Federal Bureau Outlines Protections from Abusive Payday Loan Practices

iStock/Thinkstock(WASHINGTON) — The Consumer Financial Protection Bureau issued a draft of its upcoming payday loan rule on Thursday, the first step in protecting consumers from abusive payday loan practices.

Last year, the CFPB released an analysis of payday loan usage rates and determined that more than 80 percent of payday loans are followed by another loan within two weeks. Additionally, half of all loans are part of a series of ten loans or more, the analysis said.

The CFPB draft sets separate requirements to prevent debt traps on short- and long-term loans. Among the proposals to prevent abusive practices on short-term loans are requirements that lenders determine at the outset that the consumer will be able to pay the loan when due, a 60-day cooling off period between loans, the prevention of overlapping loans. Another proposal would require documentation of improved financial circumstances to take out a second or third loan within two months.

Additional requirements would limits amount of length of loans, as well as the number of allowable rollovers.

The Consumer Federation of America noted three of the most important aspects of any proposal in a Wednesday press release — a strong standard for a consumer’s ability to repay the loan, protecting borrowers bank accounts from abusive collections and making mandatory the ability to repay standard.

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