Finalized Advance Cash Loans Regulations More Limited in Scope

Cash advance lenders face pile of regulations

Cash advances stand to face increased regulations, threatening a low-margin industry

Those in the know are predicting that the Consumer Financial Protection Bureau, or CFPB, will be releasing its final advance cash loans regulation soon. These experts now believe that the finalized version will be more limited in scope than what the agency initially proposed. This news likely has the payday loan industry and cash-strapped borrowers breathing a collective sigh of relief.

The Final Advance Cash Loans Regulation Will Likely Be a Narrower One

When the CFPB first began considering ways to regulate the advance cash industry, it proposed several requirements for covered cash advance loans. The first proposal was that any short-term loan that featured a 45-day repayment term or less or a longer-term loan that could be repaid in 45 days or more required a lender to get a lien or other security interest against the borrower’s vehicle. According to the proposal, cash advance lenders could also use another form of leveraged payment like a checking account. This would give them the ability to initiate transfers from the borrower’s checking account or even their payroll.

JD Supra confirms that the agency’s initial proposal excluded funds secured only by a vehicle, other purchased consumer goods, real property, student loans and credit cards in addition to overdraft credit lines and credit sale contracts.

The Wall Street Journal reports that the final rule will likely just cover short-term advance cash loans that come with terms that are shorter than 45 days. The publication thinks that the CFPB will leave installment loans, which have longer repayment terms, alone for now. Both types of loans feature high costs in the form of fees and interest rates, but payday loans have earned more of the agency’s wrath. Because they have, the CFPB has focused on regulating these cash advances before a new director replaces Richard Cordray, who is the agency’s current director.

Richard Cordray May Be Leaving Sooner than Expected

While the CFPB’s current director, Richard Cordray, has another year in the job, there are rumors that he may be leaving the gig sooner than expected. When he received the position, it was set up for a five-year term that is supposed to end in July of 2018. Since Cordray is quite confident that Trump won’t reappoint him at the end of his term, it appears that he is considering running for the job of Ohio’s next governor.

Nothing is confirmed regarding these rumors, but a few actions by the director have experts thinking that he is getting ready to run for election. On his side, Cordray has not commented about the rumors. However, he and his CFPB team are working overtime to get the cash advanced rule on the books by September. They are doing so even if the rule isn’t as tough as they wanted it to be.

The agency’s final review is currently going through a peer assessment. This is completed by other government agencies including the FDIC and the OCC. The final review should be completed soon. David Shaul, the chief executive of the Community Financial Services Association of America, which is a main industry group for cash advance lenders, said, “We are expecting the rule anytime. They are very far along in their process.”

The Payday Cash Advance Industry Has Lobbied Tirelessly Against the New CFPB Rule

According to PYMTS.com, once it caught wind of the CFPB’s new regulations, the payday cash advance industry lobbied hard against it going into place. Cash advance lenders have protested the proposed regulations by stating that the rules would cause as many as 85 percent of paycheck advance stores out of business almost overnight.

While that is likely the goal of the agency, the bureau seems to be forgetting about the 10 million to 12 million people who need these cash advance lenders to get by. People who borrow from online cash advance lenders often have no other way to gain access to advance cash.

Based on the data, the borrowers of cash advances generally seek extra money to cover monthly expense type bills as well as car repairs and medical care. If the $40 billion or so dollars that the payday cash advance industry lends out each year suddenly dissipates, then borrowers will have limited loan options. This could revitalize black market lenders and those who lend money illegally. Illegal lenders tend to have harsher collection tactics than personal cash advance lenders do.

The Last Known Version of the CFPB’s Plan

According to the last known version of the CFPB’s plan, the lenders of advance cash loans would be required to consider a borrower’s ability to pay back a loan. The agency also wanted to place limits regarding the number of times that a loan could be rolled over.

Based on rumors, the upcoming rule will focus on payday cash advance loans that feature extremely tight repayment terms. However, some experts think that the agency will release a separate rule that will affect loans with longer terms. The rules for the long-term loan market may be more complex because it will likely impact a larger range of lenders including credit unions and banks.

A rule that affects short-term lenders is likely to face problems. Even if lawmakers pass it, the law could suffer from the same type of overturning effort that some of the CFPB’s other regulations have faced. With the Congressional Review Act in place, Congress has the power to block the agency’s rules. The government body can also prevent the CFPB from making similar rulings for several years.

The CFPB May Be Backing Down from Tough Regulations Against the Cash Advance Industry

Instead of including most types of short-term lending in its rule, it appears that the CFPB is targeting small-dollar, cash advance loans that have repayment terms of around two weeks. Many people in the industry refer to these cash advanced loans as payday loans. In addition, they are different than installment cash advance loans, which are a similar product. But, with installment loans, borrowers have 45 days or more to pay back the loan. By taking this step, the CFPB is definitely backing down from tough regulations against the payday loan industry, ensuring that cash-strapped borrowers have access to the funds that they need when financial emergencies crop up. To learn more about the upcoming regulations initiated by the CFPB, visit the Personal Money Store.

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