February was not a good month for payday lenders. As previously reported, on February 20, CFPB Director Cordray expressed pointed concerns about payday and short-term loan “debt traps” in a speech to the Consumer Advisory Board.
Perhaps not coincidentally—rumors abound that the events were linked—the Pew Charitable Trust released a new payday lending report later the same day. I plan to blog shortly and in more detail about the Pew report. Suffice it to say for now that the report is generally critical of payday lending but does not address the core issue: Does payday lending detrimentally impact the financial well-being of consumers who use the product?
Four days after the release of the Pew Report, on February 24, the Sunday New York Times carried a front-page article focusing on the role of large banks in facilitating the collection of online payday loans through ACH debits. The Times article reported that the FDIC and the CFPB are both examining the roles of big banks in online loans and it cited one of the “findings” of the Pew study, that 27% of borrowers reported that payday loans caused them to overdraft their checking accounts, to suggest that the banking community plays ball with online lenders because it “covet[s]” the overdraft fees generated by payday loans.
Finally, two days later, on February 26, Director Cordray gave a speech to the National Association of Attorneys General (NAAG) and reiterated the concerns about “debt traps” that he had expressed in his a speech to the Consumer Advisory Board. In the NAAG speech, however, he went on to remark that “enforcement of the law can be challenging when it comes to lenders that lack a physical presence. Our enforcement teams have met with some of your [state AG] offices in multi-state meetings to consider how best to coordinate our efforts on loans that involve off-shore or other jurisdictional issues.”
Certainly, these developments suggest that it would be grossly premature for payday lenders in general, or online lenders in particular, to conclude that they are out of the woods with the CFPB.