A new report prepared by Charles River Associates for the Community Financial Services Association of America (CFSA) found that the CFPB’s contemplated proposals for payday (and other small-dollar, high-rate) loans would cut small payday lenders’ revenues by 82 percent on average, potentially forcing these lenders to close many existing stores.
The report also found that the CFPB’s contemplated proposals would:
- Result in overall losses for five out of the six lenders analyzed in the study;
- Affect most adversely stores in rural areas; and
- For the 16% of stores analyzed that would remain profitable, decrease profits on average by 68%.
In commenting on the report, the CFSA observed that the report “lays clear the true intent of the CFPB rules – to eliminate access to short-term credit, which would be devastating to the millions of borrowers who rely on payday loans” and “further underscores the CFPB’s complete lack of understanding of how its proposed rules would impact consumers and the businesses that serve them.”
The CFSA also noted that the report follows the recent study by Professor Jennifer L. Priestley which cast serious doubt on the rationale typically offered by consumer advocates for rollover limits—namely, that sustained use of payday loans adversely affects borrowers. As we reported, one of Professor Priestley’s key findings was that borrowers with a higher number of rollovers experienced more positive changes in their credit scores than borrowers with fewer rollovers.