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CFPB Small-Dollar Lending Rule Will Harm Consumers
On October 5, the Consumer Financial Protection Bureau (CFPB) finalized a rule that upends the small-dollar lending industry. The regulation encompasses payday, installment, and automobile title loans, all of which primarily serve consumers without access to traditional financing options. The CFPB may believe that restricting small-dollar lending best helps consumers, but the final rule will ultimately make credit access more expensive and less available to the low-income borrowers that use these loans.
Kyle Burgess, Consumers’ Research’s Executive Director, released the following statement on the new rule:
“The CFPB’s desire to help borrowers avoid debt traps isn’t without merit, but the Bureau’s small-dollar lending rule sabotages this aim. Once again, the CFPB has harmed the very consumers it is charged with protecting. The small-dollar rule will decrease access to credit for America’s most financially vulnerable populations. Roughly 72 million small-dollar loans have been made to consumers over the last six years, yet the CFPB has chosen to base its rule on unverified complaints comprising less than one-hundredth of a percent of loans granted. It now falls to Congress to protect the consumers that rely on these products and repeal the CFPB’s misguided rule.”
In its final rule, the CFPB admits the impact the regulation will have on the industry and on consumers. They estimate a decrease in payday loan volumes of 62 to 68 percent with a corresponding loss of revenue. This will undeniably restrict consumers’ access to credit – the CFPB stated that the decrease in storefronts “may limit some physical access to credit for consumers, and this limit may be felt more acutely by consumers in rural areas.”
Washington, D.C., October 5 – Founded in 1929, Consumers’ Research is the nation’s oldest consumer organization that seeks to increase the knowledge and understanding of issues, policies, products, and services of concern to consumers. For more information, visit: http://consumersresearch.org/ and follow Consumers’ Research on Twitter at @ConsumersFirst.