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Compliance Corner: CFPB Releases New Study on Payday Loans

On March 25, the Consumer Financial Protection Bureau (CFPB) released results of additional research it has conducted on payday loans. In this study conducted by the Bureau over a 12-month period, results indicate that more than one in five initial consumer payday loans that are made result in loan sequences involving seven or more loans. With a typical fee of 15 percent for each payday loan, consumers who renew loans seven times or more will have paid more in fees alone than the amount they borrowed originally. The study also found that four out of five payday loans are rolled over or renewed within two weeks and that roughly half of all loans are made to borrowers in loan sequences lasting 10 or more loans in a row.

In remarks at a field hearing in Nashville, TN, where the study results were released, CFPB Director Richard Cordray said the CFPB is concerned that all too often payday loans lead to a perpetuating sequence where the consumer ends up being hurt rather than helped by this extremely high-cost loan product.

According to Cordray, the CFPB examinations also show that some lenders use the electronic payment system in ways that pose risks to consumers, and a troubling number of companies engage in collection activities that may be unfair or deceptive in one or more ways – including using false threats, disclosing debts to third parties, making repeated phone calls and continuing to call borrowers after being requested to stop.

Bureau nearing decision on payday loan rules
While the CFPB has not indicated a timeframe for a final ruling, Director Cordray indicated that the Bureau is in the late stages of considerations about how to formulate new rules to bring needed reforms to the payday loan market.

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