Seeking to help consumers avoid becoming trapped in a cycle of debt, the CFPB announced today that it is considering new rules that would require payday lenders to take steps to make sure that borrowers can repay their loans. The Bureau's press release explains the problem:
For consumers living paycheck to paycheck, the short timeframe of these loans can make it difficult to accumulate the necessary funds to pay off the loan principal and fees before the due date. Borrowers who cannot repay are often encouraged to roll over the loan – pay more fees to delay the due date or take out a new loan to replace the old one. The Bureau’s research has found that four out of five payday loans are rolled over or renewed within two weeks. For many borrowers, what starts out as a short-term, emergency loan turns into an unaffordable, long-term debt trap.
The proposed regulations would seek to help by requiring lenders "to verify the consumer’s income, major financial obligations, and borrowing history to determine whether there is enough money left to repay the loan after covering other major financial obligations and living expenses" and to avoid making consecutive loans to the same borrower in a two-month window.
The Bureau is also proposing to restrict harmful collection practices, including limiting direct-withdrawal attempts against a consumer's bank account and requiring advance notice of such requests, so that consumers aren't blindsided by bank fees or low account balances.
Read the whole release, including additional proposed details, here.