CFPB finds payday borrowers continue to pay significant rollover fees despite state-level protections and payment plans
Consumer Financial Protection Bureau
A report published today 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.
“Our research suggests that state laws that require payday lenders to offer no-cost extended repayment plans are not working as intended,” said CFPB Director Rohit Chopra. “Payday lenders have a powerful incentive to protect their revenue by steering borrowers into costly re-borrowing.”
Every year, more than 12 million borrowers take out payday loans in the 26 states where payday lending is not prohibited. Sixteen of those states require payday lenders to offer no-cost extended payment plans. A payment plan allows a borrower to repay only the principal and fees already incurred, splitting the remaining balance over several months. A borrower’s other, costlier option, if they do not repay their loan, is to rollover their loan. Essentially, a rollover renews the borrower’s loan for another pay-period and the borrower is charged an additional payday loan fee.
The savings of a no-cost extended payment plan can be substantial. For example, on a typical $300 loan, a borrower would pay $45 in rollover fees every two weeks until they can pay off the principal and incurred fees. After four months, the borrower would have paid $360 in rollover fees and still owe the original $300. If the same borrower opted for a no-cost extended payment plan at the time of the first rollover, they would only have to pay $345 over an extended period. Previous CFPB research found that most payday loans were made to borrowers who use the rollover option so many times that the accrued fees were greater than the original principal.
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.
Today’s report found substantial differences among the 16 states that require lenders to offer no-cost payment options:
Read the full report, Market Snapshot: Consumer use of State payday loan extended payment plans.
Visit the CFPB’s webpage, What can I do if I can’t repay my payday loan?, to learn more about extended payment plans.
The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visitconsumerfinance.gov.