A BORROWER TAKING OUT a $500 loan could still pay over 300 percent in annual interest, despite new rules designed to crack down on predatory small-dollar lending out Thursday from the Consumer Financial Protection Bureau (CFPB).
The proposed consumer protections for payday loans, auto title loans, and high-cost installment loans focus on making the lenders document borrowers’ incomes and expenses to confirm that they have the ability to make their payments and still maintain basic living expenses. Payday lenders currently do minimal financial checks before issuing loans.
That could prevent deceptive practices. But actually enforcing underwriting standards is more difficult than enforcing specific product safety rules.
One more enforceable provision, limiting monthly payments on some loans to no more than 5 percent of a borrower’s paycheck, was considered by the CFPB but rejected.