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CFPB Issues Final Rule on Small Dollar Loans, Easing Restrictions for Payday Lenders

On July 7, 2020, the Consumer Financial Protection Bureau (CFPB) announced it has issued a final rule regarding “Payday, Vehicle Title, and Certain High-Cost Installment Loans”, eliminating the requirement for loan underwriting and income verification, citing “insufficient legal and evidentiary bases for the 2017 rule’s mandatory underwriting provisions”. These key provisions of the original payday lending rule (completed in October of 2017, just prior to former CFPB Director Richard Cordray stepping down, and scheduled to go into effect this coming November) were designed to establish consumers’ ability to repay loans during the approval process. – Both consumer advocates and the payday lending industry have indicated that the original rule requirements would have significantly reduced the number of payday loans issued. – The modified rule does keep some of its original restrictions, for example limiting how payday lenders are permitted to access consumers’ bank accounts for payments.

The CFPB says it is planning to conduct research and gather new information which could better assist potential borrowers in identifying and understanding the risks involved in taking out payday loans, which can charge annual interest rates of up to 400 percent. The agency states it is “committed to ensuring that consumers can make the best-informed choices among the small dollar products available to them.”

Regarding the final rule, current CFPB Director Kathy Kraninger stated: “A vibrant and well-functioning financial marketplace is important for consumers to access the financial products they need and ensure they are protected. Our actions today ensure that consumers have access to credit from a competitive marketplace, have the best information to make informed financial decisions, and retain key protections without hindering that access.” She went on to say: “The Bureau protects consumers from unfair, deceptive, or abusive practices and takes action against companies that break the law. We will continue to monitor the small-dollar lending industry and enforce the law against bad actors.”

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