Today the Consumer Financial Protection Bureau (CFPB) released proposed rules aimed at addressing some of the worst abuses of the payday lending and auto title lending industries. While we commend the CFPB for taking this important step, we believe that the rules can and should be strengthened in order to make the loans safer and less costly.
An Overview of the Proposed Rules
The rules, which apply to payday loans, auto title loans, deposit advance products, and certain high-cost installment loans, emphasize the need to make loan payments more affordable and make an effort to prevent borrowers from being trapped in a cycle of debt. This includes:
- Determining a Customer’s Ability to Pay: The CFPB found that 4 out of every 5 borrowers are unable to pay back a payday or auto title loan without having to borrow again. Thus the CFPB is proposing a “full-payment test” which would require some lenders to determine whether the borrower can afford the full amount of each payment when it’s due and still cover their basic living expenses and other financial obligations.
- Penalty Fee Protection: When a lender attempts to collect on a loan directly from a borrower’s bank account, the borrower can incur bank penalty fees if there are insufficient funds in the account. A CFPB study over an 18-month period found that half of online payday and payday installment borrowers racked up penalty fees. Thus the CFPB is proposing that lenders be required to give consumers written notice before attempting to debit the consumer’s account. After two straight unsuccessful attempts, the lender would be prohibited from debiting the account again unless the lender gets a new and specific authorization from the borrower to debit the account.
The CFPB is asking for comments on the proposed rules by September 14th. We believe that, if strengthened, these rules have the potential to rein in some of the most abusive lending practices that we see in Illinois.
Please join us for an IABG partner webinar to review the proposed rules in depth and discuss our response and strategy for submitting comments. The webinar will take place on Tuesday, June 21, at 2pm CST. Register Now.
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