Back in March, the Consumer Finance Protection Bureau (CFPB) released an outline of new payday lending regulations that predictably drew criticism from the consumer and lender sides. As written in a recent article in Collections & Credit Risk, the CFPB’s regulations are nearing completion, which will change the landscape on payday lending.
Several times throughout the article, the CFPB’s changes are termed as a proposal – but payday lenders should know better: The CFPB will likely get what it wants.
The 3 Goals of the CFPB Payday Lending Regulations
The CFPB has expressed three main concerns about how payday lenders operate:
1. Evaluating a Consumers Ability to Repay
It happens all too frequently: A payday lender offers a consumer a loan without gathering evidence of the consumer’s ability or resources to pay. Therefore, the lender’s interest rates increase, keeping the consumer in a pool of revolving debt.
In the near future, there will likely be protocol payday lenders must take to prove a consumer can pay back a debt before they are granted a loan. Additionally, lenders could face limits on interest rates, fees and how often loans can be recirculated.
2. Collection Tactics
Payday lenders are increasingly being penalized for certain collection tactics such as harassment, threats and intimidation which have long been black eyes of the collections and lending industry. The CFPB is determined to halt such practices.
3. Access to Consumer Bank Accounts
Many payday lenders prefer the payments method of ACH, in which funds are automatically deducted from a borrower’s bank account. The CFPB is wary of this practice because of lenders attaching repeat fees in addition to interest. This practice will likely become a thing of the past.
Consumers, Lenders Scoff
Predictably, consumers and lenders were skeptical on the CFPB’s payday lending regulations. Consumers largely felt the regulations won’t do enough while lenders complained they were too harsh. The CFPB has to be lauded, however, for soliciting the feedback from all sides of the industry: lenders, borrowers and consumer advocates among them.
“The CFPB is doing a thorough job of gathering feedback and we’re glad the CFPB is taking its time writing a rule in this case,” said Richard Hunt, President and CEO of the Consumer Bankers Association, in Collections & Credit Risk. “The CFPB is being the adult in the room in this matter and we’ve made it very clear to all three (bank regulators) that they must be together on this rule.”