|April 3, 2014|
Previously published on March 31, 2014
On March 25th, the CFPB released its second report on payday loans (the Report) and also held a field hearing on that issue.1 The CFPB’s Office of Research prepared the Report based upon data it collected over a 12-month period from more than 12 million storefront payday loans. The Report is a continuation of research on payday loan products that the CFPB began last year when it issued its White Paper of Initial Data Findings on Payday Loans and Deposit Advance Products (the White Paper).2 Findings in this new Report include the following:
Four out of five payday loans are rolled over or renewed. Even in states that impose cooling-off periods between payday loans as a means of reducing the rates of loan renewals, renewal rates were nearly identical to states without such cooling-off periods.
Three out of five payday loans are made to borrowers whose fee expenses exceed the amount borrowed.
One out of five new payday loans end up costing the borrower more than the amount borrowed. For 22 percent of all initial payday loans, borrowers ended up renewing their loans six times or more.
Four out of five payday borrowers either default or renew a payday loan over the course of a year. Only 15 percent of borrowers repaid all of their payday debts when due without re-borrowing within 14 days.
Four out of five payday borrowers who renew end up borrowing the same amount or more.
We note that the Report, like the White Paper, does not define what constitutes a “payday loan,” although the CFPB’s Press Release announcing the Report described them as “generally $500 or less.”
During the field hearing on payday loans held in conjunction with the release of the Report, CFPB Director Richard Cordray stated that “the business model of the payday industry depends on people becoming stuck in these loans for the long term, since almost half their business comes from people who are basically paying high-cost rent on the amount of their original loan.”3 He added that the CFPB is in “the late stages of its consideration about how [it] can formulate new rules to bring needed reforms to this market.”
1 See the report at http://files.consumerfinance.gov/f/201403&under;cfpb&under;report&under;payday-lending.pdf.
2 See the white paper at http://files.consumerfinance.gov/f/201304&under;cfpb&under;payday-dap-whitepaper.pdf.
3 See Director Cordray’s prepared remarks at http://www.consumerfinance.gov/newsroom/director-richard-cordray-remarks-at-the-payday-field-hearing/.