March 25, 2014

CFPB reports on payday loans, rule in the works

March 26, 2014 – A new CFPB report shows four out of five payday loans are rolled over or renewed within 14 days, and CFPB Director Richard Cordray says the bureau will be working to better regulate this type of lending.

CFPB on Tuesday held a field hearing on payday loans in Nashville. "As we look ahead to our next steps, I will frankly say that we are now in the late stages of our considerations about how we can formulate new rules to bring needed reforms to this market," Cordray said in prepared remarks. "We intend to make sure that consumers who can afford to take out small-dollar loans can get the credit they need without jeopardizing or undermining their financial futures. But we also need to recognize that loan products which routinely lead consumers into debt traps should have no place in their lives."

In its payday loan report, CFPB says:

  • Three of five payday loans go to borrowers whose fee expenses exceed the amount borrowed.
  • Four of five payday borrowers default or renew a payday loan over the course of a year.
  • Four of five payday borrowers who renew end up borrowing the same amount or more.

CFPB began accepting complaints about payday loans in November. NAFCU continues to closely monitor the data the bureau collects and releases, and it has raised concerns about the reputation risk that false complaints in the system could create.

Credit unions are authorized by NCUA to offer small-dollar, short-term loans to their members, and NAFCU is encouraging CFPB to provide credit unions as much flexibility as possible in providing members good loans that are less costly than what they could get elsewhere.