The Consumer Financial Protection Bureau has postponed the implementation for its payday loan rule –which was set to take effect Jan. 16 — as it reconsiders the rule.
Payday loans, also called small-dollar loans, provide quick access to cash in exchange for full payment plus variable interest rates, typically within two to four weeks after the loan was provided. Many borrowers use payday loans as a quick fix when ordinary living expenses get too high—the average payday loan borrower makes about $30,000 a year with a credit score in the low 500s. More than 19 million households use payday loans. However, the interest rates and fees can be high.
The CFPB had sought to put in additional safeguards to protect consumers. The proposed rule said lenders are restricted from making loans that borrowers are unable to pay back with accrued interest. The rule would also limit the number of consecutive loans that can be taken and requires longer repayment timelines.
However, the CFPB now says it will reconsider this rule it calls he Payday Rule.
“Although most provisions of the Payday Rule do not require compliance until Aug. 19, 2019, the effective date marks codification of the Payday Rule in the Code of Federal Regulations,” CFPB officials said. “Today’s effective date also establishes April 16, 2018, as the deadline to submit an application for preliminary approval to become a registered information system (“RIS”) under the Payday Rule. However, the Bureau may waive this deadline pursuant to 12 C.F.R. 1041.11(c)(3)(iii). Recognizing that this preliminary application deadline might cause some entities to engage in work in preparing an application to become a RIS, the Bureau will entertain waiver requests from any potential applicant.”
The Consumer Bankers Association applauded the move.
“Under the current rule, many banks are forced to sit on the sidelines and prevented from offering affordable and popular small-dollar credit options to help meet the needs of their customers,” CBA President and CEO Richard Hunt said. “As the CFPB reconsiders this rule, we encourage the Bureau to work with bank regulatory agencies to examine the use of bank offered small-dollar lending products, such as deposit advance products, and ensure any final rule treats all banks equally.”