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This week the CFPB released a report about online payday loans. The report is based on data from an 18-month period in 2011 and 2012 that looked at online payday and certain online installment loans made by 332 lenders. The data in the report stems from the supervisory process prior to 2013, so would only include data from an extremely minor fraction of the number of credit unions across the country. It also does not account for law changes since 2011 including updated NACHA rules concerning presentment, and the elimination of the deposit advance product at most banks.
The report admits, “The analysis presented here uses data on consumer checking accounts obtained from several large depository institutions. The data used in this analysis were previously used for the Bureau’s research into deposit advance products; all of the depositories included in the data collection offered deposit advance products during the sample period.” It is
also important to note that the report showed that 94 percent of initial
payment requests were successful, and of those, only 7 percent were covered
with overdraft funds.
Accordingly, the findings in the report are based on stale data and an incomplete picture of credit unions, which cause us to take their findings as they pertain to them with a grain of salt. However, the report found:
Half of online borrowers are charged an average of $185 in bank penalties: One half of online borrowers have at least one debit attempt that overdrafts or fails. These borrowers incur an average of $185 in bank penalty fees, in addition to any fees the lender might charge for failed debit attempts.
One third of online borrowers hit with a bank penalty wind up losing their account: A bank account may be closed by the depository institution for reasons such as having a negative balance for an extended period of time or racking up too many penalty fees. Over the 18-month period covered by the data, 36 percent of accounts with a failed debit attempt from an online lender ended up being closed by the depository institution. This happened usually within 90 days of the first non-sufficient funds transaction.
Repeated debit attempts typically fail to collect money from the consumer: After a failed debit attempt, three quarters of the time online lenders will make an additional attempt. Seventy percent of second payment requests to the same consumer’s account fail. Seventy-three percent of third payment requests fail. And, each repeated attempt after that is even less likely to succeed.
In his remarks Director Cordray stated that, “Banks or credit unions can close a consumer’s account for various reasons, including having a negative balance for too long. We found that over the study period, 36 percent of accounts with a failed debit attempt from an online lender ended up being closed by the bank or credit union.”
As Director Cordray is well aware credit unions work to help members in financial distress in several ways including education efforts, and often work with individual members to help them when predatory lenders lead them into troubled waters. We are very concerned about his over-generalization in his remarks today linking the microscopic number of credit unions that the CFPB collected supervisory data from prior to 2013 through the supervisory process, with the massive data they have collected from large banks.
Director Cordray has repeatedly acknowledged the credit union difference himself. Just this February, he stated at the 2016 CUNA GAC that “through the shared values of putting people first, the Consumer Bureau and the credit unions are working to do right by people and make further strides for those we serve. Almost always, they note that credit unions made consumer protection “job one” long before our agency came to be, and we at the Consumer Bureau are well aware of it....if you have not gotten my point by now, let me say as bluntly as I can that I believe credit unions and the Consumer Bureau have much ground in common. We both want to see a world where consumers understand their options, weigh their choices carefully, and make sound decisions. A more educated consumer is a central tenet of our mission. We want people to be comfortable and confident when they consider mortgages, credit cards, checking accounts, small-dollar loans, and a host of other financial products and services.”
CUNA has been urging the CFPB to focus rulemaking efforts on less regulated and nonregulated products such as those offered by offshore and online payday lenders, and to exempt credit union consumer friendly small-dollar loans. Some of the issues in the report such as problems predatory lenders cause for consumers remain relevant today despite the incomplete data in the report. It highlights the concerns credit unions have been voicing to the Bureau about when consumers are forced to turn to inferior products such as those offered by less, or nonregulated, online payday lenders and we appreciate the CFPB's efforts in that regard.
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