U.S. Consumer Watchdog Unveils Plans to Regulate Payday Loans
Thursday, March 26, 2015
The U.S. consumer financial watchdog on Thursday outlined its plans for cracking down on the payday lending industry and ensuring that borrowers can repay their loans.
The framework unveiled by the U.S. Consumer Financial Protection Bureau was a key step toward new rules for various types of loans that regulators say trap borrowers in debt.
President Barack Obama is expected to tout the progress the young agency has made in shielding the middle class from unfair financial practices in a speech on Thursday in Birmingham, Alabama.
Payday loans are small-dollar extensions of credit that borrowers agree to repay in a short time, such as when they next receive a paycheck. Similar products include car title loans, in which borrowers use vehicles as collateral, and installment loans, which can be longer-term and are paid back in larger amounts.
Lenders who offer the products say they help people who are strapped for cash. But consumer advocates say borrowers often roll over or refinance loans rather than paying them back, racking up debt due to high interest rates and fees.
“Too many short-term and longer-term loans are made based on a lender’s ability to collect and not on a borrower’s ability to repay,” CFPB Director Richard Cordray said in a statement.