How the CFPB is Proposing to Regulate the Small Dollar Lending - PowerPoint PPT Presentation

How the CFPB is Proposing to Regulate the Small Dollar Lending Industry Understanding and Supporting the Payday Lending Rules @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Presenters Anju Chopra Senior Policy Manager, Government Affairs CFED Diane Standaert EVP, Director of State Policy Center for Responsible Lending Emanuel Nieves Government Affairs Manager CFED @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Housekeeping • All webinar attendees are muted to ensure sound quality. • Ask a question any time by typing the question into the text box of the control panel OR use the hands-up function. • If you experience any technical issues, email gotomeeting@cfed.org. @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Defining the Problem – The Debt Trap Average Triple Digit APR’s - 391% Rollovers are the Norm • > 80% of Loans Renewed Within 14 Days • ½ of Borrowers Take Out 10 or More Loans Per Year • Car Titles – > 80% Renew the Same Day Source: CFPB Takes Action Against ACE Cash Express for Pushing Payday Borrowers Into Cycle of Debt (April 2014) @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Defining the Problem – Car Titles and Account Access Car Titles Automatic Withdrawal After Initial Attempt to 1/3 End in Default Withdraw – 70% Failure Rate for Subsequent Attempts Borrowers Pay a Fee Each 1/5 End in Repossessions Time an Attempt is Made @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Who are Payday Loan Borrowers? Demographic Data Low-to-Moderate Income 46% of Borrowers – Household Incomes <$30,000 Per Year Public Assistance 1 in 5 Storefront Borrowers – Social Security or Other Assistance Disproportionately Minorities African-Americans and Hispanics – 2-3 Times more Likely than Non-Hispanic Whites Female-Headed Households Women Head of Households – 2 Times more Likely than Married Couples SOURCE: 2013 National Survey of Unbanked and Underbanked Households & 2013 CFPB Payday Loans and Deposit Advance Products White Paper @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Centerpiece of Proposed Rule Ensuring a Borrower Has the Ability to Repay @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Scope – What Loan Products are Covered? Covered Not Covered  Payday Loans  Purchase Money Security Interests  Deposit Advanced Products -  Real Estate Secured Credit Payday Loan-Styled Products Offered by Banks  Credit Cards  Some High Cost Installment  Student Loans Loans  Pawn Loans  Car Title Loans @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

CFPB Has Proposed Rules to Stop the Debt Trap • Shorter Durations - Terms of 45 Days or Less • Including Longer-Term Loans with Balloon The proposed rule Payments covers both short • Longer Durations – Terms Greater than 45 Days and longer-term • APR of ≥ 36% (Inclusive) loans • 72 Hour Loophole - Possession of Car Title Or Account @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Ability to Repay Standard and Exemptions Loan Extension Provisions Alternative to ATR - Restrictions on Terms and Conditions Determine Ability to One Short-Term Repay (ATR) – Two Long-Term Exemptions Exemption Underwriting Standards Six Loans NCUA Default Rate Approach Framework Exemption @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Ability-to-Repay (ATR)  A lender must make a reasonable determination that a borrower has enough residual income to pay for a loan after taking account of a consumer’s major financial obligations and basic living expenses without having to reborrow.  Each of these have to be verified by  Consumer statements that are memorialized  Additional evidence (“verification evidence”) @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Short-Term Exemption  Three Loans in a Row  $500 First Loan Maximum - followed by -  Subsequent Loans Must be Less  No Car Titles  No More than Six Loans in 12 Months  90 Day Indebtedness Over 12 Months @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Long-Term Exemptions  NCUA PDL Alternative  Default Rate Exemption  46 Days – Six Months  36% Cost of Credit  Origination Fee  $200 - $1000  “Reasonable Proportion” of Underwriting, or  28% Interest Rate Cap  $50 or Less  $20 Application Fee  46 Days – 24 Months (Two Years)  Three Loans - Six Months  Default Rate – Not More than 5% Per Year  If Exceeded – Must Refund Origination Fees to Borrowers  Two Loans - Six Months @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Payment Transfer and Notice Limits • Two Attempt Limit Payment Transfer Limits – Automatic • Additional Attempts Require Borrower Account Withdrawal Permission Notice Limits – • Electronic – Three Days Notice Required Before Account • Mail – Six Days Access @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

Opposition to Debt Trap Lending @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

The Cost of Payday and Car Title Lending Over $8 billion in fees are drained annually from states with payday or car title lending See How Much Money Payday and Car Title Lenders Drain from Your State: http://bit.ly/FeeDrain Over $5 billion in fees are saved annually in states without payday or car title lending See How Much Money Your State Saves: http://bit.ly/FeesSaved

The Impact of CFPB Rules on State Laws • The CFPB final rule will be a floor, not a ceiling. • The CFPB final rule will not pre-empt state laws that are stronger, such as states with rate caps. • In the 36 states where the payday loan and car title loan debt trap persists, the CFPB rule has the potential to provide added protections to prevent the harms of unaffordable loans. • Both CFPB and the state Attorneys General and state regulators have the authority to enforce the provisions. This shared enforcement authority is provided in the Dodd‐Frank Act.

States Remain Battleground for Consumer Protection • States should enact and enforce stronger protections, such as a rate cap of about 36%. • 90 million people live in the 14 states, plus DC which enforce a rate cap • States can effectively enforce these caps against evasion • People are better off without high-cost, debt trap loans • States should not loosen their laws to allow high-cost, longer-term payday loans and car title loans. • Payday and car title lenders make longer term loans in 21 states • U.S. Department of Defense enforces a 36% rate cap for active duty military to cover these dangerous longer-term loans • This year, payday and car title lenders have pushed these dangerous proposals in 13 states, largely unsuccessfully, with rates of 200 to 300% APR for loans that last months or years.

For Resources for Payday Loan Free States, go to: http://bit.ly/1UVUgAp

What Does the CFPB Proposed Rule Mean for Payday-Loan Free States? CFPB Proposal Says : • State usury limits are more protective of consumers than the rule’s provisions. • The numerous states with 36% APR usury limits “ reflect[] the judgment of those States that loans with rates above that limit are per se harmful to consumers and should be prohibited,” noting Congress made similar judgment in the Military Lending Act. • The rule is a floor; existing, and any future, stronger State and local protections also apply.

Payday-Loan Free States Still Seek a Stronger CFPB Rule • A weak CFPB rule may be seen as green light for payday lenders to seek authorization in a state. • Loopholes in the proposed rule must be closed. • The CFPB should deem making or offering an illegal loan in violation of state law an unfair, deceptive, and abusive practice. For Additional Resources for Payday Loan Free States, go to: http://bit.ly/1UVUgAp

Voters Oppose Payday Lenders and Support Regulation

Why Should Advocates Weigh In? • As written, the proposed rules has a number of clear strengths but there loopholes that need to be addressed to ensure a strong final rules. • The industry has been very active and has spent millions to resist federal efforts to create nationwide rules for responsible small-dollar lending. • Proponents of predatory payday lending have been attacking this rule from day one and will continue to do so until the very end. • The public comment period is the best possible opportunity for on-the-ground advocates and practioners to inform national regulations that can enhance state and local level work. @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

What Can We Do Ensure There’s Strong Final Rule?  • • • • • @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

#ConsumersCantWait Campaign Toolkit Includes : • • • @CFED /CFEDNews cfed.org/blog/inclusiveeconomy

What Actions Can You Take Today? Raise awareness about payday loan sharks during this #SharkWeek Send a tweet Tell the @CFPB we need a bigger boat against loan sharks. #StopTheDebTrap #SharkWeek http://bit.ly/CFPBComment Post on Facebook The proposed rule has left many borrowers outside of the safe zone. The boat is too small to protect the millions of borrowers in need of safe loans. Before loan sharks take advantage of the loopholes tell the @Consumer Financial Protection Bureau we need a bigger boat: http://bit.ly/CFPBComment #StopTheDebtTrap #SharkWeek @CFED /CFEDNews cfed.org/blog/inclusiveeconomy