Prepared Remarks of CFPB Director Richard Cordray at the Consumer Advisory Board Meeting
I would like to thank the community here in Omaha for hosting us so warmly, especially the “hometown” member of our Consumer Advisory Board, Laura Castro de Cortés. For myself, this is my first visit to the Cornhusker state, though I do recall a conversation with former Senator Johanns a few years ago where I welcomed Nebraska to the Big Ten, having grown up myself in Columbus, Ohio.
When we travel outside Washington, D.C., I always appreciate the opportunity to meet with members of the community to learn about the concerns of consumers and providers in different parts of the country. And we always look forward to our dialogue with our Consumer Advisory Board members, as their perspectives offer us great insight and expertise which help us improve how consumer financial markets work for the American consumer. Our Advisory Board is a group of diverse representatives who are charged with helping us to identify, among other things, the key issues cropping up all over the country, especially in places where our daily work might not otherwise take us. They present us with diverse viewpoints and thereby sharpen our approach to consumer financial protection.
We are especially pleased today to have the opportunity to hear from our Advisory Board members on the topic of small-dollar lending, which we understand to encompass payday, auto title, and other installment lending. This important subject has been a topic of continued interest to our Advisory Board members, and we are glad to have their insight and expertise to help us build on the many stakeholder perspectives we are receiving right now.
Earlier this year we took an important step toward addressing some of the problems that we perceive in the short-term and longer-term small-dollar credit markets. In March of this year, we released an outline of proposals that we are considering in connection with regulating payday loans, auto-title loans, and certain longer-term installment loans. The framework would require lenders to take steps to make sure borrowers actually have the ability to repay their loans without defaulting or repeatedly rolling them over into persistent obligations with repeated fees that constitute so-called “debt traps.” If adopted, these measures would put in place strong federal rules for these products that would be intended to coexist with stricter state, local, and tribal consumer laws and regulations, which range from prohibiting the sale of such products to regulating the permissible cost of such credit.
We initiated this discussion as part of a process our statutes require us to follow as the first step toward adopting regulations, starting with feedback we received from small businesses and all other affected stakeholders, including consumers, providers, and state and tribal governments. And we have received exactly the kind of thoughtful feedback that we expected over the last few months. Today, we will discuss some of the themes that have emerged over this period while obtaining further input from our Consumer Advisory Board. This formal and deliberative process will lead to fundamental decisions about the proper direction of reform in this important marketplace for consumers.
The proposals we released earlier this year were developed after much study and analysis conducted over the past three years. We have engaged in intensive analysis of the short-term and longer-term credit markets for personal loans and have produced the most comprehensive studies to date on the short-term, small-dollar loan market. We have also focused carefully on how consumers are affected by the kinds of credit products that have evolved to meet the demand. These studies and inquiries confirm that payday loans, while designed for short-term use, lead many consumers into long-term, expensive burdens. For too many consumers, as we saw from our study and analysis of many millions of loans, payday loans and other small-dollar credit products are debt traps. The stress of having to return every two weeks to re-borrow the same dollars after paying repeated exorbitant fees and interest charges can become an oppressive constraint on the consumer’s financial freedom.
Some have claimed that low numbers of complaints about payday and other small-dollar credit products demonstrate that consumers do not have concerns about these products. This is inaccurate and misleading. In our Consumer Response Annual Report for 2014, we noted how frequently consumers submitted debt collection complaints to the Bureau that were related to payday loans. In addition to the 5,600 payday loan complaints handled during 2014, the CFPB also handled 12,400 debt collection complaints that stemmed from payday loans, which account for nearly 14 percent of all debt collection complaints that we handled in 2014. Through the first five months of this year, as well, the Bureau has received approximately 2,400 payday loan complaints and 3,900 payday loan-related debt collection complaints. So in total the Bureau has received over 24,000 consumer complaints related to payday loans in less than a year and half. Clearly, consumers continue to encounter problems and express concerns with these products.
So as we continue to engage in further study and analysis and to absorb and digest extensive feedback, we remain determined to take the important step of adopting new regulations to address consumer harm in both the short-term and longer-term small-dollar credit markets. We believe the measures we are considering could dramatically improve outcomes in these markets, while preserving access to responsible credit for consumers who clearly have a demand for it. Consumers would still be able to get the credit they need, but they would do so within a framework of stronger consumer protections under federal and state law.
We have approached today’s public conversation as an occasion to reiterate how important it is to ensure that consumers have access to safe products and that their interests are protected when they use these products. We will first hear from my colleague, Kelly Cochran, about the feedback we have received to date on our proposed framework for regulating small-dollar loans. Then we will hear a discussion that includes members of our Advisory Board on trends they are seeing out in the field. Among other interesting topics, we will discuss implications for underwriting small-dollar credit products and what information is available about take-up rates for alternative lending programs.
What we will hear today from the interchange between our Advisory Board members and our colleagues, as well as from the public testimony, will help us improve our work. So we thank you all for being here today and we look forward to a robust discussion.
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.