CFPB Proposes “Ability-to-Repay” Rules in Lending
The Consumer Financial Protection Bureau (CFPB) announced on March 26th, 2015 it was considering rules that impact short-term and long-term financing by requiring lenders to take steps to make sure consumers can repay loans. The guidance notes the following:
“The CFPB recognizes consumers’ need for affordable credit, but is concerned that the practices associated with these products – such as failure to underwrite for affordable payments, repeatedly rolling over to refinancing loans, holding a security interest in a vehicle as collateral, accessing the consumer’s deposit account for repayment, and performing costly withdrawal attempts – can trap consumers in debt”. Consequently the CFPB is proposing very specific measures be adopted, such as “for each loan, lenders would have to verify the consumer’s income, major financial obligations, and borrowing history to determine whether there is enough money left to repay the loan after covering other major financial obligations and living expenses.”
Although this proposal is creating uncertainty and anxiety within some segments of the Consumer Finance and Online Lending industry, the underlying intention has the best interests of lenders and borrowers at heart by ensuring consumers have the realistic ability to repay debts.
It is no surprise that one of the key requirements states that lenders will have to verify consumer’s income. Third-party verification of borrow employment and income is a proven best-practice in mitigating fraud and improving loan quality. The Work Number®, a service of Equifax, delivers a concise, instantly available report that verifies the applicant’s current employment status and provides payroll income with consumer authorization. The Work Number has been adopted by the Mortgage and Credit Card industries in providing “ability-to-pay” compliance.
Want to learn more? Contact an Equifax representative today at firstname.lastname@example.org.