Regulated Payday Loans Represent a Fraction of One Percent of Complaints to CFPB

 

Regulated Payday Loans Represent a Fraction of One Percent of Complaints to CFPB

Payday loans account for only one percent of complaints to the CFPB, and only one-tenth of those complaints were about storefront lenders, according to recently released data from the Consumer Financial Protection Bureau’s consumer complaint database (The Hidden Messages in the CFPB's Complaint Database, American Banker, 7/29/2014).

This new data reveals that, despite being repeatedly targeted by consumer activists, storefront payday lending is a highly valued service already well-regulated at the state and national level. In fact, an overwhelming number of these complaints are related to scams not perpetrated by regulated lenders (Consumer Response: A Snapshot of Complaints Received, Consumer Financial Protection Bureau, July 2014). The actual data hammers home the stark difference between regulated storefront payday lenders and unregulated lenders, despite the Bureau’s and other government officials’ insistence on painting the industry with a broad brush.

CFPB Walking Back on Importance of Complaints, Despite Previous Remarks?

It appears that in just the past two weeks CFPB officials have begun to walk back the importance of the complaint database. In American Banker, CFPB spokeswoman Moira Vahey remarked, “Consumer complaints are just one way we learn about the issues consumers face in the financial marketplace” (The Hidden Messages in the CFPB's Complaint Database, American Banker, 7/29/2014).

However, key proponents of the CFPB, most notably agency architect Sen. Elizabeth Warren (D-MA) and Director Richard Cordray, have argued differently. In her memoir, Sen. Warren emphasizes the vital role of the consumer complaint database to the Bureau’s mission, contending that it enables the CFPB to “focus our resources wherever their complaints [lead] us.” And, at this month’s field hearing on consumer complaints, Director Cordray reiterated that sentiment, maintaining that consumer complaints are central to how the CFPB directs its supervision.

“But more importantly, complaints make all the difference by informing our work and helping us identify and prioritize problems. We know that if we hear about the same problem from 50 consumers, it likely looms larger than if we hear about it only from one or two” (Prepared Remarks of CFPB Director Richard Cordray at the Consumer Response Field Hearing, 7/16/2014).

As Donald Lampe, a partner in the financial services group at Morrison and Foerster, remarked in American Banker, “The people who complain the loudest about payday loans are regulators, politicians and advocates that are dead set against them.”

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The Hidden Messages in the CFPB's Complaint Database

by Rachel Witkowski

July 29, 2014

American Banker

WASHINGTON — An in-depth look by the Consumer Financial Protection Bureau into its consumer complaint database has yielded some surprising insights, including a relative lack of grievances against payday lenders and that most consumers appear satisfied by companies' response.

The agency issued a study of complaints last week that found mortgages, debt collection and credit cards accounted for 68% of the 395,000 complaints the CFPB received prior to June 30.

But it was the relative low number of complaints against payday lenders — one of the most controversial areas in finance — that caught some off guard. They made up just 1% of overall complaints.

"The 1% figure for payday is very low. … I think the CFPB is probably surprised, or at least disappointed," said Alan Kaplinsky, who heads the consumer financial services group at Ballard Spahr. "I think the CFPB would like to see a much higher percentage to support their upcoming payday loan rulemaking."

To be sure, the CFPB only recently begun accepting complaints on payday lending in November 2013, whereas it has taken complaints on mortgages and credit cards since 2011.

But most observers said they expected the number of complaints to be higher, given policymakers continued focus on the issue. Critics argue that payday lending charges excessive fees on consumers and can capture them in so-called debt traps, in which a customer must repeatedly take out loans without being able to pay them off.

The CFPB is due this year to unveil new regulations for the payday lending industry. The agency has partly relied on consumer complaints about a product in crafting new regulations on it, but with just 3,400 complaints on payday lending in the database so far, observers question how the agency can draw many insights.

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