CFPB rules would decrease payday loan volume by 70 percent, report says
If the Consumer Financial Protection Bureau (CFPB) follows through with its plan to regulate payday loans, new reports from industry groups say lenders stand to lose 70 percent of their business.
Credit reporting agency Clarity Services released a report that found that the rules would reduce the number of regulated loans by more than 70 percent and monoline payday storefront businesses would cease to exist under the rules being considered.
Last week, a report from global consulting firm Charles River Associates found that the rules would have reduced the payday loan revenues of small lenders by 82 percent on average when applied to 2013 data.
The report went on to say that the proposed rules “may dampen demand to originate payday loans and/or increase default rates.”
CFPB outlined a framework for the rules it’s considering in March, which mapped out two sets of rules — debt trap prevention or debt trap protection — that lenders would be able to chose between.
Under the prevention rules, lenders would have to verify a consumer’s income, debt and borrowing history when determining his or her ability to repay a loan in full and still cover their basic living expenses and loan payments.
Under the debt trap protection rules, lenders would not be required to do an upfront analysis of a borrower’s ability to repay a loan, but all loans would be limited to $500 with one finance charge and lenders would be prohibited from holding a vehicle title as collateral on a loan.
In its framework, CFPB said its rules could affect lenders specializing in payday loans “particularly severely.”
“The proposals under consideration could, therefore, lead to substantial consolidation in the short-term payday and vehicle title lending market,” the framework said. “This would be especially likely in areas with a preponderance of monoline lenders and in areas where diversification into other loan products is difficult, such as in states where other forms of high-cost lending are not permitted under state law.”