After four years of studying high-cost short-term payday and auto-title loans, your BBB® has learned that the Consumer Financial Protection Bureau has released proposed rules intended to prevent borrowers from falling into a costly debt trap, leaving people worse off than if they hadn’t borrowed money at all. The proposed rules would affect lenders of payday loans, vehicle title loans and deposit advances.

The Consumer Financial Protection Bureau March 2015 report includes options to reduce the likelihood of borrowers taking out new loans to cover the old ones, and falling victim to the cycle of debt.

There are two key aspects to the proposal:

  1. Ability To Repay. Lenders would be required to ensure borrowers can repay the loan fees and interest in full and on time, and they have enough money after repayment so that they don’t need another loan. This does not apply to all loans. Consumer advocates believe this will create a loophole for predatory lenders.
  2. Limiting Rollovers. Borrowers would need to demonstrate the need for a loan to be rolled-over within a short period of time. Even approved rollovers would be limited to three in succession. Some critics are concerned that the 31-day window before re-borrowing will still allow borrowers to fall into a debt trap.

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