CFPB Considers Payday Lending Rules

April 3rd, 2015

Following in the footsteps of the United Kingdom’s (UK) Financial Conduct Authority (FCA) payday lending crackdown, the United States’ (US) Consumer Financial Protection Bureau (CFPB) has proposed reforms to high-cost, short-term loans.  The proposal will include payday lending, vehicle title loans and certain installment loans. CFPB Director Richard Cordray said in a statement, “Too many short-term and longer-term loans are made based on a lender’s ability to collect and not on a borrower’s ability to repay. The proposals we are considering would require lenders to take steps to make sure consumers can pay back their loans.”

Specifically, the proposal requires lenders to verify a borrower’s ability to repay the loan amount at the time it is due. There are individual restrictions for short-term loans, long-term loans and debt collection practices, all centered around preventing debt traps and protecting consumers from accumulating additional debt.  Before beginning the official rulemaking process, the CFPB will convene a Small Business Review Panel to assess the proposed rule. Notably, when the FCA implemented its payday lending reforms in the UK, the short-term credit market shrank drastically.

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