telephone line). Some of these alternatives can also damage the consumer’s credit rating, or jeopardize the consumer’s deposit account. A study by the Federal Reserve Bank of New York found that and North Carolinians “Georgians do not seem better off since their states outlawed payday credit: they have bounced more checks, complained more about lenders and debt collectors, and have filed for Chapter 7 (“no asset”) bankruptcy at a higher rate” and that households to replace costly credit with even “[f]orcing costlier credit is bound to make them worse off.” Similarly, a study of survey data by Jonathan Zinman of Dartmouth College found that new binding restrictions on loan terms in Oregon caused a migration to inferior “plausibly substitutes,” and caused Oregon respondents to be significantly more likely to experience an adverse change in financial condition. Many borrowers of covered loans may not have access to other loans, and the Bureau does not explain where these borrowers will be able to turn for help. Innovators Are Often Higher Cost Providers Innovators often cannot compete on cost, particularly when larger providers are able to spread compliance costs over a larger number of units sold. Innovators are able to compete on other elements of the transaction such as speed, safety, and convenience that may matter more than – – price to some consumers. This proposal is based entirely on price, and fails to recognize other aspects of the transaction. In so doing, the proposal disadvantages innovators and stifles innovation. Alternative Solutions As noted by Pew and others, the CFPB’s proposal is needlessly complex and could benefit from considerable simplification. In addition, as outlined in more detail the proposal should: Allow for alternatives to the residual income and household budgeting requirement, such as the use of automated algorithms to predict likelihood of repayment; Provide for CFPB review of underwriting models to determine, after the fact, how well those models predict the risk of nonpayment, rather than prescribing a vague and unproven residual income test that will needlessly disqualify creditworthy borrowers; for alternatives to collection and verification of paper documents, including the use of commercially available databases and data, as well as online account access “modeled” tools;
telephone line). Some of these alternatives can also damage the consumer’s credit rating, or jeopardize the consumer’s deposit account. A study by the Federal Reserve Bank of New York found that “Georgians and North Carolinians do not seem better off since their states outlawed payday credit: they have bounced more checks, complained more about lenders and debt collectors, and have filed for Chapter 7 (“no asset”) bankruptcy at a higher rate” and that “[f]orcing households to replace costly credit with even costlier credit is bound to make them worse off.” Similarly, a study of survey data by Jonathan Zinman of Dartmouth College found that new binding restrictions on loan terms in Oregon caused a migration to “plausibly inferior substitutes,” and caused Oregon respondents to be significantly more likely to experience an adverse change in financial condition. Many borrowers of covered loans may not have access to other loans, and the Bureau does not explain where these borrowers will be able to turn for help. Innovators Are Often Higher Cost Providers Innovators often cannot compete on cost, particularly when larger providers are able to spread compliance costs over a larger number of units sold. Innovators are able to compete on other elements of the transaction – such as speed, safety, and convenience – that may matter more than price to some consumers. This proposal is based entirely on price, and fails to recognize other aspects of the transaction. In so doing, the proposal disadvantages innovators and stifles innovation. Alternative Solutions As noted by Pew and others, the CFPB’s proposal is needlessly complex and could benefit from considerable simplification. In addition, as outlined in more detail the proposal should: Allow for alternatives to the residual income and household budgeting requirement, such as the use of automated algorithms to predict likelihood of repayment; Provide for CFPB review of underwriting models to determine, after the fact, how well those models predict the risk of nonpayment, rather than prescribing a vague and unproven residual income test that will needlessly disqualify creditworthy borrowers; for alternatives to collection and verification of paper documents, including the use of commercially available databases and “modeled” data, as well as online account access tools;