The 2017 Payday Lending Rule, initiated under the Obama administration, was designed to protect small consumers from the dangers of cash advance loans or small-dollar loans, as payday loans are also called.
However, in February 2019, the Consumer Financial Protection Bureau, now headed by Kathy Kraninger, proposed reversing these regulations on payday loans. While some financial experts and advocates of consumer interests are voicing their concerns about the rollback, supporters of the cash loan industry have welcomed the move.
Here’s a quick overview of the positives of the Payday Lending Rule and how it’s reversal can affect credit seekers.
Understanding the Key Features of the Payday Lending Rule
The regulations on payday loans proposed in 2017 required lenders to ensure that borrowers are able to repay the credit before giving them the funds. The rule made it mandatory for loan makers to check pay stubs and verify with employers, or use any other methods to confirm that borrowers were good for the credit.
Lenders must check the income of the applicants and compare it against monthly expenses. The income would have to be adequate enough to cover the expenses, interest, and principal sum for which the consumer was applying.
Alternatively, lenders could offer better repayment options where the customers could repay the amount over a longer period, either in a single lump-sum payment or broken up into smaller installments.