During the past year, the Consumer Financial Protection Bureau (CFPB) has engaged in an indepth review of short-term small dollar loans, specifically payday loans extended by nondepository institutions and deposit advance products offered by a small, but growing, number of depository institutions to their deposit account customers. This review began with a field hearing held in Birmingham, Alabama in January 2012.
Both at the field hearing and in response to a subsequent request for information, the CFPB heard from consumers who use these products.On one hand, some consumers provided favorable responses about the speed at which these loans are given,the availability of these loans for some consumers who may not qualify for other credit products, and consumers' ability to use these loans as a way to avoid overdrawing a deposit account or paying a bill late.
On the other hand, consumers raised concerns such as the risk of being unable to repay the loan while still having enough money left over for other expenses,the high cost of the loan, and aggressive debt collection practices in the case of delinquency or default.
These discussions and submissions underscore the importance of undertaking a data-driven analysis of the use of these products and the longer-term outcomes that borrowers experience.
Because Congress authorized the CFPB to supervise both depository and non-depository institutions, over the past year we have been able to obtain data from a number of market participants that offer either deposit advance products or payday loans.
This white paper summarizes the initial findings of the CFPB's analysis of payday loans and deposit advances. It describes the features of typical payday loan and deposit advance products. The paper then presents initial findings using supervisory data the CFPB has obtained from a number of institutions that provide these products.