How the CFPB is Proposing to Regulate the Small Dollar Lending - - PowerPoint PPT Presentation

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How the CFPB is Proposing to Regulate the Small Dollar Lending Industry

Understanding and Supporting the Payday Lending Rules

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Anju Chopra Senior Policy Manager, Government Affairs CFED Emanuel Nieves Government Affairs Manager CFED Diane Standaert EVP, Director of State Policy Center for Responsible Lending

Presenters

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Housekeeping

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Average Triple Digit APR’s - 391%

Rollovers are the Norm

• > 80% of Loans Renewed Within 14 Days
• ½ of Borrowers Take Out 10 or More

Loans Per Year

• Car Titles – > 80% Renew the Same Day

Source: CFPB Takes Action Against ACE Cash Express for Pushing Payday Borrowers Into Cycle of Debt (April 2014)

Defining the Problem – The Debt Trap

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Car Titles

1/3 End in Default 1/5 End in Repossessions

Automatic Withdrawal

After Initial Attempt to Withdraw – 70% Failure Rate for Subsequent Attempts Borrowers Pay a Fee Each Time an Attempt is Made

Defining the Problem – Car Titles and Account Access

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Demographic Data

Low-to-Moderate Income 46% of Borrowers – Household Incomes <$30,000 Per Year Public Assistance 1 in 5 Storefront Borrowers – Social Security or Other Assistance Disproportionately Minorities African-Americans and Hispanics – 2-3 Times more Likely than Non-Hispanic Whites Female-Headed Households Women Head of Households – 2 Times more Likely than Married Couples

SOURCE: 2013 National Survey of Unbanked and Underbanked Households & 2013 CFPB Payday Loans and Deposit Advance Products White Paper

Who are Payday Loan Borrowers?

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Ensuring a Borrower Has the Ability to Repay

Centerpiece of Proposed Rule

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Covered

• Payday Loans
• Deposit Advanced Products -

Payday Loan-Styled Products Offered by Banks

• Some High Cost Installment

Loans

• Car Title Loans

Not Covered

• Purchase Money Security

Interests

• Real Estate Secured Credit
• Credit Cards
• Student Loans
• Pawn Loans

Scope – What Loan Products are Covered?

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• Shorter Durations - Terms of 45 Days or Less
• Including Longer-Term Loans with Balloon

Payments

• Longer Durations – Terms Greater than 45 Days
• APR of ≥ 36% (Inclusive)
• 72 Hour Loophole - Possession of Car Title Or

Account

The proposed rule covers both short and longer-term loans

CFPB Has Proposed Rules to Stop the Debt Trap

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Loan Extension Provisions Determine Ability to Repay (ATR) – Underwriting Standards Alternative to ATR - Restrictions on Terms and Conditions

One Short-Term Exemption Six Loans Approach Two Long-Term Exemptions NCUA Framework Default Rate Exemption

Ability to Repay Standard and Exemptions

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• A lender must make a reasonable determination that a borrower

has enough residual income to pay for a loan after taking account

• f a consumer’s major financial obligations and basic living

expenses without having to reborrow.

• Each of these have to be verified by
• Consumer statements that are memorialized
• Additional evidence (“verification evidence”)

Ability-to-Repay (ATR)

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• Three Loans in a Row
• $500 First Loan Maximum - followed by -
• Subsequent Loans Must be Less
• No Car Titles
• No More than Six Loans in 12 Months
• 90 Day Indebtedness Over 12 Months

Short-Term Exemption

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• NCUA PDL Alternative
• 46 Days – Six Months
• $200 - $1000
• 28% Interest Rate Cap
• $20 Application Fee
• Three Loans - Six Months
• Default Rate Exemption
• 36% Cost of Credit
• Origination Fee
• “Reasonable Proportion” of Underwriting, or
• $50 or Less
• 46 Days – 24 Months (Two Years)
• Default Rate – Not More than 5% Per Year
• If Exceeded – Must Refund Origination Fees

to Borrowers

• Two Loans - Six Months

Long-Term Exemptions

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• Two Attempt Limit
• Additional Attempts Require Borrower

Permission

Payment Transfer Limits – Automatic Account Withdrawal

• Electronic – Three Days
• Mail – Six Days

Notice Limits – Notice Required Before Account Access

Payment Transfer and Notice Limits

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Opposition to Debt Trap Lending

Over $8 billion in fees are drained annually from states with payday or car title lending

See How Much Money Payday and Car Title Lenders Drain from Your State: http://bit.ly/FeeDrain

Over $5 billion in fees are saved annually in states without payday or car title lending

See How Much Money Your State Saves: http://bit.ly/FeesSaved

The Cost of Payday and Car Title Lending

• The CFPB final rule will be a floor, not a ceiling.
• The CFPB final rule will not pre-empt state laws that are stronger, such as states with rate

caps.

• In the 36 states where the payday loan and car title loan debt trap persists, the CFPB rule

has the potential to provide added protections to prevent the harms of unaffordable loans.

• Both CFPB and the state Attorneys General and state regulators have the authority to

enforce the provisions. This shared enforcement authority is provided in the Dodd‐Frank Act.

The Impact of CFPB Rules on State Laws

• States should enact and enforce stronger protections, such as a rate cap of

about 36%.

• 90 million people live in the 14 states, plus DC which enforce a rate cap
• States can effectively enforce these caps against evasion
• People are better off without high-cost, debt trap loans
• States should not loosen their laws to allow high-cost, longer-term payday

loans and car title loans.

• Payday and car title lenders make longer term loans in 21 states
• U.S. Department of Defense enforces a 36% rate cap for active duty military to cover these dangerous

longer-term loans

• This year, payday and car title lenders have pushed these dangerous proposals in 13 states, largely

unsuccessfully, with rates of 200 to 300% APR for loans that last months or years.

States Remain Battleground for Consumer Protection

For Resources for Payday Loan Free States, go to: http://bit.ly/1UVUgAp

CFPB Proposal Says:

• State usury limits are more protective of consumers than the rule’s provisions.
• The numerous states with 36% APR usury limits “reflect[] the judgment of those States

that loans with rates above that limit are per se harmful to consumers and should be prohibited,” noting Congress made similar judgment in the Military Lending Act.

• The rule is a floor; existing, and any future, stronger State and local protections also apply.

What Does the CFPB Proposed Rule Mean for Payday-Loan Free States?

• A weak CFPB rule may be seen as green light for payday lenders to seek authorization in

a state.

• Loopholes in the proposed rule must be closed.
• The CFPB should deem making or offering an illegal loan in violation of state law an

unfair, deceptive, and abusive practice.

For Additional Resources for Payday Loan Free States, go to: http://bit.ly/1UVUgAp

Payday-Loan Free States Still Seek a Stronger CFPB Rule

Voters Oppose Payday Lenders and Support Regulation

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• As written, the proposed rules has a number of clear strengths but there

loopholes that need to be addressed to ensure a strong final rules.

• The industry has been very active and has spent millions to resist federal efforts

to create nationwide rules for responsible small-dollar lending.

• Proponents of predatory payday lending have been attacking this rule from day
• ne and will continue to do so until the very end.
• The public comment period is the best possible opportunity for on-the-ground

advocates and practioners to inform national regulations that can enhance state and local level work.

Why Should Advocates Weigh In?

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• What Can We Do Ensure There’s Strong Final Rule?

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Includes:

• #ConsumersCantWait Campaign Toolkit

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What Actions Can You Take Today?

Raise awareness about payday loan sharks during this #SharkWeek

Send a tweet Tell the @CFPB we need a bigger boat against loan sharks. #StopTheDebTrap #SharkWeek http://bit.ly/CFPBComment Post on Facebook The proposed rule has left many borrowers outside of the safe

• zone. The boat is too small to protect the millions of borrowers in

need of safe loans. Before loan sharks take advantage of the loopholes tell the @Consumer Financial Protection Bureau we need a bigger boat: http://bit.ly/CFPBComment #StopTheDebtTrap #SharkWeek

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What Actions Can You Take Today?

Submit a comment to the CFPB

www.stoppaydaypredators.org/cfed

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Questions?