CFPB Proposal Will Eliminate Access to Credit for Millions of Consumers
Report Finds Rules Would Reduce Loan Revenues of Small Lenders by 82%, Force Thousands of Small Businesses to Shut Down
ALEXANDRIA, Va., June 18, 2015 /PRNewswire-USNewswire/ -- The Community Financial Services Association of America (CFSA) today announced a new report from Charles River Associates (CRA) that found the Consumer Financial Protection Bureau's (CFPB) proposal for short-term lending would cut small payday lenders' revenues by 82 percent on average, potentially forcing these lenders to close many existing stores. These closings would effectively eliminate access to credit for millions of Americans who need it most.
The report found that:
- Five out of the six lenders in the study would experience overall losses;
- Stores in rural areas are likely most adversely affected by the CFPB's proposal; and
- For the remaining profitable stores (16 percent), net profits would decrease by 68 percent on average.
CRA, a globally recognized economics consulting firm, analyzed two years of financial data from more than 230 payday lending stores owned by "small businesses" under the Small Business Administration's guidelines.
"This report lays clear the true intent of the CFPB rules – to eliminate access to short-term credit, which would be devastating to the millions of borrowers who rely on payday loans," said Dennis Shaul, CEO of CFSA. "This research further underscores the CFPB's complete lack of understanding of how its proposed rules would impact consumers and the businesses that serve them."
The report follows another study that raises questions about the CFPB's assertion that so-called "forced reborrowing" of payday loans is harmful to consumers. A recent study by Prof. Jennifer L. Priestley of Kennesaw State University found that:
- Borrowers who engaged in protracted refinancing activity had better financial outcomes than consumers whose borrowing was limited to shorter periods; and
- State-law limitations on rollovers appeared to contribute adversely to changes in credit scores for borrowers.
Additionally, Clarity Services, Inc. recently conducted an analysis similar to CRA's report and concluded the "payday storefront business would lose well more than 70 [percent] of its volume and, we think, likely would cease to exist under the Bureau's proposed rule."
Taken together, these findings suggest that consumers would be worse off under the CFPB's proposals, which would severely limit their borrowing options and reduce their access to much-needed responsible credit.
About the Community Financial Services Association of America
The Community Financial Services Association of America is the only national organization dedicated solely to promoting responsible regulation of the payday loan industry and consumer protections through CFSA's Best Practices. As such, we are committed to working with policymakers, consumer advocates, and CFSA member companies to ensure that the payday loan is a safe and viable credit option for consumers.
SOURCE Community Financial Services Association of America
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