Online Lenders Alliance Issues New Report Evaluating Effects of CFPB’s Payment Provisions on Small Dollar Credit Market

-Survey of OLA Member Companies Shows Rule Has Led To Reduced Credit Access, Higher Delinquency Rates, Increased Defaults, More Loans Sent To Collections, and Increased Borrower Frustration-

ARLINGTON, Va. —The Online Lenders Alliance today issued a new report, “Evaluating the Effects of the CFPB’s Payment Provisions on the Small-Dollar Credit Market,” which presents the findings of a survey of OLA member companies on the Consumer Financial Protection Bureau’s 2017 Payday, Vehicle, Title and Certain High-Cost Installment LoansRule.

While the Rule’s ability-to-repay requirements were rescinded in 2020 and the Bureau has announced that it intends to propose rulemaking to reconsider the remaining portions of the rule, OLA’s survey sought to understand the real-world impact of the Rule’s payment provisions on the small dollar marketplace. Based on the information provided by OLA members, the report’s key findings include:

• The Rule has created a burdensome and complicated regulatory regime.
• Lenders have adjusted their underwriting and loan structures to account for the risk and negative impacts brought by the Rule—rather than a borrower’s actual ability to repay.
• Lenders have eliminated payment options or shortened the duration of loan offerings to decrease the number of payment attempts and reduce the likelihood of having an unsuccessful presentment—increasing average minimum payment amounts, limiting consumers’ options and adding stress to borrowers who prefer lower payment amounts.
• Consumers have experienced adverse consequences, including higher delinquency rates, increased defaults, more loans going into collections, and reduced access to credit.
• The Rule’s payment notification requirements have increased customer confusion and frustration while proving to be overly burdensome. This limits consumer-initiated actions (such as making extra or unscheduled payments), which further hinders successful loan repayments.
• While the Rule itself is leading to negative outcomes, the conditions and data used to justify it have changed dramatically since 2017.
• While the CFPB originally proposed the Small Dollar Rule’s payment provisions to protect consumers from incurring multiple fees (mainly overdraft and repeated NSF fees in connection with each failed payment), the Bureau itself found that NSF and overdraft fees have declined substantially since the Rule was released. Data provided to OLA shows that the majority of small dollar borrowers have accounts at banks that no longer charge NSF fees.
• The Bureau used consumer complaint data to justify the original Rule, specifically calling out complaints related to payday lending. However, when comparing the complaint volumes cited in the Rule against the most recent data, the number of these complaints has decreased substantially.
• To justify the Rule, the Bureau gave no credence to the impact of industry standards—ignoring the sharp reductions in failed payments brought by policies put in place by the National Automated Clearinghouse Association (NACHA) and instead relying on stale data from 2011 and 2012.

“The Small Dollar Lending Rule was grounded in dubious assumptions from cherry-picked data from 2011 and 2012,” said Online Lenders Alliance CEO Andrew Duke. “Years later, we can now see the impact of this flawed approach with the Rule driving higher delinquencies, more defaults, and less access to credit. The rule is negatively impacting the very consumers it was purported to help. It is time for the Bureau to do away with it once and for all.”

To read the full report, click here.

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