The Consumer Financial Protection Bureau proposed a rule Thursday, that would require lenders to ensure consumers have the ability to repay their short-term loans.
“Too many borrowers seeking a short-term cash fix are saddled with loans they cannot afford and sink into long-term debt,” Director Richard Cordray said in a press release. “It’s much like getting into a taxi just to ride across town and finding yourself stuck in a ruinously expensive cross-country journey.”
Single-payment auto title loans — one form of payday loans — require a vehicle title for collateral, are usually due in 30 days, and have a typical annual percentage rate of about 300%. Consumers often end up rolling over these loans, racking up more fees and interest each time; one in five of these payday loans end up in default. Similarly, one in five single-payment auto title loan borrowers end up having their car or truck seized by the lender for failure to repay, according to the release.
The proposed rule contains four main requirements, including the determination of whether the borrower can afford the full amount of each payment and still meet basic living expenses and major financial obligations.
