By Dawn Van Dyke, communications manager
The Consumer Financial Protection Bureau issued a rule this week intended to protect short-term borrowers from being mired in “payday” loan debt, according to The Hill.
Payday lenders offer small, short-term loans that often require repayment within weeks. The loans can carry high-interest rates and borrowers who cannot afford repayment often need to borrow again, piling fees and interest on top of the original loan amount.
According to CFPB studies, the average short-term loan is re-borrowed nine times. CFPB Director Richard Cordray said the rule was based on five years of research, hearings and more than one million comments.
“Loans like these are heavily marketed toward financially vulnerable consumers,” Cordray said during a call with reporters. “They will probably face the same cash shortfall when they get their next paycheck, only now they have the added cost of loan fees.”
The rule creates new restrictions and standards on payday lenders, including confirmation of a borrower’s ability to repay the loan, longer repayment timeframes for certain loans, and repayment extensions.
For more information about the CFPB rule, go here: