The federal government is about to move forward with a new rule designed to protect consumers from predatory lending. But critics say the rule doesn’t go far enough.
The newly created Consumer Financial Protection Bureau is about to move forward with a rule that would require lenders to allow borrowers to pay loans back in installments. That’s rather than having the loan due in a lump sum, which is the traditional model for payday lenders. But a new report out this week shows how that might leave a loophole. Nick Bourke is with Pew Charitable Trusts.
“Under the CFPB proposal, 400 percent APR installment loans will be widespread and payments will often be double or triple what borrowers can reasonably afford."
Jay Speer at the Virginia Poverty Law Center agrees that predatory lenders will find a way to adhere to the letter of law but still continue the same practices that caused the problem in the first place.
“The way the rule is written now, they could clearly get around it and they’re very good at doing this. They’ve proven that for years and years. So it really needs to be improved."
Critics would like to see the feds limit the installment payments to five percent of the borrower's monthly income and limit the duration of the loan to six months. And they’d like to see those changes to the rule before it’s implemented in the next few months.
For more information on the new report, check out the Pew Charitable Trust's website.