The CFPB has issued a new report entitled “Single-Payment Vehicle Title Lending,” summarizing data on single-payment auto title loans. The latest report is the fourth report issued by the CFPB in connection with its anticipated rulemaking addressing single-payment payday and auto title loans, deposit advance products, and certain “high cost” installment and open-end loans. The previous reports were issued in April 2013 (features and usage of payday and deposit advance loans), March 2014 (payday loan sequences and usage), and April 2016 (use of ACH payments to repay online payday loans).
In March 2015, the CFPB outlined the proposals then under consideration and, in April 2015, convened a SBREFA panel to review its contemplated rule. Since the contemplated rule addressed title loans but the previous reports did not, the new report appears designed to supply the empirical data that the CFPB believes it needs to justify the limits on auto title loans it intends to include in its proposed rule. With the CFPB’s announcement that it will hold a field hearing on small dollar lending on June 2, the new report appears to be the CFPB’s final step before issuing a proposed rule.
The new report is based on the CFPB’s analysis of about 3.5 million single-payment auto title loans made to over 400,000 borrowers in ten states from 2010 through 2013. The loans were originated in storefronts by nonbank lenders. The data was obtained through civil investigative demands and requests for information pursuant to the CFPB’s authority under Dodd-Frank Section 1022.
The most significant CFPB finding is that about a third of borrowers who obtain a single-payment title loan default, with about one-fifth losing their car. Additional findings include the following:
- 83% of loans were reborrowed on the same day a previous loan was paid off.
- Over half of “loan sequences” (which include refinancings and loans taken within 14, 30 or 60 days after repayment of a prior loan) are for more than three loans, and more than a third of loan sequences are for seven or more loans. One-in-eight new loans are repaid without reborrowing.
- About 50% of all loans are in sequences of 10 or more loans.
The CFPB’s press release accompanying the report commented: “With auto title loans, consumers risk their car or truck and a resulting loss of mobility, or becoming swamped in a cycle of debt.” Director Cordray added in prepared remarks that title loans “often just make a bad situation even worse.” These comments leave little doubt that the CFPB believes its study justifies tight restrictions on auto title loans.
Implicit in the new report is an assumption that an auto title loan default evidences a consumer’s inability to repay and not a choice to default. While ability to repay is undoubtedly a factor in many defaults, this is not always the case. Title loans are frequently non-recourse, leaving little incentive for a borrower to make payments if the lender has overvalued the car or a post-origination event has devalued the auto. Additionally, the new report does not address whether and when any benefits of auto title loans outweigh the costs. Our clients advise that auto title loans are frequently used to keep a borrower in a car that would otherwise need to be sold or abandoned.