The Consumer Financial Protection Bureau is in the late stages of formulating rules for payday lenders, according to remarks made by CFPB Director Richard Cordray at a field hearing in Nashville, Tenn. The remarks coincided with the release of a CFPB report on payday lending focusing on repeat borrowers.
The bureau has not yet issued an advance notice of proposed rulemaking, but Cordray hinted that the CFPB was likely to conclude that repeated payday loan borrowing is “unfair” or “abusive” under the Dodd-Frank Act.
Cordray admitted that not all payday loans lead to the “cycle of debt” of repeated lending. The bureau’s “central concern here is not with every payday loan made to a consumer” but “instead is that all too often those loans lead to a perpetuating sequence,” he said.
Approximately 80 percent of payday loans are either rolled over or followed by another loan within 14 days, the report said, and more than 20 percent of initial payday loans result in a string of seven or more renewals. The report also examines loan size and amortization over the course of the loan and the number of such loan sequences in an 11-month period.
The March 25 report is an expansion on an April 2013 white paper which raised questions about the loose lending standards, high costs and risky loan structures the bureau said may contribute to repeat payday loan borrowing.
“We are concerned that too many borrowers slide into the debt traps that payday loans can become,” Cordray said. “As we work to bring needed reforms to the payday market, we want to ensure consumers have access to small-dollar loans that help them get ahead, not push them farther behind.”
The bureau began supervising payday lenders in January 2012 and began accepting payday loan complaints in November.