On Thursday, the Consumer Financial Protection Bureau proposed new rules that would change access to payday loans and restrict some of the processes used by payday lenders. Some of these changes would include requiring lenders to consider a borrower's ability to repay the loan by checking their income, financial obligations and borrowing history. In addition, the proposals would limit the ways the lenders can seek repayment and the number of loans that can be made in succession to a borrower.
One of the problems that the CFPB can't address is the interest rate on the loans, which is controlled by the individual states and many of the payday loans can have interest rates of nearly 400%. This is one of the most appalling provisions in many payday loans that many people don't consider or realize. In addition to the abominable interest rate, many loans require the borrower to pay a fee of 15% of the amount they borrow. All of these fees add up very quickly for someone who just needs a short infusion of cash.
The proposed rules would also require the lenders to give the borrower written notice before utilizing collection practices for loan repayment.
All of these changes will be fought aggressively by the lobbyists and other interested parties who make significant profits on these payday loans to individuals who are often the most vulnerable to these lenders. The CFPB can't affect the state-based interest rates, but is at least aiming to restrict access where it can.
A copy of the CFPB's highlights in .pdf format can be found here.