CFPB Small Dollar Loan Rules: A Deep, Deep Dive Ability to Repay Playbook for the CFPB Rule Dan Richard VP Analytics & Product Strategy, FactorTrust drichard@factortrust.com

AGENDA STEPS TO ENSURE ATR COMPLIANCE OPPORTUNITIES TO ENHANCE DECISIONING STEPS TO ENSURE REPORTING COMPLIANCE COMPLAINCE COUNTDOWN

STEPS TO ENSURE ATR COMPLIANCE Prepare Now To Integrate These Into Your Decision Process COVERED LOAN CHECK / PRESUMPTIONS OF UNAFFORDABILITY Covered loans in a sequence More than 5 covered loans in the last 12 months More than 90 days of outstanding covered loans in last 12 months Expected Impact Some low-risk applicants become ineligible Plan Now Estimate portfolio impact Strategize how to salvage ineligible low-risk applicants

STEPS TO ENSURE ATR COMPLIANCE Prepare Now To Integrate These Into Your Decision Process RESIDUAL INCOME Net Income Major Financial Obligations New loan payment amount Must be sufficient to afford basic living expenses without defaulting Expected Impact Significant portion of applicants becomes ineligible Plan Now Test new data sources Estimate portfolio impact Strategize dynamic loan optimization

STEPS TO ENSURE ATR COMPLIANCE Prepare Now To Integrate These Into Your Decision Process INCOME AND EXPENSE VALIDATION Ensure trustworthiness of stated information Varying levels of technological sophistication Expected Impact New required data integrity checks Plan Now Review available validation tools Determine operational workflow

OPPORTUNITIES TO ENHANCE DECISIONING Start Considering Now How Best To Adapt Your Decision Strategy Consumers failing early stages of a waterfall need not be screened in later stages Applications Fail 80% Pass 20% 10% 9% Review 1% Underwriting ATR Check Expected Impact Additional waterfall elements Plan Now Test and optimize ATR compliance solutions with risk strategies

OPPORTUNITIES TO ENHANCE DECISIONING Start Considering Now How Best To Adapt Your Decision Strategy “Major financial obligations” include debt obligations from a traditional credit file Blend traditional and alternative credit data for enhanced risk decisioning Expected Impact Improved risk-ranking Plan Now Test blended risk solutions

OPPORTUNITIES TO ENHANCE DECISIONING Start Considering Now How Best To Adapt Your Decision Strategy Blend capacity and risk dimensions to fit the consumer into the right-sized loan product Graduate qualified re-borrowers who trigger “presumption of unaffordability” rules High Capacity & Low Risk Amount: $$$ Best Rate High Capacity & High Risk Amount: $ Higher Rate Low Capacity & Low Risk Amount $ Longer Term Decline Residual Income Risk Low High Expected Impact Preserved pre-ATR approval rates Improved profitability Plan Now Test risk and capacity solution sets Design optimization matrices

OPPORTUNITIES TO ENHANCE DECISIONING Start Considering Now How Best To Adapt Your Decision Strategy Beware of consumer-stated income or expense values far out of line from expectation Expected Impact Reduced fraud exposure Plan Now Test validation rules associated with ATR requirements

STEPS TO ENSURE REPORTING COMPLIANCE “Pull from one, report to all” Develop a plan for real-time reporting in multiple formats CREDIT BUREAU Expected Impact New required integrations with Registered Information Systems (RIS) Increased reporting burden Plan Now Evaluate technology solutions that lessen the burden

COMPLIANCE COUNTDOWN Less than 600 Days to Comply CFPB Comment Create ATR Team Compliance Training Evaluate solutions Document retention Data testing Reporting compliance Assess Internal readiness for compliance and risk Resources Documentation Loan products Strategy adjustments Create gap analysis EVALUATE 2016 Select solutions from third-party providers Create decision models Continue data testing Engage RIS’ Evaluate and select assessor Remediate gaps REMEDIATE 2017 Implement third party solutions Compliance dashboard Covered loan lookback Residual Income Income & expense validation Loan decision optimization Continually refine decision models Begin reporting to RIS’ Implement internal controls IMPLEMENT 2018

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