On June 2, 2016, CFPB proposed rules for payday, auto title and other similar loans that would change the underwriting process for many types of small-dollar loans made to non-prime borrowers. On the same day, CFPB issued a six-part report of “Supplemental Findings” prepared by its Office of Research, in support of the rulemaking proposal. Part Six of the Supplemental Findings contains a simulation of the effect of two alternative approaches to underwriting for single-payment loans, one of which lenders must use under the proposed rulemaking.
This paper evaluates the CFPB’s simulation findings, using a different, larger dataset than that chosen by the CFPB, a dataset that also includes debt service and living expense obligations for storefront payday borrowers. This latter information allows us to provide a more complete simulation of the effect of the CFPB’s proposal – a simulation of the “ability-to-repay” (ATR) requirement that was not included in CFPB’s Supplemental Findings.