Today, the Consumer Financial Protection Bureau proposed new rules requiring lenders to make sure borrowers can repay loans before approving them.
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The Consumer Financial Protection Bureau unveiled a proposal for a new national rule on payday and auto title lending that has the potential to save IL residents millions if changes are made before the rule is finalized.
“Woodstock Institute strongly supports and applauds CFPB’s proposed use of a real “ability to repay” standard for most payday and lump sum auto title loans and other provisions that stop the debt trap for vulnerable borrowers”, Rand continued.
“Too many borrowers seeking a short-term cash fix are saddled with loans they can not afford and sink into long-term debt”, Richard Cordray, the agency’s director, said in a statement. Research by the CFPB found that in a ten month study of payday loan borrowers, “more than 80 percent of payday loans taken out by these borrowers were rolled over or reborrowed within 30 days, incurring additional fees with every renewal”.
A federal consumer watchdog group proposed a new rule Thursday aimed at cracking down on the payday loan industry, saying in a press release that “consumers are being set up to fail with loan payments that they are unable to repay”.
In a study published a year ago, the CFPB found that payday borrowers were charged on average $185 in overdraft fees and bank penalties caused by payday lenders attempting to debit the borrower’s account.
After Google chose to ban online ads for Payday lenders, comes news that today the USA government is looking to unveil new rules to regulate the industry.
Industry groups, however, warned that regulations to short-term loans could force Americans to turn to even less attractive alternatives.
Payday loans are small, high-interest loans used most often by low-income workers to help cover monthly expenses between paychecks. It would also reduce the number of times a customer is allowed to roll an old loan into a new one, or to take out consecutive loans.
In the pipeline for some time, the controls seek to address a practice that provides a service, lending typically small amounts of cash on a short-term basis, but at significant cost, often charging triple-digit interest rates and stacking up overdraft fees against the borrowers. The statement may be indicative of the CFPB intent to regulate further the broader industry of online or marketplace lending. The loans’ nickname refers to the assumption that borrowers will use their next paycheck to pay the money back.
Payday lenders typically cater to low-income borrowers who need cash in a pinch but can not access financing from mainstream banks. The proposal also would cap the number of short-term loans that can be made in quick succession.
The proposed regulations will be available for review for a few months before being passed.
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The proposal needs to go through a comment period before a final version can be announced.
