Subcommittee on Economic and Consumer Policy Hearing: CFPB’s Role in Empowering Predatory Lenders: Examining the Proposed Repeal of the Payday Lending Rule
Thursday, May 16, 2019 - 2:00pm
2154 Rayburn House Office Building, Washington, DC 20515
CFPB’s Role in Empowering Predatory Lenders: Examining the Proposed Repeal of the Payday Lending Rule
The hearing will examine: (1) CFPB’s rulemaking process, and (2) the proposed rule on Payday, Vehicle Title, and Certain High-Cost Installment Loans.1
- Annually, around 12 million Americans use payday or auto title loans. Payday loans offer borrowers a small loan—on average, around $350—due in two weeks or less. Payday loan repayment is timed to coincide with a borrower’s next payday or receipt of government benefits. The average effective interest rate on a payday loan is around 400% and about 650% for online loans.
- Title loans—secured by a borrower’s auto title—operate similarly to payday loans. Within 30 days borrowers must repay the principal plus fees. The median title loan totals $694 and carries an Annual Percentage Rate of 317%. Defaulting on a series of loans could lead to repossession of the vehicle, which happens to 1 in 5 borrowers.
- More than 80% of borrowers cannot repay their payday loan on time, and lenders encourage borrowers to roll over the principal into subsequent loans, fueling a cycle of debt. The average borrower is likely to stay in debt for 11 months or longer. Payday lenders make their money when borrowers fail to repay their loans. 90% of loan fees come from consumers who borrow or roll-over an existing payday debt seven or more times in a year.
- CFPB devoted five years to researching and studying payday and auto title lending, culminating in its 2017 rule, “Payday, Vehicle Title, and Certain High-Cost Installment Loans” (2017 Payday Rule). Under the rule, extending a loan without consideration of the ability to repay would constitute an unfair and abusive practice, subject to a CFPB enforcement action. The compliance date of the rule is currently set for August 19, 2019.
- In February, CFPB sought to delay the compliance date of the 2017 Payday Rule from August 19, 2019, to November 19, 2020. It also sought to remove the part of the rule that requires underwriting and restricts lending to only borrowers who could repay in full without defaulting. CFPB’s cost-benefit analysis concluded that the repeal of the rule would boost predatory payday and auto title lenders revenue by about $8 billion annually. CFPB also joined forces with the payday lenders who sued them to stop rule.