OVERNIGHT REGULATION: Feds outline payday loan rules


The Consumer Financial Protection Bureau released a framework for the payday loan rules under consideration.

Director Richard Cordray said CFPB is considering allowing the payday lenders to choose between two sets of rules - debt trap prevention and debt trap protection.

The debt trap prevention rules would force lenders to verify a lender's ability to repay a loan up front and force lenders to give borrowers taking out consecutive loans a 60-day cooling off period.

But advocacy groups and lawmakers say they are concerned with loopholes in the proposal.

Under the rules, a lender could waive the 60-day cooling off period after the first and second loans if a borrower proves they've had a change in circumstances that would make the new loan affordable. After three consecutive loans, however, there would be no exception.

If a lender chooses to follow the debt trap protection rules, CFPB said they would not be required to do an upfront analysis of a borrower's ability to repay a loan.

For borrowers wanting to rollover a loan, CFPB is deciding whether the debt protection rules would require a lender to structure the loans so a borrower is paying down the principal or make lenders switch borrowers to a no-cost extended payment plan after the third loan.

The rules would require all loans to be limited to $500 with one finance charge, prohibit a lender from holding a car title as collateral, include a 60-day cooling off period for three consecutive loans and cap how long a consumer can be in debt in a 12-month period at 90 days.

National People's Action called the proposal a major step forward in protecting families and their hard-earned money, but said it gives predatory lenders, which have a track record of abuse, the ability to chose how they're regulated.

"This combined with an option that allows up to three back-to-back loans with triple-digit interest rates and no underwriting standards are loopholes more than large enough for predators to waltz through," the organization's Policy Director Liz Ryan Murray said in a statement.

Sen. Jeff Merkley (Ore.), the ranking Democrat on the Senate Consumer Protection and Financial Institutions Subcommittee is urging CFPB to resist efforts to weaken what he called "badly needed rules" for payday lenders.

"Payday lending is an abusive industry that traps working families in an endless cycle of debt, and it's well past time to break that cycle," he said in a statement. "The notion that lenders should have to take into consideration a borrower's ability to repay a loan is just common sense."

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