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Do Title Loans Violate Dodd-Frank?

The Consumer Financial Protection Bureau is giving its clearest signal yet that a 2020 regulation easing standards for payday lenders is in jeopardy, despite efforts already in motion by the industry to implement the Trump administration rule.

Acting CFPB Director Dave Uejio — appointed by the Biden administration to lead the agency following Kathy Kraninger’s resignation — offered his most forceful comments to date on the 2020 rule, which eliminated underwriting requirements for small-dollar lenders.

He suggested that the CFPB plans to crack down on payday and auto title lenders by using its enforcement authority under the Dodd-Frank Act to punish companies that violate the federal prohibition on “unfair, deceptive or abusive acts or practices.”

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.

 

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