In addition to the proposed payday loan rule released yesterday, the CFPB has issued (1) a “Request for Information on Payday Loans, Vehicle Title Loans, Installment Loans, and Open-End Lines of Credit,” and (2) a report titled “Supplemental findings on payday, payday installment, and vehicle title loans, and deposit advance products.”
The Request for Information (RFI) seeks general feedback regarding consumer protection concerns pertaining to (1) loan products outside the scope of the proposed payday loan rule, and (2) “risky” credit practices not covered by the proposed rule. Specifically, the RFI mentions installment loans and open-end credit lines with durations exceeding 45 days with no vehicle title security or account access (“leveraged payment mechanism” features) as products falling outside the scope of the proposed rule. According to the RFI, the CFPB is “seeking to learn more about the scope, use, underwriting, and impact” of products not expressly covered by the proposed rule in “determining what types of Bureau action may be appropriate.” In other words, “the Bureau is seeking information about certain consumer lending practices to increase the Bureau’s understanding of whether there is a need and basis for potential future efforts, including but not limited to future rulemakings, supervisory examinations, or enforcement investigations.” The RFI also asks for input regarding business practices relating to loans that fall within the CFPB’s proposed payday loan rule but “raise potential consumer protection concerns that are not addressed” in the proposed rule “in order to determine whether additional Bureau actions are warranted.”
Some of the particular points of interest raised by the CFPB about which the Bureau seeks comment are as follows:
- Forms of credit not covered by the proposed rule that are offered to the types of consumers who use loans to deal with cash shortfalls, including the types and volume of installment and open-end credit products that would not be covered by the proposed rule.
- Potential consumer harm resulting from garnishment orders, judgment liens, or other forms of enhanced collection. While the proposed rule does not cover collection practices, the Bureau has expressed concern that there may be certain collection practices that are “more prevalent with respect to high-cost loans made to consumers facing cash shortfalls that pose serious risks to consumers.”
- Loan churning, prepayment penalties, and slowly amortizing credit.
- Issues relating to default interest rates, late fees, teaser rates, and other so-called “back-end” pricing practices.
- Potential consumer harm resulting from ancillary or “add-on” products.
- The comment period runs through October 14, 2016.
In prepared remarks delivered yesterday at a field hearing on small-dollar lending in Kansas City, Director Cordray characterized this RFI process as an “inquiry into other situations that may harm consumers,” and noted that what the Bureau learns “may affect future rulemaking, and it will clearly help guide…continuing efforts to supervise companies and take enforcement actions against unfair, deceptive, or abusive acts or practices.” This new inquiry will likely inform the Bureau’s upcoming installment lending larger participant rulemaking, and sends a signal to the industry that shifting over to certain products not covered by the proposed rule is at best a temporary solution.
Also, in conjunction with its new rule proposal, the CFPB released a supplemental report on small-dollar lending. This report is cited many times throughout the proposed payday loan rule in support of the Bureau’s assertions about the current state of the market and the likely effects of the proposed regulations. Key topics covered in the report include:
Consumer usage and default patterns for vehicle title installment loans and payday installment loans;
- An analysis of the substitutability among deposit advance products, bank overdraft services, and payday loans;
- The impact of certain state laws on storefront payday lending, looking at examples from Colorado, Texas, Virginia, and Washington;
- Comparisons of the share of payday loans reborrowed across states with varying limits on renewals and cooling-off periods between loans;
- Findings on borrowing and default patterns for storefront payday loans for loans; and
- Simulations intended to estimate the impact of certain lending and collection restrictions on the payday, payday installment, and vehicle title loan markets.
This supplemental research report is the fifth report issued by the CFPB in the last three years addressing the family of credit products covered in the Bureau’s proposed payday loan rule. The previous reports were issued in April 2013 (features and usage of payday and deposit advance loans), March 2014 (payday loan sequences and usage), April 2016 (use of ACH payments to repay online payday loans), and May 2016 (single payment title lending).