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Consumer protection agency, for first time, takes aim at payday lenders
Source: Washington Post
Consumer protection agency, for first time, takes aim at payday lenders
By Chico Harlan March 26 at 12:01 AM
The Consumer Financial Protection Bureau on Thursday unveiled a new plan that it said would help rein in the $50 billion payday lending industry and prevent low-income borrowers from facing spiraling levels of debt.
The proposal, which still must face months of review, marks the first attempt by the federal government to regulate payday lenders, whose loans — designed to help borrowers in a pinch — often come with triple-digit annualized interest rates.
The CFPB, in its plan, suggests that payday lenders from the outset should determine whether borrowers have the ability to repay without defaulting or re-borrowing. That notion takes aim at a pillar of the payday business model, because lenders have long made profits from a far more desperate scenario, where borrowers take out new loans, often many times over, to pay back the initial loans and their fees. Borrowers could in some circumstances still roll over loans, but not ad infinitum; after three loans there would be a 60-day cooling off period.
Still, some consumer advocates say the CFPB plan doesn’t go far enough. Under the CFPB proposal, lenders can avoid vetting their borrowers if they instead apply a series of additional safety nets to the loan. Either the principal must decrease with each loan, or lenders must provide what the CFPB calls an “off-ramp” after the third loan, where borrowers can pay back what they owe without accumulating further fees.
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By Chico Harlan March 26 at 12:01 AM
The Consumer Financial Protection Bureau on Thursday unveiled a new plan that it said would help rein in the $50 billion payday lending industry and prevent low-income borrowers from facing spiraling levels of debt.
The proposal, which still must face months of review, marks the first attempt by the federal government to regulate payday lenders, whose loans — designed to help borrowers in a pinch — often come with triple-digit annualized interest rates.
The CFPB, in its plan, suggests that payday lenders from the outset should determine whether borrowers have the ability to repay without defaulting or re-borrowing. That notion takes aim at a pillar of the payday business model, because lenders have long made profits from a far more desperate scenario, where borrowers take out new loans, often many times over, to pay back the initial loans and their fees. Borrowers could in some circumstances still roll over loans, but not ad infinitum; after three loans there would be a 60-day cooling off period.
Still, some consumer advocates say the CFPB plan doesn’t go far enough. Under the CFPB proposal, lenders can avoid vetting their borrowers if they instead apply a series of additional safety nets to the loan. Either the principal must decrease with each loan, or lenders must provide what the CFPB calls an “off-ramp” after the third loan, where borrowers can pay back what they owe without accumulating further fees.
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Read more: http://www.washingtonpost.com/blogs/wonkblog/wp/2015/03/26/consumer-protection-agency-for-first-time-takes-aim-at-payday-lenders/
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