Thursday the Consumer Financial Protection Bureau (CFPB) is set to release new rules to crack down on payday lenders.
Among others, the proposed rules would put the onus on lenders to ensure that borrowers can repay loans typically at high interest rates, rather than getting dragged into a cycle of debt.
Professor of Law at the University of Georgia Mehrsa Baradaran wrote “How the Other Half Banks” on limited access to finance for the poor.
“I think the CFPB rules,” she said, “go a long way in eliminating some of the most egregious types of abuse in this market. “
The rules will cover fees, repayment terms and the number of loans a borrower can take out at a time.
“I think you’re going to see the industry scramble to determine if it’s worth staying open,” said Thaya Creek Knight, associate director of financial regulation studies at the Libertarian Institute Caton Institute. “I think most people would agree that it is likely to completely reduce the availability of this product.”
Knight said people who don’t have other options for smaller, shorter-term loans are likely to be out of luck under the new rules.
This fits with the argument of the payday lending industry, which maintains that there are already enough regulations in place to protect consumers.
Dan Gwaltney is President of California Association of Financial Services Providers, a business group for payday lenders in California. He fears the new rules are too onerous for some business owners and could prevent existing clients from accessing future loans.
“Unfortunately, some small lenders may not be able to continue doing business,” he said. “And we’re worried about where their customers are going to go.”
CFPB will take comments on the new rules until mid-September.