The payday loan industry, which is vilified for charging exorbitant interest rates on short-term loans that many Americans depend on, could soon be gutted by a set of rules that federal regulators plan to unveil today.
The New York Times reports that under the guidelines from Consumer Financial Protection Bureau—the watchdog agency set up in the wake of 2010 banking legislation—lenders will be required in many cases to verify their customers’ income and to confirm that they can afford to repay the money they borrow.
The number of times people could roll over their loans into newer and pricier ones would be curtailed. The new guidelines do not need congressional or other approval to take effect, which could happen as soon as next year.
The consumer agency indicated last year that it intended to crack down on the payday lending market.
“The very economics of the payday lending business model depend on a substantial percentage of borrowers being unable to repay the loan and borrowing again and again at high interest rates,” says Richard Cordray, the consumer agency’s director. “It is much like getting into a taxi just to ride across town and finding yourself stuck in a ruinously expensive cross-country journey.”
Lenders say the proposed rules would devastate their industry and cut vulnerable borrowers off from a financial lifeline.
“Thousands of lenders, especially small businesses, will be forced to shutter their doors, lay off employees, and leave communities that already have too few options for financial services,” says Dennis Shaul, the chief executive of the Community Financial Services Association of America, a trade group for payday lenders.
