Consumer Financial Protection Bureau’s new rules could spell the end for payday lenders
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Two new reports issued recently have found that the Consumer Financial Protection Bureau’s proposed payday lending rules would cause a vast majority of lenders to close down, due in large part to a new requirement that non-bank payday lenders refuse credit to those who fall below a certain payment-to-income ratio.
The first report, from credit reporting agency Clarity Services, concluded that the mono-line payday storefront business would lose more than 70 percent of its volume and would likely have to shut down under the new CFPB rule.
The report’s author, former CFPB assistant director of research Rick Hackett, examined the most comprehensive dataset of payday lending transactions to date – more than 87 million small-dollar loan records from five major lenders – which were offered to the CFPB and other researchers to help foster a more comprehensive understanding of why consumers choose payday loans and how the loans work.
Separately, a report released last week from Charles River Associates, a global consulting firm, evaluated the impact of the CFPB’s proposed rule on
small businesses. It found that, when applied to 2013 data, the rule would have reduced the loan revenues of payday lenders by an average of 82 percent.
This report examined loan level data and financial information from a sample of small payday lenders which are members of the Community Finance Services Association (CFSA) or Financial Service Centers of America.
The loan level data reflect 1.8 million loans to 150,000 consumers across 234 stores and 16 states. The financial information data came from monthly profit and loss statements at the store level from six small lenders, mostly for a 2-year period, covering about 200 stores with payday lending revenues across 15 states.
The payday lending industry has come under a great deal of scrutiny recently, as the Alabama legislature reviewed bills that would help regulate these lending practices.
Many of the local owners of these businesses have spoken out against the regulations, although courts have upheld rulings that have attempted to place restrictions on these lenders.
In April, the Alabama Supreme Court upheld a lower court's decision that requires payday lenders to use a database to make sure borrowers do not exceed a $500 limit for payday loans.
Category: Payday loans