On Feb. 13, 2018, CFPB published finalized change to final rule in federal register.
Becomes effective Apr. 9, 2019, with all changes from Jan. 25, reflected comment.
Background:
- Rule covers loans that require consumers to pay all or most of the debt at once.
- Include auto title loans, deposit advance products, loans with balloon payment.
- Many people taking out these loans end up paying expense charges to refinance.
Problems with Loans
- They are expensive, with annual percentage rate of over 300 percent or higher.
- They are due in full by the borrower's next paycheck, usually two or four weeks.
- With single-payment auto loans, borrowers use a car or truck title as collateral.
- Balloon-payment loans, long-term, often require borrower bank account access.
- These loans are heavily marketed to the most financially vulnerable consumers.
- Many borrowers roll over or refinance loans, racking up expensive new charges.
- Over 4 of 5 payday loans re-borrowed in a month, on or straight after due date.
Rule to Stop Debt Traps
- Rule requires full-payment test -- can the borrower repay without re-borrowing.
- Some short-term loans, lenders can skip full-payment test if offer certain option.
- That 'principal-payoff option' allow borrowers to pay off the debt more gradually.
- Lenders to get borrower ability-to-pay information from credit reporting system.
- 'Debt-attempt cutoff' would require full-payment test for balloon-payment loans.
- Require principle-payoff option for some, unless loan has less risk to consumers.
- Debit-attempt cutoff also applied to short-term loan and balloon-payment loans.
- If lender can't access bank account re loan, needed new borrower authorization.
