CFPB: Impact on Traditional Installment Lending

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CFPB: Impact on Traditional Installment Lending

  1. 1. Impact on Traditional Installment Lending CFPB
  2. 2. Key Topics • Republic Finance • Who we are, what we do, how we do it • Consequences • What we can learn from other similar experiences • CFPB Hot Button Issues • What are the questions and concerns? • Implications
  3. 3. Republic Finance • 168,000 customers • 135 branches • 6 states • 610 employees
  4. 4. Average Loans Look Like: Average Amount Financed $ 2,799 Payment $ 156 Term 25 months APR 40.2% Credit Score 615
  5. 5. Structural Elements of Installment Loans • Underwritten to determine willingness and ability to repay • Fixed, set term • Fixed, substantially equal payments • Fixed rate • Fully amortizing
  6. 6. Regulations DO Have Consequences • Garnishment • SAFE Act of 2008; foreclosure restrictions • Credit CARD Act of 2009 • Insurance licensing
  7. 7. CFPB Hot Button Issues • Elements set by statute or regulation • Industry-specific practices • General business practices • CFPB philosophy and approach
  8. 8. Elements Set by Statute or Regulation • Cost • Credit insurance • Closing fees / nonrefundable charges • Rule of 78s
  9. 9. Rate Caps: 1,000 Account Break Even Model Average Balance Monthly Cost Breakeven Rate $200 $24.19 145% $500 $30.47 73% $1,000 $40.94 49% $2,500 $72.88 35%
  10. 10. High APR = Low Total Cost to Customer 0 500 1,000 1,500 2,000 2,500 3,000 3,500 28% 34% 40% 46% 52% 58% 64% 500 800 1,100 1,400 1,700 2,000 2,300 2,600 2,900 3,200 3,500 3,800 4,100 4,400 4,700 5,000 TotalCostofLoan APR Loan Size Average APR Average Cost
  11. 11. Industry-specific Practices • “Trapped in the cycle of debt” • Refinancing • Collections • Appropriate use of data
  12. 12. Credit Cost / Repayment Comparisons Installment Credit Card Loan Amount $1,000 $1,000 Term/Payments 24 61 Rate 40% 18% Payment Amount $61.19 $25.14 Total Payment $1,468.51 $1,533.30 Total Interest $468.51 $533.30
  13. 13. Maintaining Communications Average Calls / Account 3 Average Calls / Branch 3,900 Average Calls / Employee 865
  14. 14. General Business Practices • Marketing generally, solicitation particularly • Compensation generally, incentives particularly
  15. 15. CFPB Philosophy and Approach • Compliance • Enforcement vs. Rule-making • Consumer Complaint Database
  16. 16. CFPB Hot Button Issues • Elements Set by Statute or Regulation • Cost • Credit insurance • Origination Fees / Nonrefundable charges • Rule of 78s • Industry-specific Practices • “Trapped in the cycle of debt” • Refinancing • Collections • Appropriate use of data • General Business Practices • Marketing generally, solicitation particularly • Compensation generally, incentives particularly • CFPB Philosophy and Approach • Compliance • Enforcement vs. Rule-making • Consumer Complaint Database
  17. 17. CFPB: Impact on Traditional Installment Lending • Legal and regulatory elements of structure being questioned as “UDAP” even though lenders have no ability to change any of these • Traditional industry practices and general business practices presumed improper? • Environment complicated by CFPB approach
  18. 18. CFPB: Impact on Traditional Installment Lending • Increased cost to customers • Reduced access to credit for some customers • Lenders less flexible, less responsive, less profitable

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