July 12, 2017

Short-term, small-dollar lending examination procedures

money service business consultant - Chesapeake Compliance Consultants

These examination procedures apply to the short-term, small-dollar credit market, commonly known as payday lending.

The procedures are comprised of modules covering a payday loan’s lifecycle, and each module identifies relevant matters for review. Prior to using the procedures, however, examiners should complete a risk assessment and examination scope memorandum. Depending on the scope, and in conjunction with the compliance management system and consumer complaint response review procedures, each examination will cover one or more of the following modules:

  1. Marketing
  2. Application and Origination
  3. Payment Processing and Sustained Use
  4. Collections, Accounts in Default, and Consumer Reporting
  5. Service Provider Relationships

In addition, under the Military Lending Act (MLA), special protections apply to “consumer credit,” which has been defined through implementing regulations issued by the Department of Defense (DoD) to include closed-end payday loans of $2,000 or less with terms of 91 days or fewer that include creditors’ access to consumer deposit accounts. Examiners will review for MLA violations and their related risks to consumers.

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