State Officials Have a Problem with Some of the CFPB Rules

A number of key official from various states urged a federal regulator to tighten proposed rules on payday loans. They said that the new regulations could possibly result in the return of Lenders that are high interest. Lenders that have gone out of business in their states.

The CFPB will most likely finish compiling the rules early next year. Rules that will most likely take effect 15 months after they are published. These regulations represent a comprehensive effort to rein in the payday lenders that primarily cater to about 12 million Americans, most of which are low income citizens.

The CFPB doesn’t actually have the power to change interest-rate limits on the financial products it regulates. The new rules will require lenders to thoroughly check the borrowers’ ability to pay their loans. More than a dozen states along with the District of Columbia do have limits on rates, which prohibit payday lending by making it unprofitable. This move might encourage efforts to get rid of stringent state usury caps.


The CFPB has gotten about a million comments in regards to the very nature of the rules. Some states have complained that the CFPB that it is meddling with their efforts to regulate local businesses. A complaint that is completely understandable. When news regulations are introduced, they have the tendency to disrupt business practices already in place.

The attorneys general from states like New York and Pennsylvania, pointed to proposed “exemptions” from the new rules’ requirement to verify the loans are affordable to borrowers. Many people, including consumers feel that the rules being proposed might have loopholes. Like making it alright for lenders to make six payday loans to one customer before the ability-to-repay requirement kicks in.

The CFPB has said the new requirements set a “minimum standard” and don’t pre-empt stronger state laws, but only in the rules’ preamble. The attorneys general asked for a similar statement to be included in the body of the rules as well.

“It is essential to preserve the ability of individual states…to maintain their existing usury caps,” the officials said, adding that such caps are “the single most effective way of ending the harms” of payday and other high-interest loans.

Among the states with rate caps, New York prohibits most non-bank lenders that aren’t licensed by the state from charging more than 16% interest annually on small unsecured loans, while those licensed by the state can’t charge more than 25%. Those rates are sharply lower than those charged by small-dollar lenders, which can be as high as 400%.



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