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CFPB Offers Relief on Small Dollar Loans

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Today, the Consumer Financial Protection Bureau (CFPB) released its long-awaited final rewrite of the payday lending rule, formally titled the Payday, Vehicle Title, and Certain High-Cost Installment Loans rule.

CEI Policy Analyst Matthew Adams praised the new rule for ending one of the most onerous provisions of the original Obama-era rule, the loan-killing “ability to repay” evaluation. He also urged the bureau to go further and eliminate a restriction on lenders’ ability to collect payments:

“CEI has long called for the CFPB to revise the small-dollar loan rule due to the adverse effect it would have on marginalized consumers and their access to credit. The bureau did well to rescind the especially bad ‘ability-to-repay’ provision, a government-imposed barrier imposed between borrowers and their freedom to make financial decisions. Small-dollar loans may not be ideal for everyone, but they offer access to credit for millions of people who may not have savings, credit cards, or other options for urgent situations.

“It is disappointing, however, that the CFPB didn’t also remove another onerous restriction, the payments provision that restricts a lender’s ability to collect a debt. That increases the risk of consumer fraud, default, or bad-faith borrowing, particularly for online lenders. Perhaps ongoing litigation in the U.S. District Court for the Western District of Texas will offer redress.”

CEI Senior Fellow John Berlau explained how an earlier CFPB action expanding options for small dollar loans serves as a good companion policy.

“On May 22, the CFPB issued a no-action letter template encouraging banks and credit unions to compete with payday lenders in providing small-dollar loans. This addition to the CFPB’s ‘sandbox’ for innovative financial products in the FinTech and alternative lending space helps level the playing field by easing regulatory barriers for all lenders and empowering consumers with good information to make decisions. Combined with the small-dollar lending rule issued today, these policies provide more certainty to market players attempting to bring innovative products to consumers while making good-faith efforts to comply with current rules. That kind of certainty is just what consumers and entrepreneurs need during these volatile times.”

Related: CEI’s comments to the CFPB about the proposed rule