Why was the ability-to-repay rule implemented?

The ability-to-repay rule was implemented primarily to protect consumers from taking on unaffordable debt. This regulation was established in response to the mortgage crisis, where many borrowers were given loans without a thorough assessment of their ability to repay. By requiring lenders to evaluate a borrower's financial situation, including income, assets, employment status, and credit history, the rule aims to ensure that loans are made to those who can realistically manage their payments. This decreases the likelihood of borrowers facing foreclosure and experiencing the financial distress that can result from over-leveraging. The focus on borrower protection is a central aspect of the rule, emphasizing the importance of responsible lending practices in maintaining financial stability for consumers and the broader economy.