On March 26, 2015, the CFPB announced that it is considering proposing rules that would seek to “end payday debt traps” by requiring lenders to make sure that consumers can repay their loans and by restricting certain collection practices. The safeguards being considered would apply to not only traditional payday loans, but also would apply to vehicle title loans, deposit advance products and many high-cost installment loans and open-end credit plans.
The proposals would apply to both short-term and longer-term credit products and include requirements aimed at ensuring that consumers have the ability to repay their loans, which would fit into one of two buckets – prevention or protection. Prevention requirements would have lenders determine at the outset that the consumer has the ability to repay the loan. Protection requirements would impose restrictions for lenders that would protect against debt traps throughout the lending process to ensure that consumers can affordably repay their loan. The proposals also contemplate new requirements and limitations on certain collection practices, such as requiring notification to be sent to a borrower at least three business days before submitting a transaction for payment and limiting unsuccessful withdrawal attempts that could lead to excessive deposit fees being assessed.
The CFPB also published an outline of the proposals under consideration, as well as fact sheets on the proposals and the Small Business Review Panel process and a list of questions on which the CFPB seeks input from small business representatives. The full CFPB press release, including links to the above-mentioned publications can be found here.