Report: Analysis of Payday Complaints Reveals Need for Stronger Federal Protections

Maryland PIRG Foundation and U.S. PIRG Education Fund

Baltimore – Consumer complaints about payday loans to the Consumer Financial Protection Bureau (CFPB) show a critical need for strengthening the agency’s proposed rule to rein in payday loans and other high-cost lending, according to a report released today by the Maryland PIRG Foundation.

“Our analysis of written complaints to the CFPB found significant evidence of the major problem with payday loans: borrowers can’t afford these loans and end up trapped in a cycle of debt.  Ninety-one percent (91%) of written complaints were related to unaffordability,” said Maryland PIRG Director Emily Scarr.

“Ninety million Americans in 14 states, including Maryland and DC, are protected from high cost loans through usury caps that effectively ban the practice,” explained Scarr. “But other states need protections too. We want to make sure the proposed federal rule doesn’t undermine existing state law and strengthens protections for consumers in every state.”
Some key findings:

• Ninety-one percent (91%) of all written explanations showed signs of unaffordability, including abusive debt collection practices, bank account closures, long-term cycles of debt, and bank penalties like overdraft fees because of collection attempts.
•  The database reveals problems with a full spectrum of predatory products and services, including storefronts and online lenders, short-term payday, long-term payday installment loans, and auto title loans.  
• More than half (51%) of the payday complaints were submitted about just 15 companies. The remainder of complaints were spread across 626 companies.
• The top five most complained about companies in the payday categories were Enova International (doing business as CashNetUSA and NetCredit), Delbert Services, CNG Financial Corporation (doing business as Check ‘n Go), CashCall, and ACE Cash Express.
• Consumers submitted nearly 10,000 complaints in the payday loan categories of the database in two and a half years. Over 1,600 complaints included written explanations of problem since last March when the CFPB started allowing consumers to share their stories publicly.  
• The two largest types of problems under the payday loan categories were with “communication tactics” and “fees or interest that were not expected.” These two issues made up about 18% of all complaints each.

Payday lenders offer short-term high-cost loans at interest rates averaging 391% APR in the 36 states that allow them and a short period of time to pay them back. Far too many borrowers can’t afford these rates but are given the loans anyway — which sets them up to take out multiple loans after the first one and fall into a debt trap. The lender holds an uncashed check as collateral.  Increasing lenders are also making installment loans and loans using car titles as collateral. According to CFPB research, payday lenders make 75% of their fees from borrowers stuck in more than 10 loans a year. Fourteen states and the District of Columbia effectively ban payday loans by subjecting them to low usury ceilings.

In June, the CFPB proposed a rule that takes an historic step by requiring, for the first time, that payday, auto title, and other high-cost installment lenders determine whether customers can afford to repay loans with enough money left over to cover normal expenses without re-borrowing. However, as currently proposed, payday lenders will be exempt from this ability-to-repay requirement for up to six loans a year per customer.

“To truly protect consumers from the debt trap, it will be important for the CFPB to close exceptions and loopholes like this one in what is otherwise a well-thought-out proposal. We encourage the public to submit comments by October 7th to the CFPB about strengthening the rule before it is finalized and ensuring Maryland’s usury caps are honored,” Scarr said.

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