The CFPB is a data-driven agency. That is the message given countless times on the bureau’s website and in the speeches of Richard Cordray, the agency’s director. Yet, now the bureau’s desire to regulate payday loans and similar types of credit has put the agency at odds with its data-driven philosophy. Consumer advocates and members of Congress are urging the CFPB to write rules to regulate auto title loans.
In May, Elizabeth Warren, the founder of the CFPB, and five other Senators, including Richard Durbin, called on Cordray to include rules that cover auto title loans and other consumer loans with the bureau’s rules on payday loans. The argument behind the Senators’ request is that auto title loans are like payday loans when the consumer is in default. The loans commonly have 30-day terms, loan sizes of around $1,000, and 300 percent annual percentage interest rates, according to the Center for Responsible Lending. If the consumer goes into default, the lender can repossess the consumer’s car. “Do I face losing my car, or simply keep paying the fees, again and again?” said Diane Standaert, legislative counsel at the Center for Responsible Lending, in an interview with the American Banker. “That’s the threat that keeps the debt trap going.”
Yet, the CFPB has published no research nor data on auto title loans. A search on the agenc’s website for “title loans” doesn’t even yield any comment from CFPB personnel on the subject.
Now, even though earlier this year Cordray said small-dollar lending products will be very much on the CFPB’s plate in 2014, the CFPB has delayed rulemaking for payday credit. “The CFPB is considering whether rules governing payday and title loans and other small-dollar lending products are warranted under CFPB authorities, and if so what types of rules would be appropriate,” it said in its filing in the federal register. “Rulemaking might include disclosures or address acts or practices in connection with these products.”
The CFPB has declined to comment on its thinking with respect to title loans. If the bureau’s reluctance to offer comment and its delay on payday loans suggest it wishes to better understand auto title loan before lumping them in with payday loans, then the agency is on the right track. While auto title loans are similar to payday loans in that they are not tied to a borrower’s ability to repay, title loans are also different in that they are collateralized. The bureau will make the best rules when it understands the title loan market. Acting without such knowledge could adversely affect consumers.