Payday loans often trap consumers in a cycle of debt due to lump sum payments, high annual percentage rates (APR), and little consideration of whether borrowers can afford to repay their loans. To combat this, the CFPB is developing new rules for payday loans. In an initial outline of the proposed rules, the CFPB proposed to require that lenders verify a borrower’s ability to pay back a loan while still covering basic necessities and existing debts, among other protections.
The Military Lending Act (MLA) protects servicemembers and their families from high-cost, predatory consumer credit products and caps annual percentage rates (APR) at 36 percent. Unfortunately, the current MLA definition of “consumer credit” is too narrow, allowing lenders to get around the APR cap and offer loan products that often lead to long-term debt problems.