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Dennis A. Ross

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Ross Questions CFPB Director Cordray on Payday Loans

Touts Florida System as Model for Payday Loans

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WASHINGTON, Sep 12, 2013 | comments
Click here to view the full testimony

WASHINGTON – U.S. Rep. Dennis Ross (FL-15) questioned Consumer Financial Protection Bureau Director Richard Cordray during his semi-annual address to the Financial Services Committee. Ross touted Florida’s system for payday loans that was addressed when he served in the Florida legislature. An excerpt from the hearing is below:

Rep. Ross: “Well for example, in your warning here that you say that the median fees paid were more than $457. Repeat borrowing often results in a cycle debt. Typical APR on a $350 loan is over 300 percent based on your report. Now if you look at Florida, Florida limits their borrowing to $500 per loan. They may only have one outstanding at a time. The maximum fee, the interest rate is 10 percent plus a $5 verification fee. I wish that was as good on my credit cards. They even have to wait 24 hours after they pay off the loan before they can go get another loan. The minimum loan is seven days. The maximum is 31 days. All I’m suggesting to you is: there is a system that works, it works effectively, it meets a market demand. And I would only ask, please that you would take a look at that and use that as your model as you go into payday loans.

CFPB Director Cordray: “I thank you. And actually that Florida data was very helpful in making comparison and helping us make judgments about what may work or not work around the country. And I just want to emphasis this point again, without the data; we can’t have any idea about what to do about this product. We have to have that data. And Florida provided it. We have our own and it’s very helpful to getting this right.”


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Full Transcript:
REP. ROSS: “Thank you Mr. Chairman. Director Cordray, I want to talk to you about payday loans or advanced products, deferred presentment providers. How do you feel about those particular products?”
DIRECTOR CORDRAY: “About payday loans?”
REP. ROSS: “Yes.”
DIRECTOR CORDRAY: “So, as with all small dollar loans and there’s different ways of providing it—car title loans, pawn brokers, you know other things—they are a mechanism for credit that some people find absolutely necessary to meet particular situations. They are often a very high cost loan, and we did a white paper that we brought out in the spring that analyzed this market pretty carefully.”
REP. ROSS: “So, let me ask you about this white paper. That April 24th white paper of this year. The detail of the data that you utilized for that, have you released any of that yet?”
DIRECTOR CORDRAY: “We did publish the paper.”
REP. ROSS: “But the data, upon which the paper relies, the data that you collected to write the paper, have you released any of that?”
DIRECTOR CORDRAY: “I’m not certain that we can.”
REP. ROSS: “Why can’t you? There’s not a privacy act out there that prevents you. What privilege would you assert?”
DIRECTOR CORDRAY: “What we’re talking about is business information. There may be propriety and trade secrets issues there. That maybe it was provided to us in confidence on the understanding it wouldn’t be published. It could affect the competitive position of the companies. You know there’s just some concerns.”
REP. ROSS: “But did it take into consideration just one-time user of a payday loan as opposed to a frequent or repetitive user of a payday loan?”
DIRECTOR CORDRAY: “We did in fact, yes.”
REP. ROSS: “Did it take into consideration all states and their programs that they have here?”
DIRECTOR CORDRAY: “We did in fact.”
REP. ROSS: “The website that you have on payday loans has a particular graphic that says “Would you take a taxi on a cross country trip?” And it discusses the median loan, the payday loan is $350, the median number of transactions per year is 10. The conclusion here is based on the data from your white paper?”
DIRECTOR CORDRAY: “I believe so, yes.”
REP. ROSS: “Well don’t you think that the integrity of your report, the white paper itself, is going to be somewhat tarnished as a result of not disclosing the data?”
DIRECTOR CORDRAY: “Look, we can’t always disclose the data. What we can do is analyze it and provide the conclusions.”
REP. ROSS: So it’s my understanding you were going to refuse to disclose the data?
DIRECTOR CORDRAY: “Actually, I’ll have my staff get back to you on that.”
REP. ROSS: “Thank you, I appreciate that.”
DIRECTOR CORDRAY: “But there are proprietary trade secret issues…”
REP. ROSS: “I understand that.”
DIRECTOR CORDRAY: “…there are competitive issues…”
REP. ROSS: “That’s being redacted.”
DIRECTOR CORDRAY: “…that could be harmed by disclosing that data. You would not want that. I would not want that.”
REP. ROSS: “I agree with you. But you would also agree though that there is a market out there for payday loans that is not being met by traditional bank or lending institutions.”
DIRECTOR CORDRAY: “There is a market for payday loans, a multibillion dollar market. There are other ways to meet that demand too.”
REP. ROSS: “Yes. And if we over regulate the good players to where they get out of the market, where is the demand going to go? Most likely it will go off shore. Most likely it will go on the Internet. You’re not going to eliminate the demand just because you eliminate the supply.”
DIRECTOR CORDRAY: “There’s actually data on that. Because there are 13 states that basically bar payday loans because they don’t allow lending above 36% rate of interest. Which is a pretty healthy rate of interest.”
REP. ROSS: “Good point. And I want to talk to you about a great state that deals with payday loans. Because when I was in the legislature of Florida, we addressed this. We have by far the best regulatory scheme. We address every issue. And I would ask you to please take a look at how we addressed Florida. And if I might just share with you…”
DIRECTOR CORDRAY: “Actually I could help you on that. Drew Breakspear is your current superintendent of banking and he provided us with their staff. After we did our white paper they took their data and analyzed it for Florida in particular and provided us with that so we could see how those provisions you’re talking about are unique in Florida.”
REP. ROSS: “And how did that turn out?”
DIRECTOR CORDRAY: “It was similar results to what we had in our report. Maybe slightly better numbers in some respects because of some of the roll over and other types of constraints in Florida. But it was an interesting analysis. It was a good example of how they could use our approach, analyze their own data, provide it to us, and then we could have a comparison. It was very helpful.”
REP. ROSS: “Well for example, in your warning here that you say that the median fees paid were more than $457, repeat borrowing often results in a cycle debt, typical APR on a $350 loan is over 300%, based on your report. Now, if you look at Florida, Florida limits their borrowing to $500 per loan. They may only have one outstanding at a time. The maximum fee, the interest rate is 10% plus a $5 verification fee. I wish that was as good on my credit cards. They even have to wait 24 hours after they pay off the loan before they can go get another loan. The minimum loan is 7 days. The maximum is 31 days. All I’m suggesting to you is that there is a system that works, it works effectively, it meets a market demand. And I would only ask, please that you would take a look at that and use that as your model as you go into payday loans.”
DIRECTOR CORDRAY: “I thank you. And actually that Florida data was very helpful in making comparison and helping us make judgments about what may work or not work around the country. And I just want to emphasis this point again, without the data, we can’t have any idea about what to do about this product. We have to have that data. And Florida provided it. We have our own and it’s very very helpful to getting this right.”
REP. ROSS: “Thank you. Thank you Chairman.”

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