The Consumer Financial Protection Bureau is continuing to consider applying “ability-to-repay” standards to small dollar loans, which would require lenders to verify a prospective borrower’s income, major financial obligations and borrowing history before making a loan, director Richard Cordray said yesterday
For loans of 45 days or less, the proposal would allow a lender to avoid the “ability-to-repay” standards if they abided by a 60-day “cooling off” period between loans or rollovers unless the borrower’s financial condition could be documented to have changed, with a two-rollover cap. The loan could not exceed $500, carry more than one finance charge or require the customer to offer his car as collateral. Lenders would be prohibited from debiting a customer’s deposit account without a three-business-day notice and would be required to stop attempting after two unsuccessful debits.
For loans of more than 45 days, the lender would be required to determine the borrower’s ability to repay the loan; to limit the loan’s amount to $1,000, impose a maximum 28 percent interest rate and $20 application fee; or to limit repayment to 5 percent of the borrower’s gross monthly income.
Read Cordray's remarks.