CFPB’s Latest Regulations For Short-Term Loan Industry

CFPB’s Latest Regulations For Short-Term Loan Industry

Consumer Finance Protection Bureau’s Latest Proposed Regulations Sweeping the Short-Term Loan Industry

At the end of March 2015, the Consumer Finance Protection Bureau (CFPB) met in Richmond, VA. Out of that meeting comes the latest round of sweeping federal regulatory proposals affecting the short-term loan industry, specifically targeting loans lasting longer than 45 days where the all-in annual percentage rate is over 36 percent.

Taken straight from the CFPB’s Factsheet released on March 26, 2015:

Today the Consumer Financial Protection Bureau (CFPB) announced it is considering proposing rules that would end payday debt traps by requiring lenders to take steps to make sure consumers can repay their loans. The proposals under consideration would also restrict lenders from attempting to collect payment from consumers’ bank accounts in ways that tend to rack up excessive fees. The strong consumer protections being considered would apply to payday loans, vehicle title loans, deposit advance products, and certain high-cost installment and open-end loans.

Granted, the CFPB’s proposal took no one in the industry by surprise. The Bureau’s proposed regulations, said to take a prevention and protection approach, include:

 

  • Taking consumers’ ability to repay into consideration before approving a loan
  • Limiting the number of times consumers can refinance (or roll over) the loan
  • Limiting the number of loans consumers can take out in one year
  • Capping the amount of the loan to 5 percent of consumers’ gross monthly income
  • How consumers’ accounts can be accessed for repayment and incurring return charge fees
  • What can be held as loan collateral (vehicles)

 

Like many CFPB regulations, full implementation is not expected to occur for approximately two years. A lot can happen in a two-year window, including having voices from the short-term loan industry heard by those in position to tweak regulations before they become official.

 

The next few years are not the time to be passive. Rather they are the optimum time to get involved. Now is the time to connect with local senators and representatives as well as associations like the Online Lenders Alliance (OLA). So if you’re not already a member, now is the time to act and participate in guiding policy.

 

In fact, the Bureau is soliciting input from those in the short-term loan industry. According to the Factsheet, “The CFPB is publishing the outline of proposals under consideration in preparation for convening a Small Business Review Panel to gather feedback from small lenders, which is the next step in the rulemaking process.”

 

We’ve seen how regulation affects the short-term loan industry over the past few years. And the upcoming years are important. The Bureau and their officials need to hear both sides of the story if they are to legislate for the good of all – consumers and lenders alike. That is only possible if those in the short-term loan industry share how pending regulations, like these most recently proposed, will affect business and innovation. As well as how they impact consumers with limited access to credit and the hardships that limitation brings.