Payday Loan Rules from CFPB Receiving Increased Chatter; Could be Announced Soon

The media chatter regarding the CFPB’s imminent rules for payday lenders was significantly ramped up early Monday as both The New York Times and the Associated Press ran separate but similar stories detailing what is likely to be in the rules.

The timing of the two stories suggests that both outlets received information from the same sources with the CFPB and from consumer advocacy groups working with federal rules writers. It could signal that an announcement on the rules proposals is imminent.

The Times, in a piece titled “Consumer Protection Agency Seeks Limits on Payday Lenders,” details what those familiar with the discussion will likely be presented to the public. The new rules will focus on short-term loans, many backed by car titles, with annual interest rates over 36 percent.

One of the main new requirements will be that lenders assess whether a borrower can fully repay the loan over two weeks, the typical term for payday loans. Loan writers would be required to review borrower income, other debts, and payment history, similar to standards required by banks.

The Associated Press, in a similar piece titled “Rules readied to shield borrowers from payday loans,” noted that the CFPB is not allowed under law to cap interest rates, but it can use its UDAAP authority to target specific practices.

Similar to the Times piece, AP’s sources say that loan underwriting requirements will be featured in new rules.

The CFPB’s rules on payday lending are very important for the ARM industry. Payday loans are a large market segment for debt buyers and collectors. But it could also signal what kind of disruption is to be expected when the CFPB issues its rules specifically for the debt collection industry.

Debt collection rules, initially expected by the end of 2014, are now expected to be released late in the first quarter of 2015. It could be possible that the recent surge in news about payday lending rules may mean that those rule proposals will come before debt collection rules.

Depending on how far the CFPB rules use UDAAP justification versus statutory language, the ARM industry could also get a glimpse into how far away from the FDCPA new regulations may go.