Analysis of Predatory Lending Complaints Reveals Need for Stronger Federal Protections

Arizona PIRG Education Fund

Consumer complaints about predatory lending 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 by the Arizona PIRG Education Fund.

“Our analysis of written complaints to the CFPB found significant evidence of the major problem with predatory loans: borrowers can’t afford predatory loans and end up trapped in a cycle of debt,” said Diane E. Brown, Executive Director of the Arizona PIRG Education Fund.

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.
•        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 was 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.

In June 2016, the CFPB proposed a rule that takes a 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.

Kelly Griffith, Executive Director of the Southwest Center for Economic Integrity, stated that “despite a number of provisions to prevent lenders from evading the rule, loopholes in the proposed rule sanction dangerous loan products and will not stop the debt trap.” Griffith pointed to attempts in the last legislative session by the payday lending industry to circumvent proposed rules by introducing a “flex loan” bill which would have allowed payday lenders to re-enter the Arizona market.

Cynthia Zwick, Executive Director of the Arizona Community Action Association, added “We know that Arizonans are far better off without payday lenders and Arizona voters agree by a 2:1 margin. A wide range of organizations continue to fight other high-cost lending such as auto title lending in our state and are counting on a strong rule that will ensure Arizona consumers have adequate protections from the payday and auto title debt trap.”  

Brown concluded, “Nearly 10,000 complaints in the CFPB database reveal 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. Arizonans should submit their complaints and comments to the CFPB through stoppaydaypredators.org/economicintegrity by October 7th, 2016.”