New Government Rules Will Make Payday Loans Less Dire
Payday loans are an undeniable debt trap : they are designed to send borrowers into a downward spiral of debt, and that debt can support your paycheck to paycheck life. To combat this, the Consumer Financial Protection Bureau (CFPB) has proposed guidelines to make payday loans less awful.
The new rules are aimed at short-term loans (45 days or less) and loans with ultra-high interest rates (36% or higher) or on terms that ensure the debt is secured by the consumer’s vehicle or paid directly from his bank account.
The rules suggest several important changes. First, it sets out the Maturity Requirements. Lenders will need to check the income, debt burden and living expenses of the borrower to determine if they are indeed capable of repaying the loan.
Second, the rules will make it harder to send borrowers into a debt trap. This will limit the number of times a loan can be rolled over to a new loan with a higher interest rate. Finally, the rules also aim to reduce penalties. When payday lenders withdraw money from a borrower’s bank account, it can cause all sorts of commissions from both the bank and the lender if there is not enough cash on the account. The new rules require lenders to notify the borrower before withdrawing funds.
According to the New York Times , the new rules do not need congressional approval and could go into effect as early as next year.
In the meantime, the CFPB wants to hear from you. They open up new rules that you can download here (PDF ) for public comment. Go here and follow the public comment instructions. If you would like to send a more direct comment, read the instructions in the ADDRESSES section of the proposal.
For a summary of the payday loan industry and what will change in the new rules, click on the link below.