Short-term payday loan products emerged on the market about 25 years ago, created by exceptions to traditional state usury interest rate limits. Though these loans are typically regulated at the state level, a new federal policy will soon set minimum standards throughout the country.
The Consumer Financial Protection Bureau (CFPB), the federal regulator for these products, has issued a proposed framework for payday and similar high-cost, small-dollar loans. Overall, the proposal could transform the market in positive ways, by requiring most products to become installment loans with smaller, more manageable payments while providing safeguards for consumers.
However, the proposal is also complex, making it difficult to enforce, and certain sections allow for harmful loan features, which could hinder compliance, transparency, and enforcement. Pew has published an analysis of the CFPB’s proposal with policy recommendations to strengthen this important federal framework.