DFPI reports sharp decrease in consumer lending and PACE financing

State Issues State Regulators DFPI PACE Programs Consumer Finance Covid-19 Buy Now Pay Later

On October 7, the Department of Financial Protection and Innovation (DFPI) released a report showing significant changes in consumer lending activity, likely attributable to a number of factors including the Covid-19 pandemic, state and federal financial assistance, student loan payment moratoriums, favorable interest rates, and increased reporting of alternative financing products. The 2020 annual report examined unaudited data gathered from finance lenders, brokers, and Property Assessed Clean Energy (PACE) administrators licensed under the California Financing Law, as well as new data from the “Buy Now, Pay Later” (BNPL) industry. Findings showed, among other things, a sharp decrease in certain types of consumer loans with BNPL products (often interest-free), decreasing overall by 41 percent in 2019. However, the report found that consumer loans, excluding BNPL, increased 94.8 percent during the same period—a result likely caused by an increase in originations of consumer loans secured by real estate. Finance lenders, including BNPL, originated nearly 12 million consumer loans in 2020 (a 530 percent increase over the prior year), with the top six BNPL lenders accounting for 91 percent of the total consumer loans originated in 2020. DFPI noted that a surge in BNPL unsecured consumer loans reported to the regulator shows that BNPL payment options are becoming increasingly popular. DFPI also discussed recent BNPL enforcement actions, which required companies to consider a consumer’s ability to repay a loan and subjected the companies to rate and fee caps.

The report also examined PACE financing data. According to findings, there was an 18 percent decline in the total number of PACE assessment contracts funded and originated in 2020, and a 30 percent decrease in gross income for PACE program administrators since 2019.