CFPB Finalizes Rule Restricting Payday Lending

10/05/17 – The Consumer Financial Protection Bureau (CFPB) finalized a rule aimed at limiting recurring debt from payday lending by requiring lenders to determine upfront whether consumers can afford to repay their loans.

In addition to payday loans, the new rule covers auto-title loans, deposit-advance products offered by banks, and longer-term loans with large one-time payments known as “balloon payments.” However, the rule excludes most types of longer-term consumer loans of over 45 days. The new rule will also place restrictions on roll over loans.

Under the new rule, before lending, lenders must conduct a “full-payment test” to determine whether borrows can afford to pay back the loan without reborrowing. However, for certain short-term loans, lenders can skip the full-payment test if they offer a “principal-payoff option” that allows borrowers to pay off the debt more gradually. The rule requires lenders to use credit reporting systems registered by the CFPB to report and obtain information on certain loans covered by the proposal.

The specific restrictions under the rule include:

The final rule does not apply ability-to-repay restrictions to all of the longer-term loans that would have been covered under the proposed rule.

CFPB Press ReleaseFinal RuleFact Sheet.

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