CFPB Payday Loan Report and Hearing
On March 25th, the CFPB released its second report on payday loans (the Report) and also held a field hearing on that issue.1 The CFPB’s Office of Research prepared the Report based upon data it collected over a 12-month period from more than 12 million storefront payday loans. The Report is a continuation of research on payday loan products that the CFPB began last year when it issued its White Paper of Initial Data Findings on Payday Loans and Deposit Advance Products (the White Paper).2 Findings in this new Report include the following:
- Four out of five payday loans are rolled over or renewed. Even in states that impose cooling-off periods between payday loans as a means of reducing the rates of loan renewals, renewal rates were nearly identical to states without such cooling-off periods.
- Three out of five payday loans are made to borrowers whose fee expenses exceed the amount borrowed.
- One out of five new payday loans end up costing the borrower more than the amount borrowed. For 22 percent of all initial payday loans, borrowers ended up renewing their loans six times or more.
- Four out of five payday borrowers either default or renew a payday loan over the course of a year. Only 15 percent of borrowers repaid all of their payday debts when due without re-borrowing within 14 days.
- Four out of five payday borrowers who renew end up borrowing the same amount or more.
We note that the Report, like the White Paper, does not define what constitutes a “payday loan,” although the CFPB’s Press Release announcing the Report described them as “generally $500 or less.”
During the field hearing on payday loans held in conjunction with the release of the Report, CFPB Director Richard Cordray stated that “the business model of the payday industry depends on people becoming stuck in these loans for the long term, since almost half their business comes from people who are basically paying high-cost rent on the amount of their original loan.”3 He added that the CFPB is in “the late stages of its consideration about how [it] can formulate new rules to bring needed reforms to this market.”
Regulators Issue Proposed Rule on Minimum Requirements for Appraisal Management Companies
On March 24th, the CFBP, along with the Office of the Comptroller of the Currency (OCC), Federal Reserve Board (FRB), Federal Deposit Insurance Corporation (FDIC), Federal Housing Finance Agency (FHFA) and National Credit Union Administration (NCUA), jointly issued a proposed rule that would implement minimum requirements for state registration and supervision of appraisal management companies (AMCs).4 AMCs serve as intermediaries between appraisers and lenders and provide appraisal management services. Section 1473 of the Dodd-Frank Act added section 1124 to Title XI of the Financial Institution Reform, Recovery, and Enforcement Act of 1989 (FIRREA). As required by section 1124 of FIRREA, the minimum requirements in the proposed rule would apply to states that elect to establish agencies with powers to register and supervise AMCs.
Although states would not be compelled to establish an AMC registration and supervision program under the proposed rule, an AMC is barred by section 1124 from providing appraisal management services for federally related transactions in a state that has not established such a regulatory structure.
Under the proposed rule, a participating state would require that an AMC:
- Register in the state and be subject to its supervision;
- Use only state-certified or licensed appraisers for federally related transactions, such as real estate-related financial transactions overseen by a federal financial institution regulatory agency that require appraiser services;
- Require that appraisals comply with the Uniform Standards of Professional Appraisal Practice;
- Ensure selection of a competent and independent appraiser; and
- Establish and comply with processes and controls reasonably designed to ensure that appraisals comply with the appraisal independence standards established under the Truth in Lending Act.
Participating states would have 36 months after the proposed rule’s effective date to implement the minimum requirements. Comments to the proposed rule are due 60 days following publication in the Federal Register.