The Consumer Financial Protection Bureau is an agency created by Dodd-Frank (the Dodd–Frank Wall Street Reform and Consumer Protection Act). It offers financial protection to consumers. While it mostly deals with mortgages, credit cards, and student loans, it also covers short-term lenders (like payday lenders), installment loans, and debt collectors.
Short-term lending is one of the areas that the CFPB has paid a great deal of attention to over the past couple of years. The agency has focused specifically on payday loans.
Payday loans are small, short-term loans which are used by many people to bridge the gaps between paychecks. These loans are used during certain times of the year, like back-to-school and the winter holiday season. They are often used to help with unexpected expenses like vehicle repairs, medical bills, or home repairs.
After years of research and much consideration, the CFPB has instituted new measures directed at short-term lenders who offer payday loans. During the past five years, the CFPB screened one million comments on the proposed rule from consumer advocates, faith leaders, payday and auto title lenders, payday borrowers, tribal leaders, state regulators, attorney generals, and others. The rule does not apply to longer term loans which some believed would be included.
Finalized on October 5, 2017, the new rule requires lenders to determine whether people have the ability to repay their loans before extending credit to them. It also limits payday lenders’ ability to automatically debit funds from borrowers’ accounts. This is an attempt to keep borrowers from racking up high fees or having their accounts closed due to insufficient funds.
As stated above, the rule primarily addresses payday loans which CFPB Director Richard Cordray calls “payday traps.” This new rule is said to protect consumers through the following measures:
Although the rule has been finalized, the CFPB’s new measures will not go into effect until 21 months after it is published in the Federal Register. Once they are in effect, all lenders who make loans covered by the new rule must comply with the CFPB’s requirements.
Up to this point, lenders have been the ones most concerned about the changes to the CFPB’s rules. But once the rules are fully in place, borrowers who depend on these short-term loans will also be concerned. Below are some common questions that the average borrower might ask regarding effects of the CFPB’s new measures:
To learn more about short-term loans, OpenCashAdvance offers additional resources. Learn more about the loan process, read through our FAQs or read more articles on short term loans to educate yourself. And when you are ready to request a loan, visit our Get Started page to begin the process.