U.S. payday lenders have seen the Consumer Financial Protection Bureau’s latest report on the state of their industry, and they are not amused.
The Community Financial Services Association of America – a trade group that represents payday lenders – fired back at the CFPB today, issuing an open letter to Director Richard Cordray deriding his agency’s report as “narrow” and “incomplete.”
“It appears as though the Bureau bases its findings on narrow examinations of a small segment of the industry and conjectures about credit alternatives for consumers without consideration of the impact varying state laws and regulations would have on the data,” Dennis Shaul, CEO of the CFSA wrote in his letter. “Moreover, the Bureau’s preliminary report is not consistent with other published and publicly available research and data on payday lending.”
The report in question is “Payday Loans and Deposit Advance Products,” a paper released April 25 that came to some unflattering but commonly held conclusions about the payday lending industry.
“It appears that these products may work for some consumers for whom an expense needs to be deferred for a short period of time,” the CFPB wrote in their conclusion.
“However, these products may become harmful for consumers when they are used to make up for chronic cash flow shortages.”
PYMNTS.com broke down the CFPB report here, and some of the numbers were staggering. For example, the average payday loan borrower spends 196 days of the year in debt, and pays $574 in fees alone on a yearly basis.
But the CFSA counters that the CFPB report did not take into account “the quality of the lender,” and asserts that “vital real world context is entirely absent from the report.”
“An online search for “payday loan” will turn up hundreds of thousands of results of companies that operate outside that state, as well as U.S. jurisdiction, and they charge much higher rates and expose customers to the risk of fraud or identity theft,” the CFSA argues.
So what do you think? Does the CFSA have a legitimate gripe with the CFPB? Does their argument sway your thoughts on payday lending? Let us know in the comments below.