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Financial Services Law Insights and Observations

CFPB Consumer Financial Protection Week roundup

Federal Issues CFPB Consumer Finance Credit Scores Credit Builder Loans Servicemembers Student Lending

Federal Issues

As part of the CFPB’s Consumer Financial Protection Week, the Bureau released several reports and tools, including a recently published study analyzing the impact of credit builder loans (CBLs) on consumer credit scores. The study, Targeting Credit Builder Loans: Insights from a Credit Builder Loan Evaluation (accompanied by a practitioner’s guide and research on CBLs), provides insight for community-based organizations and financial institutions on expanding financial inclusion through the use of CBLs, which are designed to assist individuals with no credit records or poor credit histories to build or repair their credit. According to the Bureau, the central feature of a CBL is that a borrower makes payments before receiving funds. When a CBL is opened by a borrower, the lender moves its own funds into a locked escrow account and the borrower makes installment payments, including interest and fees, typically over a period of six to 24 months. These payments appear on the borrower’s credit report, and the lender deposits the principal payments into the borrower’s savings account “after each payment or in entirety when the borrower completes the program.” According to the Bureau, a typical CBL ranges from $300 to $1,000. The Bureau’s study examined 1,531 credit union members who were offered CBLs. The research revealed that a CBL increased the likelihood of having a credit score by 24 percent for borrowers without an existing loan, and that borrowers without existing debt saw their credit scores rise by 60 points more than borrowers carrying existing debt. Additionally, the Bureau found an association between having a CBL and an increase in a borrower’s savings balance. The Bureau cautioned, however, that the study’s findings also indicated that CBLs appeared to cause a decrease in credit scores for borrowers with existing debt, suggesting that these borrowers experienced difficulty making payments on both their CBL and their existing debt obligations.  

The Bureau also released the results from the Making Ends Meet survey, which provides insight into how U.S. consumers cope with financial shortfalls. The survey, conducted prior to the Covid-19 pandemic in May 2019, offers a nationally representative assessment of consumers with credit records. Among its findings, the report noted that 52 percent of survey respondents said they could cover expenses for two months or less without their main source of income, while 20 percent could cover expenses for only two weeks or less.

A report exploring the credit records of young servicemembers that compares servicemembers’ credit profiles to the credit profiles of civilians was also recently published, along with an online tool to help students make informed decisions about paying for college.

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