CFPB Issues Proposed Lending Rule

June 2, 2016 – Today, the Consumer Financial Protection Bureau (CFPB) released a proposed rule to address the cycle of debt caused by payday lenders and other high-cost, small dollar loans.  These predatory lending practices are designed to maximize lender profits, often forcing borrowers to take out additional loans to afford the incredibly high interest rates.

In 2004, Georgia passed legislation effectively banning payday lending in the state.  However, vehicle title loans and other potentially predatory lending practices are still allowed in Georgia.

Georgia Watch is committed to ensuring strong protections are in place for Georgia consumers and we will continue to comment on and monitor the rule’s progression. “We want to ensure that the rule from the CFPB would enhance the state’s ability to regulate auto title and other small dollar, high cost loans in Georgia,” said Georgia Watch executive director, Liz Coyle.

In April, Georgia Watch submitted a letter on behalf of fourteen organizations from across the state to CFPB Director Richard Corday, calling on the federal agency to use its full authority to crack down on predatory lending. Specifically, we called on the CFPB to create a rule that:

  • mandates ability to pay requirements for all loans regardless of duration;
  • limits the maximum size and duration of long term loans;
  • does not grant any safe harbor to loans that violate federal regulations, and
  • declares that violation of a state’s usury cap is unfair, abusive, and deceptive.

The new rule proposed by CFPB earlier today does require that lenders fully consider a borrower’s income and expenses to ensure that they are able to repay the loan without undue hardship.  While Georgia Watch welcomes the proposed rule’s tightened restrictions on certain small dollar loans, we recognize there’s more work to be done to ensure a final rule that fully protects Georgia consumers.

The rule leaves room for lenders to continue lending money without the “full-payment” test in certain short-term loans. “We urge the CFPB to issue a strong final rule that bolsters, and does not undermine, our state’s protections, including by requiring an ability-to-repay assessment across the board and by declaring any violation of our state’s usury and other consumer protection laws an unfair, deceptive, and abusive act or practice,” Coyle said.

Importantly, for consumers seeking small dollar loans when unexpected expenses arise, the rule does preserve much better lending options.  For example, lenders would be allowed to offer longer term loans with more flexible underwriting that meet the National Credit Union Administration’s “payday alternative loans program,” which caps interest rates at 28 percent with an application fee of $20 or less.

Read the CFPB press release on the proposed rule here.