Uejio, in blog post on small-dollar loan issue, affirms importance of ability to repay in underwriting

The acting director of the Consumer Financial Protection Bureau (CFPB) on Tuesday stated the bureau’s continued belief that ability to repay is an important underwriting standard and held out the possibility of future rulemaking on small-dollar loans to address potential consumer harms.

The bureau published a three-paragraph blog post by its acting director, Dave Uejio, regarding a brief the bureau filed in response to a legal challenge to last year’s revocation of ability-to-repay provisions in the agency’s Payday, Vehicle Title, and Certain High-Cost Installment Loans rule. Last year, under the Trump administration and led by then-Director Kathleen Kraninger, the bureau revoked the mandatory underwriting provisions of its 2017 rule, including a requirement to consider a consumer’s ability to repay and treating its exclusion as an unfair and abusive practice.

Uejio said Tuesday’s filing was unrelated to the merits of the current court challenge but addressed only the court’s jurisdiction to hear the case.

“The CFPB is acutely aware of consumer harms in the small dollar lending market, and is particularly concerned with any lender’s business model that is dependent on consumers’ inability to repay their loans,” Uejio wrote. “Years of research by the CFPB found the vast majority of this industry’s revenue came from consumers who could not afford to repay their loans, with most short-term loans in reborrowing chains of 10 or more. One-in-five payday loans, and one-in-three vehicle title loans, ended in default, even including periods of reborrowing. And one-in-five vehicle title loan borrowers ended up having their car or truck seized by the lender. That is real harm to real people.”

Uejio said Tuesday’s filing by the CFPB should not be taken as a sign that the bureau is satisfied with the status quo in the small-dollar loan market. “To the contrary, the Bureau believes that the harms identified by the 2017 rule still exist, and will use the authority provided by Congress to address these harms, including through vigorous market monitoring, supervision, enforcement, and, if appropriate, rulemaking,” he wrote.

CFPB blog post: Our commitment to protecting vulnerable borrowers

Reg lookup: Payday, Vehicle Title, and Certain High-Cost Installment Loans (withdrawal of ‘ability to pay,’ mandatory underwriting)