Federal Rules for Small Loans

Federal Rules for Small Loans
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CFPB rule proposal for small-dollar loans seeks to fix the fundamental problem with payday and auto title loan markets.

The Consumer Financial Protection Bureau—the federal agency charged with regulating payday, auto title, and similar loans—has proposed rules that shift the market toward longer-term installment lending. Unfortunately, as drafted, these regulations would allow payday loans with 400 percent interest rates to flourish while locking out lower-cost loans from banks and credit unions, leaving millions of borrowers exposed to harmful loans.

Further, because small-dollar lenders are licensed at the state level, the CFPB’s authority over them is limited, which means state policymakers will need to ensure that their laws set strong interest rate limits and other consumer protections.

Pew has published a collection of resources, including an analysis of the proposal and policy recommendations, to encourage the bureau and other federal regulators to strengthen this important framework.

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Fact Sheet

Payday Loan Facts and the CFPB’s Impact

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Fact Sheet

Pew has conducted extensive research on the high-cost small-dollar loan market over the past five years. The findings show that although these products offer quick cash, the unaffordable payments lead consumers to quickly take another loan to cover expenses. Twelve million Americans take out payday loans each year, spending more than $7 billion on loan fees.

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Payday loan regulation
Payday loan regulation
Article

How the CFPB Proposal Would Regulate Payday and Other Small Loans

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In June, the Consumer Financial Protection Bureau (CFPB) released a proposed rule to regulate payday, auto title, and some high-cost installment loans. The proposal applies to “covered loans” from any lender, including payday, auto title, online, and nonbank installment lenders as well as banks and credit unions, but not to overdraft services, pawn loans, business loans, and other types of credit.

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Opinion

Regulators Should Let Banks Get Back to Small-Dollar Loans

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Opinion

The payday loan market is past due for reform. Implemented correctly, new regulatory standards will help payday loan borrowers by making these loans safer and more affordable, as well as pave the way for better, lower-cost installment loans from banks.

Payday loan regulations
Payday loan regulations
Article

The CFPB’s Proposed Payday Loan Regulations Would Leave Consumers Vulnerable

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Proposed regulations from the Consumer Financial Protection Bureau (CFPB) would protect consumers from conventional, lump-sum payday loans, which Pew’s research has shown usually have unaffordable payments that trigger reborrowing. The pending rule strongly encourages payday and auto title lenders to give borrowers more time to repay loans in smaller installments, rather than large lump-sum payments.

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People
Article

CFPB Framework Affects the Small-Loan Marketplace

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Article

The Consumer Financial Protection Bureau (CFPB) is preparing the first federal regulations for payday and similar loans. This is propelling a shift in the market away from the conventional payday loan model, which has led to serious harm because the loans must be paid off after two weeks in a single payment that consumes about one-third of the typical borrower’s next paycheck. Instead, small-loan lenders are increasingly using installment loan models in which borrowers settle over a period of months. Although longer-term loans generally work better for borrowers, they can be harmful without additional regulatory protections. Whether borrowers would fare better under these new types of longer-term loans would depend on the strength and clarity of the CFPB’s pending rules.

Additional Resources

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Issue Brief

Understanding the CFPB Proposal for Payday and Other Small Loans

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Issue Brief

Understanding the CFPB Proposal for Payday and Other Small Loans

The Consumer Financial Protection Bureau (CFPB) has issued a proposed framework for regulating payday and auto title loans, the first step toward precedent-setting federal rule- making to address the most harmful aspects of high-cost, small-dollar loans.

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Issue Brief

CFPB Proposal for Payday and Other Small Loans

A survey of Americans

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Issue Brief

CFPB Proposal for Payday and Other Small Loans

A survey of Americans

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Payday Loans — And How to Fix Them
3min 8sec