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. The proposal would create two types of “covered” loans, short and long term, to establish a better market based on affordable payments and would attempt to steer the market toward loans that better align borrowers’ and lenders’ interests. The complexity of the CFPB’s approach, however, creates several risks for consumers. In this issue brief, Pew provides an analysis of the CFPB’s proposal and offers policy recommendations to improve the proposal’s ability to address the problems in this market.
Based on this in-depth analysis of the CFPB proposal, Pew recommends the following modifications in order to ensure a safer small-dollar loan market while maintaining access to credit for consumers:
Make dangerous loans safer
Make safe loans easier to provide