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CFPB Releases Report on Online Payday Loan Payments
Today, the CFPB released results of a study which found attempts by online lenders to debit payments from a consumer's checking account add significant costs to online payday loans. The report is based on data collected by the Bureau over an 18-month period between 2011 and 2012 and focusing on online payday and certain online installment loans made by more than 330 lenders. The analysis is a continuation of the agency's reports on payday loans and deposit advance products.
The CFPB found half of online borrowers are charged an average of $185 in bank penalties because at least one debit attempt overdrafts or fails. However, the CFPB further reports that 94% of all initial payments succeed, with half of the borrowers reviewed having at least one overdraft within the study period. The CFPB also indicated one third of those borrowers who receive a bank penalty have their accounts involuntarily closed. Specifically, the CFPB found:
- Half of online borrowers are charged an average of $185 in bank penalties: One half of online borrowers have at least one debit attempt that overdrafts or fails. These borrowers incur an average of $185 in bank penalty fees, in addition to any fees the lender might charge for failed debit attempts. The CFBP identified several different types of payment requests to determine which requests result in fees. Of the average of $185 in fees, $97 on average are charged on payment requests that are not preceded by a failed payment request, $50 on average are charged because lenders re-present a payment request after a prior request has failed, and $39 on average are charged because a lender submits multiple payment requests on the same day.
- One third of online borrowers hit with a bank penalty wind up losing their account: A bank account may be closed by the depository institution for reasons such as having a negative balance for an extended period of time or racking up too many penalty fees. Over the 18-month period covered by the data, 36 percent of accounts with a failed debit attempt from an online lender ended up being closed by the depository institution. This happened usually within 90 days of the first non-sufficient funds transaction.
- Repeated debit attempts typically fail to collect money from the consumer: After a failed debit attempt, three quarters of the time online lenders will make an additional attempt. Seventy percent of second payment requests to the same consumer's account fail. Seventy-three percent of third payment requests fail. And, each repeated attempt after that is even less likely to succeed. (Of note, last year the CFPB announced it was considering a proposal that would prohibit payday lenders and similar lenders from making more than two unsuccessful attempts in succession on a borrower's checking or savings account.)
The study raises interesting questions about considerations the CFPB may be taking with regards to the correlation between payday lending and overdraft services. We believe these issues are possible subjects to be considered in two expected rule makings – Small Dollar Lending (payday) and Overdraft. We expect the agency to propose a small dollar rule in the next few weeks, with overdraft expected to begin sometime in the second half of 2016.
CBA will continue to monitor this issue and will keep membership informed.