Feds Crack Down on "Payday" Lenders

Consumer rights advocates are praising a government move to crack down on so-called "predatory lenders" that charge triple-digit interest rates for "payday" loans. Providers of payday loans target individuals who cannot qualify for a traditional loan. It has been estimated that, currently, approximately one in four new loans results in a sequence of ten more loans which are made in a struggle to keep up with loans that are already due. A typical percentage interest rate for a payday loan is 455%.

The Consumer Financial Protection Bureau (CFPB) recently proposed a rule seeking to address loaning practices by high-interest lenders. The CFPB was established under the Dodd-Frank Act, which was signed into law in response to the 2008 financial collapse and created regulations designed to strengthen oversight of the financial industry and protect consumers. The proposed rule by the CFPB includes two new policies of particular note.

First, the agency proposes that those lending high-interest, short-term loans conduct a full-payment test," requiring lenders to make an upfront determination of a consumer's ability to repay the loan without incurring more debt. The agency hopes that this will put a stop to loan practices which have sent millions of Americans into long-term debt.

Second, the rule would require lenders to give consumers notice of attempts to debit their accounts, and would restrict lenders from attempting withdrawals after two failed attempts. The provisions would also limit the number of times a borrower can take out a new loan, and would allow lenders to offer some longer-term, low-risk loans.

Financial experts and consumer rights groups worry that, if left unregulated, an increasing number of Americans will find themselves trapped in a cycle of high interest rates and debt as they look to short-term "payday" loans as a quick fix. The loan industry argues that these rules will only hurt consumers and small businesses, and note that payday loans meet the needs of consumers that get caught between paychecks with some type of unbudgeted or unplanned expense.

If you have questions or would like to speak to Attorney Sally P. McDonald, please call 401-824-5100 or email her at smcdonald@pldolaw.com. We welcome your comments, questions and suggestions.

Consumer rights advocates are praising a government move to crack down on so-called "predatory lenders" that charge triple-digit interest rates for "payday" loans. Providers of payday loans target individuals who cannot qualify for a traditional loan. It has been estimated that, currently, approximately one in four new loans results in a sequence of ten more loans which are made in a struggle to keep up with loans that are already due. A typical percentage interest rate for a payday loan is 455%.

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