Consumer Law & Policy Blog

CFPB issues proposed payday lending rule

The Consumer Financial Protection Bureau today proposed a rule aimed at ending payday debt traps by requiring lenders to take steps to make sure consumers have the ability to repay their loans. The proposed rule would also cut off repeated debit attempts that rack up fees. The proposed rule would cover payday loans, auto title loans, deposit advance products, and certain high-cost installment and open-end loans.

The CFPB says that the proposed rule would put an end to risky practices in these markets that trap consumers in debt they cannot afford. The proposed ability-to-repay protections include a “full-payment” test that would require lenders to determine upfront that consumers can afford to repay their loans without reborrowing. The proposal includes a “principal payoff option” for certain short-term loans and two less risky longer-term lending options so that borrowers who may not meet the full-payment test can access credit without getting trapped in debt. Lenders would be required to use credit reporting systems to report and obtain information on certain loans covered by the proposal. The proposal would also limit repeated debit attempts that can rack up more fees and may make it harder for consumers to get out of debt.

A fact sheet summarizing the rule is here The proposed rule is here.

Capitol Forum Subprime Auto Financing Conference Tomorrow on Capitol Hill

From the announcement:

 

Key Industry and Policymaker Questions to be Addressed at the Conference:

 Is subprime financing fueling a bubble in the market for used cars?

 What are the parallels and differences between subprime auto lending today and subprime mortgage lending leading up to the financial collapse?

 What are bank regulators, the CFPB and state enforcers doing to police the market?

 Even if banks are relatively less exposed to subprime auto than buy-here-pay-here lenders and non-bank finance companies, is the auto supply chain healthy enough to withstand a lending crisis?

 What ripple effects would a sharp downturn in used car prices cause in the auto industry and to consumers?

 What is the current outlook for defaults and repossessions for subprime borrowers?

More information here.

 

The impact (or not) of the new overtime rules

We have discussed the Obama Administration's new overtime rule. It will significantly raise the pay threshold that triggers exceptions to the general rule that entitles workers to time-and-a-half for every hour they work over 40 per week. We also posted about holes in the overtime rules that exempt various workers entirely.

Now, this article by Natalie Kitroeff says that the new rule "probably won’t have much of an economic effect, partly because employers will find legal ways of getting around it." She explains:

The new rule sounds dramatic. Starting in December, anyone who is a salaried worker and makes less than $47,476 must be paid time and a half for any work beyond 40 hours a week. For the last decade, only people who made less than $23,660 automatically had to be paid overtime. Anyone who made more than the threshold and performed executive or administrative tasks at work was exempt from overtime. . . . The White House estimates that 4.2 million people will become eligible for overtime compensation under the rule, and that it will push wages up by $1.2 billion a year for a decade. But about 60% of the 4.2 million workers who will now be eligible for overtime do not work any overtime hours, meaning employers won’t change their pay because of the new rule, the U.S. Department of Labor found. So only the remaining 1.7 million workers will get a raise, about $718 a year on average.

Kitroeff goes on to discuss whether employers will respond by cutting hours so that fewer workers are working over 40 hours a week (or at least not much over 40 hours per week) or even by cutting workers' base pay.