Consumer demand for quick credit has fueled the growth of a payday loan industry that, according to the Consumer Financial Protection Bureau (CFPB), imposes significant costs on those borrowers least likely to be able to afford them. The CFPB is concerned
that these small, short-term, high-interest loans – which the borrower is expected to repay with his or her next paycheck – are forcing individuals into spiraling cycles of debt. This March, after months of debate, the Bureau released an outline of a proposed payday loan rule designed to protect borrowers from debt traps while preserving access to quick credit.
The outline of the proposed rule gives lenders two options for meeting CFPB requirements aimed at preventing short-term loans from becoming debt traps for borrowers. Lenders can choose either to meet certain verification requirements prior to granting loans, or to accept some limitations on the terms of the loans they offer.