By Christopher C. Chiou
On June 2, 2016, the Consumer Financial Protection Bureau (CFPB) proposed a set of rules restricting payday lending. Payday loans are typically high-interest loans made to low-income borrowers who need cash quickly and borrow money against their next paychecks. There are about 16,000 payday lenders operating online and in stores across over 30 states. Among other things, the CFPB’s proposed rules will require lenders to verify prospective borrowers’ income, limit how many times borrowers can take new payday loans to pay off existing ones, and cap interest rates on longer-term loans. Lenders have stated that the proposed rules would force many of them out of business and eliminate a short-term credit option for borrowers who cannot obtain loans from mainstream banks. Consumer advocate groups, on the other hand, believe that the new rules are necessary and arguably should be stricter. In the next several months, the CFPB will review comments to its proposal and then issue a set of final regulations. News of these rules has been widely covered, including by The New York Times (“Payday Loans’ Debt Spiral to Be Curtailed”) and Fortune (“New Rules Could Dramatically Alter the Payday Loan Market”), among others.