TIME: New regulations would require companies to check if debtors can afford to pay back loans.
TIME: New regulations would require companies to check if debtors can afford to pay back loans.
Payday loan borrowers may finally be in for some relief. On Thursday, the federal Consumer Financial Protection Bureau released the outlines of new proposals that would impose restrictions on various high-interest lending products, including payday loans, which the bureau defines as any credit product that requires consumers to repay the debt within 45 days. The proposals also contain new rules for longer-term loans, such as installment loans and car title loans, where a lender either has access to a borrower’s bank account or paycheck, or holds an interest in their vehicle.
The CFPB’s actions come as high-interest lending products have been receiving increasing scrutiny for trapping low-income borrowers in a cycle of debt. Payday loans, which typically last around 14 days, or until the borrower is expected to get his or her next paycheck, technically charge relatively low fees over their original term. However, many payday borrowers cannot afford to pay back their debt in the required time frame and must “roll over” the previous loan into a new loan.
