CFPB Releases Report on Online Payday Loan Fees

On April 20, 2016, the CFPB issued a report that found that consumers who borrower money from online payday lenders often incur significant bank penalties. The report comes ahead of a new payday loan rule that among other things, would likely impose restrictions on ACH “re-presentment” requirements and require lenders to determine a consumer’s ability to repay before extending credit. The CFPB is expecting to issue the proposed rule later this spring.

The report covers an 18 month period from 2011 and 2012 regarding payday and certain installment loans from more than 330 online lenders (excluding online lenders that also have a storefront presence). The CFPB’s press release highlights key findings of the CFPB payday report, including:

(1) Half of online borrowers are charged an average of $185 in bank penalties in addition to any fees the lender may charge for failed debit attempts.
(2) One third of online borrowers hit with a bank penalty wind up losing their bank account.
(3) Repeated debit attempts typically fail to collect money from the consumer – after a failed payment request 70% of initial re-presentments fail, and subsequent re-presentments are less likely to succeed.

The report also found that accounts of consumers who borrower from online lenders are more likely to be closed by the end of the sample period than accounts generally (23% versus 6%, respectively).  The CFPB added that accounts with any online payday loan payment requests that fail are particularly likely to be closed, with 42% of such accounts closing by the end of the sample period.

The CFPB press release can be found here: http://www.consumerfinance.gov/about-us/newsroom/cfpb-finds-half-of-online-payday-borrowers-rack-up-an-average-of-185-in-bank-penalties.