Summary of Understanding Non-Prime Borrowers and the Need to Regulate Small Dollar and “Payday” Loans

Brookings Institution,

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Understanding Non-Prime Borrowers and the Need to Regulate Small Dollar and “Payday” Loans summary
Consumer protection against predatory lending practices gives rise to new proposed regulations.


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In June 2016, the US Consumer Financial Protection Bureau proposed a rule to govern the financial products that constitute “payday lending.” The rule, which could take effect in 2018, places stricter guidelines on vetting a customer’s ability to repay debt that often carries extortionate interest rates. In this comprehensive analysis, economist Aaron Klein explains in clear, plain language that federal regulation is necessary, given the dangers associated with predatory lending. getAbstract recommends his compelling report to financial professionals and policy makers.

In this summary, you will learn

  • How proposed rules from the US Consumer Financial Protection Bureau (CFPB) will affect the “payday lending” industry,
  • Why consumers need the protection of new regulations, and
  • How the CFPB can strike the correct balance between market choice and government oversight.


Proponents of more stringent oversight of American “payday” lenders focus on the negative outcomes of payday loans for consumers, who often find themselves in “debt cycle traps.” Opponents of regulation stress the need for short-term credit for those who don’t qualify for traditional loans at lower ...
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About the Author

Aaron Klein is a fellow in economic studies at the Brookings Institution.

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