Democratic Senators Ask CFPB to Protect Consumers from Predatory Chattel Loans

Inside Subprime: May 13, 2019

By Lindsay Frankel

A group of Democratic senators are requesting that the Consumer Financial Protection Bureau provide more transparency to consumers during the process of purchasing a manufactured home. Because manufactured home retailers aren’t required to share their lender affiliations with potential buyers, borrowers often end up getting pushed towards high-interest chattel loans, even if they are eligible for less costly alternatives.

Senators Catherine Cortez Masto (D-NV), Kamala Harris (D-CA), Elizabeth Warren (D-MA), Jeff Merkley (D-OR), Patty Murray (D-WA), Tina Smith (D-MN), Chris Van Hollen (D-MD), Richard Blumenthal (D-CT) and Ron Wyden (D-OR) expressed their concerns over predatory chattel loans in a letter to CFPB director Kathleen Kraninger.

“Typically, the majority of consumers who have not actively sought to educate themselves prior to visiting a retailer will first learn about the process of financing, purchasing and owning their home from sales staff on a retail lot,” the letter reads. “These initial interactions have historically led to practices that steered buyers to higher-cost chattel loans offered by the financial affiliates of the retail company.”

Almost 20 million Americans have homes in manufactured housing, and this type of home ownership is often popular with families earning less than $50,000 annually.

Under the Obama administration, the bureau found that the majority of chattel loan borrowers were issued expensive loans, with about 68 percent of these loans considered “higher-priced mortgage loans,” compared to only three percent of loans for homes built on-site.

What’s more, buyers had lower incomes on average and tended to be older and live in rural areas. Families living in manufactured housing had about one quarter of the median net worth of other types of households.

As former director Richard Cordray pointed out at the time, “These consumers may be more financially vulnerable and benefit from strong consumer protections.” He added, “The Bureau is committed to ensuring that consumers have access to responsible credit in the manufactured housing market.”

The letter to Kraninger urges the CFPB to require that manufactured housing retailers disclose connections with lenders when issuing a referral and provide information on alternative financing choices. “We urge the CFPB to work with consumer advocates to design and implement an appropriate disclosure form that ensures manufactured home buyers understand their options and are not steered into high-cost loans,” the Senators wrote.

The CFPB under the Trump administration has been repeatedly criticized for undermining the agency’s intended mission by rolling back consumer protections. Democrats have denounced the bureau’s lack of enforcement actions against student loan providers and the agency’s decision to halt examinations for violations of the Military Lending Act. The bureau also announced that it would rescind critical portions of an Obama-era rule governing payday loans, which consumer advocates say leaves Americans vulnerable to high-cost, predatory lending.

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