Tomorrow, in conjunction with a field hearing on small dollar loans, the CFPB is expected to issue its proposed rule addressing single-payment payday and auto title loans, deposit advance products, and certain “high cost” installment and open-end loans. On May 18, 2016, as its final step before issuing the proposal, the CFPB released a report summarizing data on single-payment auto title loans. The report appeared designed to supply the empirical data that the CFPB believes it needs to justify the limits on auto title loans that it intends to propose. According to a recent American Banker article, several academics are challenging the CFPB’s data and characterization of auto title loan borrowers.
The report was based on the CFPB’s analysis of about 3.5 million single-payment auto title loans made to over 400,000 borrowers in ten states from 2010 through 2013. Among the report’s most significant CFPB findings was that about one-fifth of borrowers who obtain a single-payment auto title loan lose their cars through repossession. In its press release about the report, the CFPB referred to auto title loan borrowers as “swamped in a cycle of debt.”
In its article, the American Banker reports that Jim Hawkins, an associate law professor at the University of Houston Law Center, found that some states report far lower repossession rates than those used by the CFPB. Based on an analysis of repossession rates in seven of the 25 states that allow single-payment auto title loans, Professor Hawkins is reported to have found that Texas had the highest repossession rate of 9.94% in 2013. The article notes that some states such as Oregon and California have very low repossession rates and the CFPB would not release the list of the ten states that it used in its report.
The article also includes comments from Todd Zywicki, a law professor at George Mason University, challenging the CFPB’s claim that auto title loan borrowers fall into a “cycle of debt” and implicit assumption that an auto title loan default evidences a consumer’s inability to repay and not a choice to default. Similar to our observations in our blog post about the report, Professor Zywicki is reported to have commented that there are often explanations for default other than inability to repay, such as the condition of the vehicle and the need for repairs.