Our commitment to protecting vulnerable borrowers
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. 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. One-in-five payday
loans, and one-in-three vehicle title loans, ended in
default, even including periods of reborrowing. And
one-in-five vehicle title loan borrowers ended up having
their car or truck seized by the lender. That is real harm
to real people.
In 2020, the prior administration issued a rule revoking
parts of a 2017 CFPB rule that would have addressed these
harms. The later rule was challenged in court and the
Bureau had a legal obligation to respond to the lawsuit.
Accordingly, yesterday the Bureau filed a brief addressing
only the court’s jurisdiction to hear the case. The brief
does not address the merits of the underlying rule, and
the Bureau’s filing should not be regarded as an
indication that the Bureau is satisfied with the status
quo in this market. To the contrary, 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.
The Bureau continues to believe that ability to repay is an important underwriting standard. To the extent small dollar lenders’ business models continue to rely on consumers’ inability to repay, those practices cause harm that must be addressed by the CFPB.