders who regularly extend credit are subject to the CFPB’s requirements for any loan they make that is covered by the rule. Th is includes banks, credit unions, nonbanks and their service providers. Lenders are required to comply regardless of whether they op-erate online or out of storefronts and regardless of the types of state licenses they may hold. Th ese protections are in addition to existing requirements under state or tribal law. A factsheet summarizing the CFPB rule on payday loans is available at http://fi les.consumerfi nance.gov/f/documents/201710_ cfpb_fact-sheet_payday-loans.pdf. Text of the CFPB rule on payday loans is available at http://fi les. consumerfi nance.gov/f/documents/201710_cfpb_fi nal-rule_pay-day-loans-rule.pdf. Banking trade groups were pleased with the Consumer Financial Protection Bureau’s action on payday loans. “With today’s rule, the bureau has reiterated its earlier view that banks can play an important role in meeting the needs of small-dollar borrowers,” said Virginia O’Neill, senior vice president of the American Bankers Association’s Center for Regulatory Compliance. “As we and our member banks strongly encouraged, the fi nal rule allows community banks to continue providing consumers with the small-dollar ac-commodation loans off ered by nearly every institution. Many people want and rely upon small-dollar credit, and banks are eager to expand their off erings of trusted and responsible ser-vices to these borrowers.” Th e Independent Community Bankers of America, in a statement by President and CEO Camden R. Fine, said it ap-preciated that the bureau’s rule recognizes community banks as responsible lenders that do not engage in abusive lending practices and work with their customers to establish favorable loan terms that refl ect their customers’ fi nancial history and ability to repay.