According to multiple sources, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency are expected to issue new guidelines this week governing certain aspects of short term loans (also referred to as “payday loans” and “cash advances”), as well as the way that these financial products are marketed to consumers. In addition, the Consumer Financial Protection Bureau (CFPB) issued a report that is highly critical of the payday lending industry, and announced that it intends to use its authority to help protect consumers from the potential debt traps and other economic hardships that these types of loans can help create.
It is expected that federal regulators will require, among other things, that lenders determine a consumer’s ability to repay a loan prior to offering that consumer a payday loan or cash advance. Lenders will also be required to wait thirty days before offering a consumer a payday loan – with this cooling off period designed to prevent consumers from taking out a series of loans to help pay off prior loans that are due. In addition, lenders will have to provide clearer information regarding the interest rates associated with the cash advance loans.
Complying with the New Regulatory Framework
Payday lenders must at all times ensure that their marketing and lending practices comply with all applicable state and federal laws and regulations, including the anticipated guidelines to be issued by the FDIC and the Comptroller of Currency. This mandate is especially relevant given the CFPB’s stated intention to focus on the payday lending industry, as well as recent actions by the Federal Trade Commission (FTC).
Entities that fail to comply with the requirements of applicable law could find themselves facing regulatory action from numerous regulatory bodies, which could result in significant fines and court-directed changes to business practices.
If you are interested in learning more about this topic, or need to review your payday or cash advance lending practices based on these shifts in regulatory guidance, please contact us at your convenience.