Q&A: Possible Impacts of Consumer Financial Protection Bureau Proposals on Small-Dollar Lending Market

April 8, 2015

In this Locke Lord Q&A feature, Senior Counsel Joseph Silvia reviews a series of proposals being prepared by the Consumer Financial Protection Bureau (CFPB) that could have a significant impact on the small-dollar lending market.

One of the CFPB’s proposals targets trying to end payday debt traps. If published as outlined, Silvia notes, “these proposals would impose all too familiar ability to repay requirements, similar to those applicable to mortgage lending, on the small-dollar lending market. However, an ability to repay analysis could present new challenges for this industry segment because, as the CFPB points out in its release, the products covered by these proposals ‘are often marketed heavily to financially vulnerable consumers.’”

How the CFPB addresses the debt trap issue, Silvia points out, “would apply to both short-term and longer term credit products and fit into one of two buckets — prevention or protection. Prevention would require lenders to determine at the outset that the consumer has the ability to repay the loan. Protection requirements would impose restrictions for lenders that would protect against debt traps throughout the lending process to ensure that consumers can affordably repay their loan.”

The complete Q&A feature with Silvia focused on CFPB’s proposed requirements for the small-dollar lending market is available here.