• CFPB Associate Director Testifies Before Senate Committee Regarding Payday Loans and Deposit Advance Products
  • August 1, 2013 | Authors: David N. Anthony; Scott Kelly; John C. Lynch; Alan D. Wingfield
  • Law Firms: Troutman Sanders LLP - Richmond Office ; Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Richmond Office
  • On July 24, 2013, David M. Silberman, the Associate Director for Research, Markets, and Regulation at the Consumer Financial Protection Bureau (CFPB) appeared before the Senate Special Committee on Aging. His testimony focused on the CFPB’s recent white paper on payday loans and deposit advance products which concluded that “too often consumers are getting caught in an extended and costly period of debt, likely as a result of chronic cash flow shortages.” Although online lending was not a subject of the white paper, the CFPB highlighted its significant and growing impact in the industry, and mentioned that it will be separately analyzing the online lending model.

    Before the Senate Committee, Silberman characterized payday and deposit advance loans as “traps” that, while intended for emergency or short-term use, were actually leading many consumers to “long-term, expensive debt burdens” caused by the consumers’ need to re-borrow funds every few weeks at a high cost. For example, he cited the figure that forty-eight percent of payday borrowers took out at least eleven loans - many of which were obtained on a nearly continuous basis.

    Silberman’s testimony further underscored the impact of debt and other financial burdens on older Americans, claiming that, “Protecting older consumers’ financial well-being is also one of the Bureau’s most important missions.” Given their reduced time to recover from financial loss and risk of cognitive impairment, Silberman made clear that older Americans are a priority, and going forward, the CFPB may specifically target them in exercising its regulatory and enforcement powers.

    Practical Impact

    With the recent Senate confirmation of CFPB Director Richard Cordray, the Bureau is poised to dramatically increase its activity in the financial-services space. The tone of Silberman’s testimony and the questions posed by Senators indicate a particular skepticism of the small-loan industry, including payday loans and deposit advance products. As a result, new oversight and regulation of companies issuing small-dollar loans, especially those engaging in online lending, is likely imminent.