Research Suggests Deceptive Industry Practices Drive Cycles of Costly Reborrowing

A report published by the Consumer Financial Protection Bureau (“CFPB”) shows few payday loan borrowers are benefiting from no-cost extended payment plans, which are required to be offered to borrowers in the majority of states that do not prohibit payday lending.

Instead of using the payment plans, borrowers continue to pay for costly loan rollovers. While no-cost extended payment plans are meant to help borrowers exit the cycle of rollovers and fees, the payday business model continues to depend on high rollover rates and fees.

Rollover fees are a strong incentive for lenders to keep borrowers in the dark about no-cost extended payment plans. The CFPB’s supervision of the industry has found some payday lenders have deceived struggling borrowers by misrepresenting or withholding information about their payment options.

CFPB Finds Payday Borrowers Continue to Pay Significant Rollover Fees Despite State-Level Protections and Payment Plans. Research suggests deceptive industry practices drive cycles of costly reborrowing.

CFPB Report Found Substantial Differences Among the 16 States that Require Lenders to Offer No-cost Payment Options, as Follows:
  • State no-cost extended payment plans vary substantially. Typical features include disclosure of the right to elect an extended payment plan at the time borrowers enter into a payday loan agreement, the requirement that an extended payment plan be repaid in several installments, and that there be no additional fees charged for an extended payment plan.
  • Usage rates for extended no-cost extended payment plans are low in all states. Even in Washington state, which has perhaps the most borrower-friendly extended payment plan, the usage rate is a small fraction of all payday borrowers, 13.4%. States, such as Florida, with more restrictive requirements, have even lower usage rates.
  • The pandemic has affected payday loan volumes, but not no-cost extended payment plan usage. Nationally, payday loan volume declined in 2020 from 2019 by as much as 65%, while payment plan usage rates remained unchanged. However, there was variation within states. California, for example, saw payment plan enrollment more than double.

CLICK HERE to read “Market Snapshot: Consumer use of State payday loan extended payment plans.” 

CLICK HERE to read “What can I do if I can’t repay my payday loan?”