On October 5th, 2017, The Bureau of Consumer Financial Protection issued new rules to help further protect consumers from payday loans, title loans, and other similar types of high-cost installment loans. These measures are aimed at preventing individuals who are struggling with debt to become even more weighted down with the astronomical costs that these types of loans usually bring. Many individuals have reported debt ballooning to an unmanageable size from quick cash credit lenders, with one woman claiming that a $200 pay day loan actually drove her to file bankruptcy.
The new rules from the BCFP, which are expected to be fully implemented in 2019, will require short-term and long-term loan lenders with balloon payments to reasonably determine that the borrower has the ability to repay the loans according to their value. This practice already applies to bank loans for homes and automobiles, but was a loophole for the payday loan shops which some identified as an unfair and abusive practice. By requiring that the lenders look into a borrower’s credit, it will curb the amount of people who become trapped in a vicious cycle of debt.
In addition to this rule, the bureau, whose mission is to protect consumers from unfair, deceptive, or abusive business practices, also took aim at the practice of withdrawing loan installment payments directly from the borrower’s bank account. The new rule states that multiple, continuous attempts to withdraw payment from a consumer’s account is unfair and abusive, and therefore, after two consecutive payment attempts have failed, the lender will have to obtain a new and specific authorization to make further withdrawals from the borrower’s bank account. Also, the lenders must provide certain notices to the consumer before attempting to withdraw payment for a covered loan from the consumer’s account.
While some lawmakers have spoken out against the new rules, claiming that they will prevent many people the “right to small-dollar, emergency loans”, the new initiatives of the BCFP will hopefully prevent individuals from getting caught in a cycle of debt caused by large interest rates and fees.