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Don’t Be Fooled … All Lenders Are Not the Same

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The Center for Responsible Lending (CRL) is out with a new report that is a lot like its other reports on consumer credit and predatory lenders. But this time, there’s a twist.

Rather than focusing on the unhelpful fallout of state-based interest-rate caps on small dollar consumer loans or the rise of predatory online lenders, CRL lumps Traditional Installment Lenders (TILs) and other non-payday and non-car-title lenders into a category identified as “high-cost installment lenders.”

By deceptively lumping all forms of installment lenders under one umbrella, CRL creates confusion both for policymakers and consumers. CRL claims the forms of installment loans they highlight “share similar characteristics with other payday and car-title loans: a lack of underwriting; access to a borrower’s bank account or car as security; structures that make it difficult for borrowers to make progress repaying; excessive rates and fees; and a tendency toward loan-flipping or stressed re-borrowing.”

For TILs, this simply is not the case. The vast majority of AFSA member companies that offer plain vanilla, small-dollar TILs bear no resemblance to the lenders CRL describes. Our members underwrite and evaluate customers’ ability to pay; they do not require access to customers’ bank accounts; terms are clear, with standard monthly payments, no hidden fees, no balloon payments or penalties for early repayment, and report to credit bureaus.

To be sure, the consumer lending space is becoming more diverse, particularly with the growth in online lenders. But rather than differentiating the true predatory lenders and educating consumers about the differences among loan products, CRL irresponsibly puts everyone in the same pool.

CRL claims that “little research exists regarding the impact of high-cost installment loans on consumers’ financial health.” But there is plenty of research on consumer credit, the effects of predatory lending on consumers’ financial standing, and the benefits of responsible small dollar lending for consumers, particularly those with subprime credit scores. There is also plenty of research on CRL’s fallback policy of imposing interest rate caps to protect consumers. There is plenty of research that such policies are unworkable for responsible, small dollar lending, and hinder consumer access to credit – particularly for those with nonprime credit scores (credit score below 670) or little or no credit history:

The National Commission on Consumer Finance study confirmed it. The Consumer Financial Protection Bureau Task Force on Federal Consumer Financial Law report confirmed it.

A Federal Reserve study on interest rate caps confirmed that reputable lenders cannot afford to offer a small dollar loan capped at 36% interest without taking a loss, and that the costs for such loans require a minimum loan amount of about $2500, when most consumers are seeking amounts considerably less than that.

The Financial Health Network (FHN) found that rate caps reduce consumers’ credit options. FHN estimated that more than a quarter of U.S. consumers do not have “prime” or excellent credit, and when the reputable lenders stop offering consumer credit products to customers with less than perfect credit those consumers are left with few options beyond the predatory lenders policymakers claim to want to take out of the market.

Finally, earlier this year, the Congressional Black Caucus Foundation annual report highlighted the importance a financial marketplace that allows Americans to access small-dollar credit. Most notably, the report stated that proposals to protect consumers from predatory practices through a 36% rate cap would cause more harm than help by limiting consumer access to credit.”

AFSA and its members have a long history of advocating responsible policies that protect consumers and their access to credit when they need it. Those two goals, which we know CRL shares, are not and should not be mutually exclusive. But releasing a report that appears intended to confuse policymakers, while pushing old, failed policy proposals is not the way to achieve those worthy goals on behalf of consumers.

Don’t Be Fooled … All Lenders Are Not the Same
Sep 23, 2022

The Center for Responsible Lending (CRL) is out with a new report that is a lot like its other reports on consumer credit and predatory lenders. But this time, there’s a twist.

Rather than focusing on the unhelpful fallout of state-based interest-rate… Read the rest

Senate Hearing Highlights Rate Cap Concerns
Sep 23, 2022

This week, CEOs from some of the largest U.S. banks provided testimony before the House Financial Services and Senate Banking Committees regarding several issues, including a proposal from Senator Jack Reed (D-RI) to expand the Military… Read the rest

How to Delight Your Dealer and Fund Indirect Loans Faster
Sep 20, 2022

Join us on October 6, 2022 at 1:00 p.m. ET for How to Delight Your Dealer and Fund Indirect Loans Faster, presented by Lightico.

Auto financial services companies are eager to fund deals faster and increase applications. Increasingly, technological… Read the rest

Bipartisan Agreement: ILCs Crucial
Sep 15, 2022

A bipartisan group of Senators sent a letter today expressing their support for industrial loan company (ILC) charters to Martin J. Gruenberg, acting chair of the Federal Deposit Insurance Corporation (FDIC). Led by Senators Mitt Romney… Read the rest

AFSA Pushes Back on FTC
Sep 14, 2022

On September 12 AFSA submitted a comment letter on the Federal Trade Commission (FTC) proposed Motor Vehicle Dealers Trade Regulation Rule. The Consumer Bankers Association (CBA) also joined the letter.

The Rule designates a variety of … Read the rest

2022 Virtual Fixed Income Investors Summit
Sep 12, 2022

The AFSA Fixed Income Investor Summit returns virtually for 2022.

Join finance industry executives, debt issuers, and investors virtually on Wednesday, December 14 for a fast-paced, single-day conference featuring industry updates,… Read the rest

11th Circuit Agrees with AFSA on Hunstein
Sep 08, 2022

By a vote of 8 to 4, judges in the 11th Circuit Court of Appeals held that the plaintiff in Hunstein v. Preferred Collection and Management Servs., Inc., failed to allege a concrete harm that would provide Article III standing to pursue claims… Read the rest

LISTEN | End-of-Summer Federal Update
Sep 08, 2022

Join the AFSA Extra Credit Podcast and the Federal Government Affairs team in a policy discussion and a look at the mid-term elections.

Michael Grimes walks through the legislation Congress must pass before heading out for the October recess,… Read the rest

Arguments Scheduled in Davidson
Sep 07, 2022

The U.S. Circuit Court of Appeals for the Fourth Circuit has scheduled oral arguments in Davidson v. UACC for October 26 at 9:30 am ET. The case addresses whether financing Guaranteed Asset Protection (GAP) brought a vehicle contract under… Read the rest

CFPB Director Rohit Chopra to Address AFSA Annual Meeting
Sep 06, 2022

AFSA is pleased to announce that Rohit Chopra, Director of the Consumer Financial Protection Bureau (CFPB) will address the 2022 AFSA Annual Meeting held at The Breakers in Palm Beach, FL from October 23-26.

Director Chopra was confirmed… Read the rest

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