On June 2nd, the Consumer Financial Protection Bureau (CFPB) proposed new regulations to protect consumers against “debt traps” created by short-term lenders. Often simply called “payday” or “auto-title” loans, these high-interest loans typically have the largest impact on men and women who are already struggling financially. The way these loans are currently structured – with excessive fees and unreasonable interest rates – allow them to put consumers in a perpetual cycle of debt, never fully able to pay back the original amount borrowed and therefore continually having to give money to the payday loan company. The CFPB believes this unfair business practice needs to be put to an end.
Under the new rules, short-term lenders would be required to first determine if a borrower could reasonably pay the loan – with fees and interest – back while still meeting basic living expenses and major financial obligations. This proposed rule follows a thorough investigation of short-term lenders by the CFPB in which it was found that, with interest rates as high as 300%, four out of five single-payment borrowers end up taking out additional loans within a month and one out of five who use their auto-title as collateral end up having their vehicle seized due to failure to repay.
While there is nothing inherently illegal in the current practices of most short-term lenders, many of these companies violate consumer rights with their collection practices. If you believe your rights have been violated, please contact Markoff Leinberger online or by calling our Chicago consumer protection lawyers at (877) 905-5161 to schedule a free case evaluation today.