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Payday Loan Restrictions Recently Enacted

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The Consumer Financial Protection Bureau (CFPB) recently issued its long-awaited rule that applies to a payday loan, vehicle title loan, and many other loans having a high interest rate.  Although the actual final rule is nearly 1,700 pages long, the National Consumer Law Center has summarized the rule and its implications here.

Restricions on Payday Loan and Title Loans

Payday Loan Rule

 

The key benefits to consumers include the following:

  • The rule applies not only to payday loans and vehicle title loans, but also to many loans and lines of credit with an interest rate exceeding 36% APR, and to loans having a large balloon payment that is twice the other payments.
  • The rule limits the ability of the lender to repeatedly cash a check or make an account debit after 2 previous unsuccessful attempts, thereby limiting certain fees and charges that were imposed by certain lenders.
  • The rule includes a requirement that the lender make a reasonable determination that the borrower can repay the loan and still meet other financial obligations and living expenses.
  • The rule limits the number of times the loan can be “rolled over” into another loan at 3.  In the past, some borrowers were continuously rolled over into new loans, meaning that they never escaped from these high-interest loans, with much of their payment going only to interest and other charges.

There are some important notes.  First, the rules contain exceptions for certain lenders, including a payday loan used to buy a home, credit card extensions, certain pawn loans, private education loans, and overdraft lines of credit.  There is also an exception for lenders for whom such loans are a small portion of their overall business and who limit the number of such loans.  Second, the rules will not take effect for quite some time (at least July 2019), and Congress can still try to rescind the rule.  (Read this story for how Congress tries to overrule consumer protection rules.)

Still, this rule marks an important development in providing certain rights to people who have turned to a payday loan or a vehicle title loan.  This payday loan rule essentially reinforces the initial purpose of such loans, which was a very short-term loan to cover an usual situation.  At least there is one agency in Washington (the CFPB) that has the best interests of consumers in mind.  If you are being harassed by a debt collector seeking money for a payday loan, title loan, or any other kind of loan, contact us by clicking here to see if we can help.