The Consumer Financial Protection Bureau is likely to take an aggressive approach to payday lending, according to a blog post from Acting Director Dave Uejio.
“The CFPB is acutely aware of consumer harms in the small dollar lending market, and is particularly concerned with any lender’s business model that is dependent on consumers’ inability to repay their loans,” Uejio wrote. “Years of research by the CFPB found the vast majority of this industry’s revenue came from consumers who could not afford to repay their loans, with most short-term loans in reborrowing chains of 10 or more.” Citing CFPB research, he said that 20 percent of payday loans and 33 percent of vehicle title loans end in default, including periods of reborrowing.
The CFPB had already hit pause on implementation of a Trump-era rule which had rolled back parts of a 2017 rule which put some limitations in place for a loan to be considered a qualified mortgage. The original version implemented a 43 percent debt-to-income ratio ceiling as well as Fannie Mae and Freddie Mac’s GSE patch. Under previous CFPB director Kathy Kraninger, the DTI ratio requirements for QM loans were replaced in the 2020 rewrite with a price-based definition. The 2020 rule also introduced a new category of “seasoned” loans.
The GSE patch, which extended QM status to loans sold to Fannie and Freddie, would have expired when the new rule went into effect in July. After expiration of the 2014 exemption, those loans would be subject to the same requirements as other QM loans.
Uejio said the CFPB had filed a motion to dismiss a case challenging the 2020 rule because of legal obligation, and such a brief shouldn’t be read as support from new CFPB leadership for the 2020 rule.
“The bureau believes that the harms identified by the 2017 rule still exist, and will use the authority provided by Congress to address these harms, including through vigorous market monitoring, supervision, enforcement, and, if appropriate, rulemaking,” Uejio said.
The lawsuit challenging the 2020 rule was filed by the National Association for Latino Community Asset Builders in October 2020.