A new report released yesterday from Pew Charitable Trusts said that payday lenders are increasingly shifting to installment lending to get ahead of federal regulation, creating new risks for borrowers, the Wall Street Journal reported today. The Consumer Financial Protection Bureau released a proposed rule in June meant to rein in abusive practices in the payday industry. But if the rule is enacted in its current form, it “would expedite the transition toward installment loan[s],” according to the report from Pew Charitable Trusts. The loans often have high interest rates and result in borrowers taking out new loans to repay old ones — the same onerous features that have accompanied payday loans. The report is notable because Pew is generally an advocate of the CFPB’s efforts. But the research group was critical of the regulator on a call discussing its report with reporters. If enacted in its current version, “the net effect is moving from 400 percent APR for two-week loans to 400 percent APR for installment loans,” said Nick Bourke, a project director at Pew. A CFPB spokesman said the proposed rule would require lenders to make “a reasonable determination whether a consumer will have the ability to repay.” This includes whether the borrower can pay the loan without being forced to sign up for another one shortly after.
