What’s Next for the CFPB? Requirements for Short-Term Loans

Earlier this month, the CFPB Acting Deputy Director David Silberman provided written testimony before the House Committee on Financial Services Subcommittee on Financial Institutions and Consumer Credit. Silberman explained that, to date, CFPB enforcement actions had helped secure approximately $11.2 billion in relief for consumers. He also identified the next steps for the CFPB with regard to short-term, small dollar lending. The CFPB’s research showed that the issuance of short-term loans to low and moderate income consumers without assessing the ability of the customer to repay the loan transformed many emergency short-term loans into expensive long-term debts.

The CFPB released an outline of proposals being considered last year in March of 2015, expressing concern that the current practices associated with short-term lending often trapped borrowers in debt.

So, what are the next steps identified by the CFPB?

According to Silberman, “The core of the proposals under consideration is aimed at ending debt traps with a requirement that, before making a covered loan, lenders would be obligated to make a good-faith, reasonable determination that the consumer has the ability to repay the loan.”

In addition, and alternatively, the CFPB is considering certain “protective requirements” that “would allow lenders to extend certain short-term loans without conducting the ability to repay determination outlined above, so long as the loans satisfy certain screening requirements and contain certain structural protections to prevent short-term loans from becoming long-term debt.” Under that proposal, a lender could choose to satisfy either the alternative requirements or the ability to repay requirements.