A Small Creditor - To Be/Or Not To Be

Banks have been operating under the CFPB's Ability-to-Repay Rule (ATR) since its effective date of January 10, 2014. The purpose of the Rule is to protect consumers from irresponsible lending practices by requiring lenders to make a good faith determination that the applicant has the ability to repay the loan for which he or she applies.

Under the ATR Rule, the CFPB created a special category of loans called "Qualified Mortgages" (QMs) which prohibit certain high-risk loan features.

When it adopted the ATR Rule and the QM Rule, the CFPB gave special treatment to certain small creditors, particularly small creditors that operated in predominantly rural or underserved areas.

For instance, the ATR Rule extended QM status to loans small creditors make and hold in their own portfolios, even if the debtor has a debt-to-income ratio in excess of 43%. Small creditors in rural or underserved areas can originate mortgage loans with balloon payments, despite the general