The Consumer Financial Protection Bureau today unveiled its long-awaited rule against short-term “payday” loans. CEI Principal Investigator Jean Berlau criticized the new rule, warning that it would do more harm than good.
“The CFPB’s new rule against short-term loans, including ‘payday loans’, will do more to prevent people from getting the funds they urgently need than it will to help consumers get the money they need. avoid prolonged debt. Imposing a new standard of “repayment capacity” is totally inappropriate for small loans, because if borrowers really had immediate “repayment capacity”, they would most likely use a credit card instead of getting a loan.
“The CFPB says it will grant some exemptions for short-term loans from credit unions and community banks, but it remains to be seen whether those exemptions will be workable given the rule’s other restrictions.”
Consumers have reported in several surveys that they are satisfied with their loan products, and they only reported difficulty with repayment in a small minority of cases. We argued that the CFPB could have simply enacted better disclosure rules instead of limiting options for low-income consumers and people who need cash in an emergency.