CFPB Proposed Rule

http://cedam.info/policy/payday/cfpb/
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“The CFPB rule is a start, but we need a tougher final rule that protects all American families.”

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Share Your Comments by October 7

You can help us tell the CFPB that these loopholes need to be amended. The CFPB is accepting feedback on the new rule until October 7. Feedback can be your own personal story or simply your opinion, and can be shared through this link. All comments submitted will be read by the CFPB. Submit your comments today and tell them to fix the loopholes and develop a tougher final rule that protects all American families.

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 About

View the slides from a recent webinar discussing this new rule here.

The Consumer Financial Protection Bureau (CFPB) recently proposed a new national rule addressing payday and car title lending. The rule aims to stop the purposeful debt trap that consumers of these products often find themselves in. According to CFPB data, more than 75 percent of payday loan fees are form borrowers stuck in more than 10 loans a year. Additionally, over two thirds of car title loan volume comes from borrowers stuck in at least seven loans. With an average interest rate of nearly 400 percent, these loans extracts billions of dollars annually from people with an average income of approximately $25,000, and leads to many financial consequences like bank penalty fees, lost bank accounts, delinquency on other bills, and even bankruptcy.

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“While an ability-to-repay principle is a long-standing tenant of responsible lending, it is often ignored by abusive lenders who deliberately target communities of color and low-income workers.”

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At the heart of the proposed rule is the establishment of an ability-to-repay principle that would require lenders to determine whether a borrower can afford the full amount of each payment on its due date while still meeting basic living expenses and major financial obligations. This assessment is particularly important for high-cost loans where lenders lenders have the ability to seize a borrower’s bank account or car. While an ability-to-repay principle is a long-standing tenant of responsible lending, it is often ignored by abusive lenders who deliberately target communities of color and low-income workers.

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“These loopholes need to be amended […]”

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However, the proposal does contain loopholes. There are exemptions to the ability-to-pay requirement for both short-term and long-term loans—exemptions that can carry origination fees of up to $50. Additionally, the rules’ protections against flipping for short-term loans have essentially been cut in half since the preliminary proposal last year, increasing the possibility that lenders, by combining exceptions and other rules, could still keep borrowers in more than ten short term loans per year with high interest rates. These loopholes need to be amended—there should be an ability-to-pay determination on every loan with no exceptions, and the protections against flipping loans need to be strengthened in order to fully protect consumers from the predatory debt trap. The CFPB rule is a start, but we need a tougher final rule that protects all American families.

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Additional Information

Updated on August 23, 2016.