The Consumer Financial Protection Bureau is proposing new rules on payday lenders, aimed at preventing customers from falling into debt traps in which they end up owing more than they can repay.
The bureau announced early Thursday morning that it was working on new rules to require lenders either to determine beforehand that their customers weren’t taking on overly burdensome debt or to comply with affordability rules for existing customers.
“Today we are taking an important step toward ending the debt traps that plague millions of consumers across the country,” said the bureau’s director, Richard Cordray.
Cordray is expected to travel to Richmond later Thursday to conduct a field hearing on payday lending.
“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,” Cordray said. “The proposals we are considering would require lenders to take steps to make sure consumers can pay back their loans. These common sense protections are aimed at ensuring that consumers have access to credit that helps, not harms them.”
The new rules would apply to a broad swath of payday lending and other forms of alternative finance, including vehicle title loans.
Payday lending has grown in popularity in recent years. In some jurisdictions with tight regulations on payday lending, auto title loans or other forms of non-bank finance have seen greater use.
The rules proposed by the bureau would increase regulation at the federal level. The bureau has highlighted instances in which payday borrowers fall into a downward spiral by taking on loans with high interest rates that they struggle to repay, and then falling further into debt trying to keep up with payments.
Payday lenders are set to push back against the bureau’s regulations, adding that they would add to the cost of services used by many people locked out of the traditional banking system.
One in 13 families lack a bank account, according to the Federal Deposit Insurance Corporation, often because they do not have enough money to qualify for an account or can’t afford bank fees. Another one in five use alternative financial services in addition to traditional banking.
