[JURIST] The Consumer Financial Protection Bureau (CFPB) [official website] proposed a rule on Thursday seeking to address predatory loaning practices by “payday” and other high-interest lenders. The 1,000-plus-page regulation [rule, PDF] suggests two policies of note. First, the agency proposed that those lending short-term, pay-day loans conduct a “full-payment test,” [CFPB report] requiring lenders to “make an upfront determination of a consumer’s ability to repay the loan” without having to constantly renew the loan. The agency hopes that this will put a stop to predatory loan practices which have sent millions of Americans into ever-increasing, long-term debt. Second, the rule would require lenders to give consumers notice of attempting to debit the their accounts and, most importantly, would restrict the loaners from attempting a withdrawal after two failed attempts unless later given special permission to attempt further withdrawals. Other provisions include allowing lenders to offer some longer-term, low-risk loans and requiring those loans provided under the ‘full-payment test’ to be reported to credit reporting agencies.

The CFPB was established under the Dodd-Frank Act, which was signed into law [JURIST report] by President Barack Obama in July 2010 in response to the 2008 financial collapse and created new regulations designed to strengthen oversight of the financial industry and protect consumers. The Act also established the Financial Stability Oversight Council [official website] (FSOC) to identify and monitor banks that may become ‘too big to fail.” Additionally, the Act gives the Commodities Futures Trading Commission (CFTC) [official website] the ability to regulate the derivatives market, and the Federal Reserve new oversight over the largest financial institutions. JURIST guest columnist Louise Bennetts [official profile] of the Cato Institute argued [JURIST op-ed] that Dodd-Frank is a poorly drafted statute with unclear principles that gives regulators too much discretion to promulgate rules.