WASHINGTON, D.C. – The market for personal loans is massive and growing, yet the fintechs and other non-bank lenders who make such loans are not subject to regular oversight by the Consumer Financial Protection Bureau (CFPB), which has “created an unlevel playing field and a large risk to consumers,” write the Consumer Bankers Association (CBA) and the Center for Responsible Lending (CRL). The groups jointly filed a petition for the CFPB to develop a rule that would define larger participants in the market for personal loans so that sizable non-depository lenders would be subject to consistent CFPB supervision as large banks and credit unions making such loans already are.
“CBA long has called on policymakers to institute a level regulatory playing field in the rapidly evolving banking landscape, including in the consumer lending market where fintechs now issue nearly half of all personal loans, up from just 22 percent in 2015. While fintechs continue to grow and increasingly offer traditional financial products, they’re not held to the same federal oversight banks have abided by for more than a decade. By utilizing one of its most effective tools in facilitating competitive markets for consumer financial products and services – the larger participant rule – the Bureau can help to ensure every American receives the protections they deserve, regardless of where they go to meet their financial needs,” said Lindsey Johnson, President & CEO of the Consumer Bankers Association (CBA).
“There are large non-bank lenders, even some publicly listed companies, regularly hawking suspect credit products without meaningful government oversight on behalf of the consumer. There are red flags aplenty, including loans issued to consumers without checking their ability-to-repay, sky-high default rates, and interest rates that stretch to 100% APR and well beyond. It is time for CFPB oversight,” said Mike Calhoun, president of the Center for Responsible Lending (CRL).
The CFPB, through the Dodd-Frank Act has supervisory jurisdiction over large banks and credit unions with respect to all their lending and over non-depositories that provide mortgages, student loans, or payday loans. The Bureau has also exercised its authority to assert supervisory jurisdiction over non-depositories that provide auto loans. Personal installment loans are the only consumer credit market where only large banks and credit unions, but not non-depositories, are subject to supervision by the CFPB.
As stated in the petition letter, the market for personal loans “touches millions of consumers. Equifax reports that as of May 2022 there were almost 85,000,000 installment and revolving loan accounts and over $125 billion in outstanding balances; that is actually more than the total number of mortgages (including home equity loans and HELOCs)...”
The petition points out: “[T]here is strong reason to believe that the personal installment loan market is growing and will continue to grow at a rapid pace. For example, Equifax reports that in the first four months of 2022, 10.99 million new loans were originated, which represents an increase of 22% over 2019…. [T]his does not capture the seeming explosive growth in [Buy Now, Pay Later] loans which grew by 530% in California alone from 2019 to 2020.”
The petition calls for a CFPB rule defining the market to “cover both closed-end installment loans and open-end lines of credit.” It also recommends rulemaking “to cover both the originating and servicing of personal loans.
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The Consumer Bankers Association is the only national financial trade group focused exclusively on retail banking and personal financial services—banking services geared toward consumers and small businesses. CBA members include the nation’s largest bank holding companies as well as regional and super-community banks that collectively hold two-thirds of the total assets of depository institutions.
The Center for Responsible Lending is a non-partisan, nonprofit research and policy advocacy organization working to promote financial fairness and economic opportunity for all, end predatory lending, and close the racial wealth gaps.