The surprise decision follows a Supreme Court ruling that upheld the rule
In a surprise Thanksgiving Eve action, apanel of the Fifth U.S. Circuit Court of Appeals has set March 30, 2025 as the effective date of the Consumer Financial Protection Bureau's (CFPB) payday lending rule.
The rule, which limits interest rates and other provisions of payday loans, was challenged by lending groups but the U.S. Supreme Court ruled that the CFPB's funding mechanism -- which the lenders had challenged -- was constitutional.
The Fifth Circuit hadpreviously set a date 286 days from the resolution of the appeal as the effective date of the rule, but it was not clear when that period would start. The latest order apparently relies on the date of the Supreme Court decision.
The appeals court had recentlydenieda request by the Community Financial Services Association of America (CFSA) to hold a rehearing en banc on the groups challenge to the rule.
About the CFPB Payday Lending Rule
The CFPB's Payday Lending Rule, finalized in 2017, regulates payday loans, auto title loans, and certain other high-cost loans to protect consumers from abusive practices. It aims to prevent borrowers from falling into cycles of debt caused by repeatedly taking out short-term, high-interest loans they struggle to repay.
It has been weakened and some provisions blocked by legal challenges from lenders.
Key Provisions:
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Ability-to-Repay Requirement (Suspended in 2020):
- Lenders were required to assess whether borrowers could afford to repay their loans without reborrowing or defaulting, considering income, expenses, and debts.
- This provision was intended to prevent borrowers from becoming trapped in cycles of repeated loans.
- However, this provision was rescinded by the CFPB in 2020.
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Limits on Loan Rollovers and Reborrowing:
- Restrictions were placed on lenders making multiple consecutive loans to the same borrower, as repeated rollovers often lead to unaffordable debt.
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Mandatory Debit Attempt Limits:
- Lenders are restricted from making more than two consecutive unsuccessful attempts to withdraw funds from a borrowers account.
- After two failed attempts, the lender must obtain new authorization from the borrower to debit their account again.
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Disclosure Requirements:
- Lenders must provide clear, upfront disclosures about the cost of loans and the consequences of failing to repay.
Purpose of the Rule:
The CFPB created this rule to:
- Address concerns that payday loans and similar products often trap consumers in debt.
- Ensure lenders do not exploit consumers through unfair or abusive practices.
- Protect consumers from unaffordable loans while still allowing access to credit for emergencies.
Legal and Industry Challenges:
- The payday lending industry strongly opposed the rule, arguing it restricted access to credit and would harm small businesses.
- Legal challenges delayed implementation, and subsequent changes under different CFPB leadership have softened some of the rule's provisions, such as eliminating the ability-to-repay standard.
Photo Credit: Consumer Affairs News Department Images
Posted: 2024-11-27 21:50:41
