Arguing payday and auto-title loans trap borrowers in a “cycle of debt,” federal officials today proposed new restrictions to clamp down on the thriving lending industry.
The Consumer Financial Protection Bureau rules would for the first time require lenders to take steps to ensure consumers have the means to repay loans they take out.
“Too many borrowers seeking a short-term cash fix are saddled with loans they cannot afford and sink into long-term debt,” CFPB Director Richard Cordray said in a statement.
“It’s much like getting into a taxi just to ride across town and finding yourself stuck in a ruinously expensive cross-country journey,” he said.
According to the CPFB, typical payday loans of $350 charge a median annual interest rate of 391 percent. Though the loans are designed to be repaid quickly, four out of five are extended, which Cordray called a “debt trap.” One in five people defaults on payday loans, he said.