My friend Hilary Miller, one of the leading payday lending lawyers in the country, has submitted a Petition to the CFPB on behalf the Community Financial Services Association (CFSA), the leading payday lending trade group. The Petition seeks retraction of the CFPB White Paper on payday loans, the subject of a prior post.
The CFSA Petition asserts that the White Paper violates the statutory norms set forth in the Information Quality Act for a number of reasons:
- First and foremost, the Petition disputes the White Paper claim that its loan samples are “representative.” Unlike published studies, which use “static pool” analysis, the CFPB study sampled all consumers with a payday loan in the first month of the study period rather than all consumers whose payday loan (or series of loans) began in the first month. According to the Petition (p. 5, emphasis added): “Because of the sampling error inherent in the methodology chosen by the Bureau, nearly every statistical conclusion of the White Paper about payday lending is wrong.” (emphasis in original)
- The Petition asserts that the CFPB’s sampling error had a dramatic impact: While the CFPB estimated that the mean number of days of indebtedness of a payday borrower in the one-year period was 196 days, the Petition states that the “corresponding correctly computed number (for a large set of CFSA-member-company borrowers) is 108,” resulting in “the principal finding of the White Paper regarding intensity of use to be overstated by 81%.” Page 7 (emphasis added).
- The wildly different results about average usage accentuate the importance of access to CFPB data. However, the Petition asserts (p. 12) that, “[d]espite a timely separate request by CFSA that the entire dataset be produced (on a de-identified basis) pursuant to the Freedom of Information Act, to date the Bureau has not provided such information for use in ‘reproducing’ the results of the White Paper using correct sampling methodology.”
- The Petition cites a number of instances where the “White Paper speculates without supporting data … regarding the possibility of a relationship between frequency of use of payday loans and detriment to the consumer.” It takes the CFPB to task for raising the specter of consumer “harm” without having studied the issue, pointing out that “[n]o data on actual consumer welfare outcomes were collected to match with the sample data.” Page 8. I could not agree more. My prior blog post put it this way: “[T]he storefront study does not even purport to look into credit scores of payday borrowers and similarly situated consumers who do not get payday loans, and it never addresses in any manner the very real benefits of payday loans or the question whether (and when) such benefits outweigh the costs.”
- At page 9, the Petition quotes from page 44 of the White Paper: “‘It is unclear whether consumers understand the costs, benefits, and risks of using these products.'” It adds (pp. 9-10): “Similar to the argument made supra with respect to ‘harm,’ in preparing the White Paper, the Bureau did not undertake to study consumers’ ‘understanding’ of these credit products, and no analysis of the dataset employed by the Bureau could have shed any light on this question. The sole purpose of the inclusion of this statement is to intimate, without an evidentiary basis and for political reasons, that consumers do not understand these matters.”
- At page 10, the Petition criticizes the further statement at page 44 of the White Paper that “‘consumers may not appreciate the substantial probability of being indebted for longer than anticipated and the costs of such sustained use'” as, once again, being “without an evidentiary basis and for political reasons.”
It will be interesting to see whether and how the CFPB responds to the CFSA broadside. It would be embarrassing, to say the least, if an agency called into existence largely in order to provide evidence-based analysis refuses to explain or fails to adequately justify its methodology.