The Consumer Financial Protection Bureau(“CFPB”) is a federal
watch dog group responsible for policing financial institutions and protecting
consumers from scams and certain abusive practices. One area of the economy
which is rife with truly abysmal abuse are pay day loans. It is not unusual
for pay day lenders to charge people interest rates in excess of hundreds
or thousands of percentage points by the time a year has passed. Due to
what should probably be classified as loopholes in the law or laws which
never should have been written in the first place, these truly outrageous
interest rates are often legal. There are countless stories of people
who took out relatively small payday loans for emergencies which popped
up unexpectedly and were then financially ruined by an ever growing debt
they will never be able to pay off.
The CFPB is considering a series of new rules related to payday loans.
I have written a number of blogs about the CFPB before and have generally
been supportive of pretty much all of their actions. I think it is great
that they are taking a look at pay day lending. However there are some
potential issues concerning the regulations they are considering. One
of the rules the CFPB is considering is requiring pay day lenders, in
effect to ask potential borrowers to disclose their income and deny giving
loans to people if they do not meet certain financial requirements. While
trying to clamp down on abusive loans is a great idea, this specific rule
may just encourage the loan officers to quietly tell the borrowers to
lie on the form, or that “if you report your income is less than
this amount, I can’t give you a loan, wink wink, nudge nudge.”
To make matters even worse, lying on a financial document of that sort
could be considered fraud and expose the borrower to potential civil or
That the CFPB is taking a look at payday lending is great but I hope they
will think about this issue more carefully before writing their final rules.
This document has been provided for informational purposes only and is
not intended and should not be construed to constitute legal advice. Please
consult your attorney in connection with any legal issues related to the
matters discussed in this article as the applicability of state, local
and federal laws may vary.