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Testimony: The CFPB's Proposed Repeal of the Payday Lending Ru​le

May 16, 2019
By Thomas Pahl

Hearing of the House Committee on Oversight and Reform, Subcommittee on Economic and Consumer Policy

Thomas Pahl, Policy Associate Director, Research, Markets, and Regulations Division, Bureau of Consumer Financial Protection, testified that consumers sometimes face a financial shortfall due to an emergency expense or a pressing bill and a lack of liquid savings. A large proportion of Americans living paycheck to paycheck may find themselves in these circumstances. CFPB research has found that 29 percent of consumers have less than $250 in liquid savings. A separate Federal Reserve Board study found that over 40 percent of consumers would seek credit if faced with a $400 emergency expense. Consumers facing these financial shortfalls and who lack access to other sources of credit are the primary potential customers for small dollar lenders.

The Bureau found that the Mandatory Underwriting Provisions of the Payday Lending Rule would result in a decrease of between 51 and 52 percent in the number of payday loans consumers take out and a reduction in revenue of between 67 to 68 percent and found that there would be a decrease of between 89 and 93 percent in the number of short-term vehicle title loans consumers take out and approximately the same in revenue. The 2017 Final Rule further found that those consequences would lead to contraction in the number of payday lenders and vehicle title lenders of similar magnitude at  least for stores that do not have substantial revenue from other lines of business.

Since issuing the 201 7 Final Rule, the Bureau has come to have serious doubts as to whether the appropriate legal standards were applied and whether the evidence was sufficiently robust and reliable to support the Bureau's determination that small dollar lenders engage in an unfair or  abusive act or practice if they make loans without making a reasonable determination that 
consumers can repay them.

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Regulation Economy
Regulation: Cost