CFPB Ignores Research In Small Dollar Lending Rule

The Consumer Financial Protection Bureau’s (CFPB) proposed regulations on short-term lending, which were formulated without proper research or input from consumers, will eliminate access to credit for millions of Americans and severely harm local and state economies.


Amy Cantu
CFSA | Director of Communications

While the Bureau presumes consumers are harmed by payday loans, and specifically by renewals, it hasn’t conducted the necessary research to determine consumer outcomes from sustained use of payday loans. In fact, several studies demonstrate that payday re-borrowings are generally welfare-enhancing for consumers.

What’s more, the CFPB has consciously ignored independent studies and research that run counter to its preconceived notions, including a study that shows borrowers with longer refinancing periods have better financial outcomes.

Here’s what people are saying about the Bureau’s lack of research guiding its rule-making as well as an overview of independent research on payday loans.

The CFPB Lacks Rigorous Research and Empirical Data

•    “The preponderance of evidence suggests that some consumers will likely face adverse effects if payday lending is restricted. Therefore, policymakers must carefully weigh the costs of payday lending restrictions against its benefits.” – Kelly D. Edmiston, Federal Reserve Bank of Kansas City

•    “The CFPB must study ‘the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services resulting from [a payday-rollover-limiting] rule.’ To date, no academic research (or disclosed research by the CFPB itself) supplies this analysis.” – Jennifer Lewis Priestley, Kennesaw State University

•    “With the current state of evidence, research and analysis, there are no certain or confident grounds to conclude that payday loans diminish or increase consumer or social welfare. Additional research should be conducted to provide more definitive answers, hopefully before regulators bar or sharply limit access to short-term credit for working people unable to qualify for conventional credit from larger financial institutions.” – Robert Shapiro, Georgetown University

•    “We find that there is no empirical evidence that payday lending leads to more bankruptcy filings. This would suggest that there is no statistical evidence to support the ‘cycle of debt’ argument often used in passing legislation against payday lending.” – Petru S. Stoianovici & Michael T. Maloney, Clemson University

•    “Despite a dozen studies, the question of how payday credit affects its users remains unanswered. Economists do not even agree on the sign of the effect, much less the transmission.” – Donald P. Morgan (Federal Reserve Bank of New York), Michael R. Strain (Cornell University), Ihab Seblani (American International Group)

•    “The key question here is whether the borrowers prone to rollovers are systematically overoptimistic about how quickly they will repay their loan. After reviewing the limited and mixed evidence on that point, we conclude that more research on the causes and consequences of rollovers should come before any wholesale reforms of payday credit.” – Robert DeYoung (University of Kansas), Ronald J. Mann (Columbia University), Donald P. Morgan (Federal Reserve Bank of New York), Michael Strain (American Enterprise Institute)

The CFPB Ignored Research That Contradicts Its Preconceived Notions

•    “We show that many elements of the payday lending critique—their ‘unconscionable’ and ‘spiraling’ fees and their ‘targeting’ of minorities—don’t hold up under scrutiny and the weight of evidence… Given the mixed evidence on the ‘big question’ and the smaller, but crucial question of whether rollovers reflect overoptimism, more research should precede wholesale reforms.” – Robert DeYoung (University of Kansas), Ronald J. Mann (Columbia University), Donald P. Morgan (Federal Reserve Bank of New York), Michael Strain (American Enterprise Institute)

•    “Much of the current and proposed restrictions on payday lending rest on a characterization of widespread abuses and a common pattern in which payday loans compound the financial distress of borrowers. A careful review of the existing research does not support this characterization.” – Robert Shapiro, Georgetown University

•    “It is an article of faith among anti-payday advocates that sustained use is harmful to consumers. However, to date, the discourse on sustained use has been premised nearly exclusively on a presumption of harm, due to the absence of an empirical basis for that presumption or of any non-anecdotal evidence of actual detriment.” – Jennifer Lewis Priestly, Kennesaw State University

•    “In this study, we directly test the issue at the heart of the policy debate: does the high interest rate correlate with repeat borrowing? … We find that the interest-free loan has no effect on the loan repayment, calling into question the argument that 3 high interest rates drive high reborrowing rates.” – Marc Anthony Fusaro (Arkansas Tech University) & Patricia J. Cirillo (Cypress Research Group)

The CFPB Ignored The Most Important Voices – The Customers

•    “First, the CFPB seems to have failed to listen to consumers — or a diverse enough sample of consumers — to include those who have been helped by these products and used them responsibly.” – PYMNTS

•     “Over nine in ten borrowers agree that it should be their choice whether or not to use payday lending, not the government’s choice, and that they should have the ability to make their own financial decisions without government interference.” – Harris Interactive Poll

•    “Borrowers do not believe more restrictions should be placed on payday loans or that borrowers would be better off if payday loans were harder to get.” – Global Strategy Group & Tarrance Group Poll

•    “Most say limiting exposure to illegal operators or promoting competition should be the focus – less than a third of both audiences say the goal of payday regulation should be to limit borrowing.” – Global Strategy Group & Tarrance Group Poll

•    “Both borrowers and voters are more likely to say current payday loan requirements are enough than say there is a need for stronger requirements.” – Global Strategy Group & Tarrance Group Poll


Amy Cantu
CFSA | Director of Communications

703.842.2092 (o) (e)

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