CFPB Study on Credit Builder Loans

The CFPB has recently published the results of a study on Credit Builder Loans (CBLs), whose results suggest that CBLs are most helpful to consumers who do not have other existing debt and are therefore less likely to already have a credit score.  The results of the study are available here.

The CBLs that were the subject of the study involved the borrowed funds being deposited into a locked escrow account, and then transferred into the borrower’s own account gradually as the borrower made periodic payments on the loan.  The loan was reported as a standard installment loan for credit reporting purposes.  The CBLs enable consumers with limited or no credit history to establish a credit history by demonstrating the ability to make consistent monthly payments.  The study found that the CBL improved the credit of consumers who did not have any existing debt but only marginally impacted the credit scores of consumers with existing debt.

The CFPB also published a short summary about CBLs, with information for financial educators and financial institutions.