A rule proposed by the Consumer Financial Protection Bureau Thursday would make it a lot harder to receive a payday loan.
The watchdog, created under the Obama administration, said the rule would prevent borrowers from falling into “debt traps” by requiring lenders to look into whether borrowers are likely to be able to repay their debts.
Those seeking funds would still be able to borrow up to $500 without a full payment test. It would also prevent consumers from being subject to additional fees and penalties, like auto repossession or bank account closures if they fail to repay their loans.
“The proposal would provide lenders with options to make covered loans without satisfying the ability-to-repay requirements, if those loans meet certain conditions,” the proposal reads. “The proposal also would identify it as an unfair and abusive practice to attempt to withdraw payment from a consumer’s account for a covered loan after two consecutive payment attempts have failed, unless the lender obtains the consumer’s new and specific authorization to make further withdrawals from the account.”
GOP Lawmakers slammed the proposal, saying limiting access could be detrimental for America’s small businesses.
“Just days after the Federal Reserve reported that almost half of American families say they would struggle to pay for emergency expenses of $400, here comes Director Cordray to make their struggle even harder,” House financial Services Committee Chairman Jeb Hensarling said in a statement. “Accountable to no one, he alone decides for all Americans whether they can take out a small-dollar loan to meet emergency needs. Minority business owner Robert Sherill testified before our committee that the small dollar loan he got after getting out of prison ‘was a lifeline’ because it enabled him to start a small business.”
The CFPB argued changes need to be made since 80 percent of those who take out a small-dollar loan take out another within 30 days.
The rule will remain open for public comment until Sept 14.
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