Senator Elizabeth Warren – Regulation of Payday Loans

April 7, 2016. UNITED STATES COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS will meet OPEN SESSION to conduct a hearing entitled “The Consumer Financial Protection Bureau’s Semi-Annual Report to Congress.” The witness will be: The Honorable Richard Cordray, Director, Consumer Financial Protection Bureau.

First hearing ah as you know the payday lending industry is now doing seven billion dollars a year in loans there are now more payday loans storefronts in america than there are starbucks plus all of the online payday lenders often charging 200 300 even four hundred percent interest now when emergencies arise people need access to credit but payday lenders that

Build business models around trapping people in a never-ending cycle of debt are throwing bricks to a drowning man director cordray i know the cfpb is close to issuing its payday lending rules so i want to ask you three questions about this process first can you describe the research and data gathering that the cfpb has done to try to figure out where to draw the

Line between preserving access to credit and trapping people in never-ending cycles of payday loans yes so here as with arbitration we’ve engaged in the most comprehensive research ever done by anyone on this marketplace we’ve done two significant white papers analyzed millions millions of payday loans across all types of lenders and what we found is that the model

Here is two in particular in unpaid a balloon loans is to get someone into a paid a balloon loan and if they had to borrow three hundred dollars today the notion they’re going to be able to repay 345 dollars two weeks from now is not very likely although some do and great for them and maybe it works for them but many others end up rolling it over and rolling it over

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Because they can pay the $45 at the end of the two weeks but they can’t pay the 345 and they can never pay the 345 and by the way you described these products as 200 300 400 percent interest rates in missouri we have seen products loan products that go as high as one thousand nine hundred and fifty percent rate of interest you can actually land where the fees amount

To seventy-five percent of the face value of the loan that’s a one thousand dollar loan that becomes 18,000 or 20,000 dollars by the end of the first year and goes on from there and this is from a class decision by a missouri appellate court in which they read out of the record some of the actual instances of people who borrowed a hundred dollars and ended up paying

Back thousands of dollars and still owing thousands of dollars that is not a recipe for financial success for people yeah thank you very much um let me ask a second question around this states currently have different standards for regulating small-dollar lending but the cfpb would create a single national floor so states could still issues stronger payday lending

Restrictions if they wanted to but they couldn’t drop below the cfpb standard can you explain the benefits of having a single baseline rather than just a lot of different local rules yeah sure in fact this the same approach we took in our mortgage servicing rules where we established a baseline of requirements on mortgage servicers not on states by the way but on

Mortgage servicers and said that states were free to add further requirements on mortgage services if they deemed it appropriate to do so and by the way this is a approach that’s been common in american law and our system of federalism it’s true of securities law it’s true of environmental law it’s to have antitrust law it’s true in in many different areas of law

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Where the federal government may intervene to a certain degree and set in certain requirements on individual citizens and companies the states are free to have their own regimes and they do and they set requirements on individuals and companies and the two systems coexist this is there’s nothing unusual about this it’s it’s been described as cooperative federalism

And it and it works reasonably well it can be a little complicated at times i suppose but a federal system is is bound to be a little complicated at times alright good thank you and let me ask my third question here the cfpb has been working in this area now for three years you’ve been gathering data as you’ve described you’ve drafted different approaches talked

About it with industry now certain members of congress have proposed imposing an additional two-year delay on your efforts can you give us some idea about the impact of that delay and estimate how many more fan these will get stuck in a debt trap during that time so i feel keenly already the amount of time that it takes to embark on a federal rulemaking in an area

That is a baseline of no research previously it’s taken as several years to do the kind of detailed research that you asked me about and i described it is taking as time to go through the processes in our statute including a small business review panel and report and so forth and we are now on the verge of actually proposing the rule and it will take time to work

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Through it and finalize it i feel keenly that that every day that passes if you think a rule is going to improve life and it may or may not but if you think it is going to improve life you’d like that to happen as soon as possible and delay for delays sake simply means that if their arms here and our research has identified harms to consumers then they will go on

And that anybody should feel like that’s no big deal means that they they simply disagree with with the findings around the country of what this does for people and for families and and i can’t i can’t agree with that right we’re talking about perpetuating a lot of misery here yes that’s right i want to thank you i want to thank all of the people who work at the

Cfpb for their terrific efforts in this area you know i know that the payday lending industry hires a lot of lobbyists and they make a lot of political contributions to try to protect their multi-billion dollar business i also know that families that get cheated by payday lenders don’t have lobbyists and they don’t have political action committees which is why the

Independence of the cfpb is so important you know i hope you will move quickly to complete your rulemaking on payday loans you are the best hope for millions of american families to avoid these debt traps in the future thank you for your work

Transcribed from video
Senator Elizabeth Warren – Regulation of Payday Loans By Marie Howell