Last March, the Consumer Financial Protection Bureau said it was in the “late stages” of crafting rules to rein in the often predatory payday lending industry. Nearly a year, later the agency is reportedly on the cusp of announcing said rules.
The Associated Press reports that the Bureau is ready to put its metaphorical foot down on the $46 billion industry after receiving continuous reports of consumer complaints and loopholes in state laws.
The full rules, which are expected to be announced early this year, will mark the first time the Bureau has used its authority to regulate the industry as a whole.
“Our research has found that what is supposed to be a short-term emergency loan can turn into a long-term and expensive debt trap,” David Silberman, the bureau’s associate director for research, markets and regulation, tells the AP.
Last year, the Bureau released a report that found four out of five payday loans are made to consumer already caught in the debt trap; meaning their payday loans are rolled over or renewed every 14 days.
The CFPB found that by renewing or rolling over loans the average monthly borrower is likely to stay in debt for 11 months or longer. More than 80% of payday loans are rolled over or renewed within two weeks regardless of state restrictions.
While the CFPB isn’t allowed under law to cap interest rates, it can deem practices used by the industry to be unfair, deceptive and abusive.
According to the AP, the agency is considering rules that could establish tighter restrictions to ensure consumer have the ability to repay the often debt-cycle enduring loans.
Other rules could require payday lenders would be required to perform credit checks, placing caps on the number of times a borrower can draw credit and finding ways to encourage states or lenders to lower rates.
Over the last year, the CFPB has taken action against individual lenders for a variety of infractions such as deceptive advertising and harassing borrowers.
Last July, the Bureau ordered ACE Express to pay $10 million for allegedly pushing borrowers into the cycle of debt.
Before that, in March 2013, the CFPB announced it was investigating World Acceptance Corp. (aka World Finance), one of the nation’s largest high-interest installment lenders.
Feds working on new payday loan rules [The Associated Press]
by Ashlee Kieler via Consumerist