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CFPB and Payday Loans

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 criminal penalties.

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.