On March 26, the CFPB held a public hearing on payday and auto title lending, the same day that it released proposed regulations for short-term small-dollar loans. Virginia Attorney General, Mark Herring gave opening remarks, during which he asserted that Virginia is perceived as the “predatory lending capital of the East Coast,” suggesting that payday and auto title lenders were a large part of the problem. He said that his office would target these lenders in its efforts to curb alleged abuses. He also announced several initiatives aimed at the industry, including enforcement actions, education and prevention, legislative proposals, a state run small-dollar loan program, and an expanded partnership with the CFPB. The Commissioner of Virginia’s Bureau of Financial Institutions, E. Joseph Face, also gave brief remarks echoing those of the Attorney General.
Richard Cordray, director of the CFPB, then gave lengthy remarks, which were published online the morning before the hearing took place and are available here. His remarks outlined the CFPB’s new “Proposal to End Payday Debt Traps.” Cordray explained and defended the CFPB’s proposed new regulations. While most of what he said was repetitive of the lengthier documents that the CFPB published on the topic, a few lines of his speech revealed the impetus behind the CFPB’s proposed regulations and one reason why they are fundamentally flawed.
In discussing the history of consumer credit, he stated that “[t]he advantage[, singular] of consumer credit is that it lets people spread the cost of repayment over time.” This, of course, ignores other advantages of consumer credit, such as closing time gaps between consumers’ income and their financial needs. The CFPB’s failure to recognize this “other” advantage of consumer credit is a driving force behind several flaws in the proposed regulations, which we have been and will be blogging about.
Following the opening remarks, the CFPB moderated a panel discussion during which participants from industry and consumer advocacy groups had the opportunity to comment on the proposed regulations and answer questions. The CFPB panel included:
- Richard Cordray, Director, CFPB
- Steven Antonakes, Deputy Director, CFPB
- Zixta Martinez, Assistant Director of Community Affairs, CFPB
- Kelly Cochran, Assistant Director for Regulations, CFPB.
On the consumer advocate panel were:
- Paulina Gonzales, Executive Director, California Reinvestment Coalition
- Michael Calhoun, President, Center for Responsible Lending
- Dana Wiggins, Director of Outreach, Virginia Poverty Law Center
- Wade Henderson, President and CEO, The Leadership Conference on Civil Rights and Human Rights
The industry panel included:
- Lisa McGreevy, President & CEO, Online Lenders Alliance
- Edward D’Alessio, General Counsel (former), Financial Service Centers of America
- Lynn DeVault, Board Member, Community Financial Services Association of America
- Stanley P. Leicester, II, Senior Vice President and CFO, BayPort Credit Union
After the panelists’ opening remarks, they answered questions posed by the CFPB such as: (i) What should the role of “ability to repay” standards be in the payday loan market?; (ii) How do payday loans’ rollover feature impact the ability to repay?; and (iii) “What is the appropriate balance between protecting consumers and ensuring that they have access to credit?”
Not surprisingly, in answering these questions, the consumer advocate panel took every opportunity to condemn payday and auto title products. They generally cited anecdotal evidence of consumers who became financially and emotionally distressed when they found themselves unable to repay their loans. One panelist purported to cite “data” compiled by his own organization in support of the proposed regulations. Unfortunately, these consumer advocates offered no viable alternatives to payday and auto title products to help consumers who find themselves in need of money and with nowhere else to turn.
The industry panelists generally expressed concern over the CFPB’s proposed regulations. Ms. McGreevy, speaking for online lenders, stated that any new regulations should not stifle innovation, rely on outdated underwriting methods, or dictate when consumers would be allowed to take out a loan. All of the industry panelists, in some way or another, expressed concern that new regulations not be implemented in a way that defeats the purposes of payday and auto title products. If, for example, the new regulations dramatically increase the time it takes to get a loan, they may strip away the value that these loans provide to consumers who need them.
After the panel concluded, the CFPB entertained comments from approximately 40 members of the public who had registered in advance. The speakers were each afforded one minute to comment. Employees of payday and auto title loan stores made up the largest group of speakers, followed closely clergy and consumer advocacy groups. A fair number of consumers also made remarks. One consumer claims to have taken out a $300 loan on which she now owes more than $5,000. Others expressed gratitude towards the payday and auto title lenders whose loans allowed them to stay out of financial peril or to respond to an emergency situation.