We have learned that, starting Monday, Laura Udis will join the CFPB as the Payday and Small Dollar Lending Program Manager in Research, Markets and Regulations. Ms. Udis comes to the CFPB from the Consumer Federation of America, where she served as Senior Advocate for Financial Services and worked on consumer credit, debt collection and debt settlement issues. From 1988 to early 2013, she served as First Assistant Attorney General of the Consumer Credit Unit and Administrator of the Uniform Consumer Credit Code in the Colorado Attorney General’s Office. In that role, she supervised all non-depository lenders and enforced Colorado laws on consumer credit, debt collection, debt settlement, rent-to-own and credit repair.
We expect that in her new position, Ms. Udis will have an influential role in the CFPB’s ongoing study of payday loans and deposit advance products and its decision-making regarding rulemaking and enforcement actions. Ms. Udis’ track record as Colorado AG suggests she is likely to be a proponent of tough rulemaking by the CFPB. In 2010, under her watch as Assistant AG and UCCC Administrator, Colorado amended its payday lending law to provide that payday credit must be in the form of installment loans of up to six months’ duration, as elected by the borrower. The law allows lenders to charge a 20% origination fee on the first $300 of principal, and 7.5% over that (plus simple interest and a monthly maintenance fee). Although the statute provides that the origination fee is “fully earned” upon origination, Ms. Udis adopted a rule providing that it must be prorated upon prepayment, with the “unearned” portion being refunded to the borrower.
The effective date of the amended law was August 10, 2010. According to Deferred Deposit Lenders Annual Reports of the State of Colorado, Department of Law, from 2009 to 2011, the number of licensees in Colorado declined 48%, from 97 to 50; the number of stores declined 30%, from 505 to 352; and total loan volume declined 71%, from $576,242,827 to $167,042,409. Undoubtedly, the changes in the law, which produced an average APR reduction from 318% to 131%, were the principal causes of the reduction in the availability of payday credit in Colorado over this period.
As previously reported, the Pew Charitable Trusts recently published a report recommending modeling new federal rules on Colorado law. Pew argued that Colorado-style installment loans were more affordable to borrowers and did not lead to an unacceptable contraction in credit. (Reasonable persons can differ on what constitutes acceptable levels of credit!) In any event, the appointment of Ms. Udis to her new position at the CFPB, coupled with the recent Pew recommendations, suggest to us that the CFPB may be leaning towards a Colorado-style “solution” to its sustained use concerns. Only time will tell whether our speculation is correct.