Payday lenders — who give customers short-term cash at sky-high interest rates, and are usually found in poorer areas — will have to determine that their customers can pay back the loans and will have fewer ways to pile debts and fees onto them, according to new rules released by the Consumer Financial Protection Bureau.
The CFPB rules were focused on preventing “debt traps,” director Richard Cordray said in a statement.
The bureau found that four out of five payday loans are “re-borrowed” in a month, meaning that customers take out a new loan to pay the old one. A quarter of all payday loans are borrowed nine times or more.
The rule also applies to other loans where all the debt is required to be paid off at once.
The rules aren’t set to go into effect until late 2019 at the earliest.
Payday lenders, which are banned in 15 states and Washington DC, have been fiercely fighting the rules for years.
“Millions of American consumers use small-dollar loans to manage budget shortfalls or unexpected expenses,” said Dennis Shaul, CEO of the Community Financial Services Association of America, a payday lender trade group.
Source: NY Post