CFPB Imposes Stricter Rules For Payday Lending

The Consumer Financial Protection Bureau ("CFPB") adopted its "Payday, Vehicle Title, and Certain High-Cost Installment Loans" rule, which is intended to eliminate "Payday Debt Traps" by way of "ability-to-repay protections." The rule will apply to payday, auto title and balloon payment loans ("covered loans"), each of which covers small-dollar amounts due in full by the borrower's next paycheck (see also Fact Sheet explaining final rule).

The rule is intended to limit loans that obligate consumers to repay all or most of the debt at once. It prohibits lenders from making covered loans without determining whether consumers have the ability to repay these loans and requires lenders to conduct a "full-payment test," which is used to ascertain borrower affordability. The rule also requires lenders to perform income verification and estimate living expenses for consumers, and includes a "cooling-off period," which prevents lenders from making high-risk loans to consumers