On March 25, 2014, the Consumer Financial Protection Bureau (CFPB) released its second report on payday lending. This report followed a white paper on payday lending and deposit advance products that the CFPB issued in April 2013.
The report, which the CFPB styles as a “Data Point,” presents an analysis of more than twelve million storefront payday loans that payday lenders made in 2011 and 2012. The report focuses on the prevalence of consumers’ rolling over and renewing payday loans during a twelve-month period. Major findings of the report include:
- Consumers roll over or renew more than eighty percent of payday loans within fourteen days, even in states in which borrowers are required to go through a mandatory “cooling-off” period between loans.
- Half of all rolled over or renewed loans involve “loan sequences” that cover a period of at least ten months.
- Borrowers with such rollovers or renewals rarely amortize the principal amount of the loans between the first and last loan of a sequence.
- Borrowers who are paid monthly, such as government benefits recipients, are disproportionately more likely to have loan sequences extending eleven months or more.
The CFPB’s release of the report coincides with its field hearing on payday lending, which the CFPB held in Nashville, Tennessee. In his prepared remarks, CFPB Director Richard Cordray noted that a place exists in the market for small-dollar loan products and that the CFPB is not concerned about “every payday loan made to a consumer.” However, he stated that the data supported a conclusion that the payday lending business model is dependent on continuous rollovers and renewals, which he characterized as “debt traps.” Director Cordray added that the CFPB is in the “late stages” of developing new rules to keep small-dollar credit available to borrowers without the risk of such “debt traps.”