Feds Issue New Rule to Curb Payday Lending Abuses
Friday, October 6, 2017
PHOENIX – Consumer advocates are praising a new rule issued on Thursday by the Consumer Financial Protection Bureau. It requires payday lenders to start requires payday lenders to start verifying a borrower's ability to repay before rolling it over into a new loan.
The rule aims to prevent a situation where desperate people borrow more money just to repay prior loans, and get hit with fees that often exceed the amount of the original loan.
Diane Standaert, director of state policy at the Center for Responsible Lending, says this rule will curb some serious industry abuses.
"We know that the debt trap of repeat re-lending is the core of the payday lender and car-title lender business model," she says. "So, that's why this rule is a significant step forward in stopping the debt trap of unaffordable payday loans."
The new rule goes into effect in July 2019. It requires payday lenders to verify specifically that the person will be able to repay the loan and still cover living expenses and major financial obligations.
Payday loan industry supporters argue that this type of short-term loan offers credit and flexibility to people in financial distress.
In 2008, Arizonans approved a ballot measure that capped payday-loan interest rates at 36 percent - but Standaert says interest rates on car title loans weren't affected, so too many low-income families still end up having their vehicles repossessed.
"Unfortunately, Arizona still allows car-title loans at rates over 200 percent," she laments. "So, the legislature should move forward to cap the cost of car title loans while the CFPB rule may provide some relief around the unaffordable nature of those loans."
Conservatives in Congress are expected to try to repeal the rule using the Congressional Review Act before it even goes into effect. And in 2018, President Trump will get the chance to nominate a new head of the CFPB. Its current director, Richard Cordray, is a holdover from the Obama administration whose term ends next summer.
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