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Financial Services Law Insights and Observations

CFPB reports on extended payment plans for payday loans

Federal Issues CFPB Payday Lending Consumer Finance State Issues

Federal Issues

On April 6, the CFPB released a report on consumer use of state payday loan extended payment plans, which is believed to be the first study to compare state extended payment plans and usage rates. The report examines state payday loan extended payment plans, an intervention which permits payday borrowers to repay their loan in no-cost installments. The report analyzed laws in states that authorize payday loans and determined that 16 of the 26 payday-authorizing jurisdictions address extended payment plans. According to the Bureau, the savings of a no-cost extended payment plan can be substantial when compared to the total charges associated with repeated rollover fees. A Bureau press release regarding the report highlighted findings from prior research 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.

Key findings of the report include, among other things:

  • State payday loan extended payment plan laws typically address certain key provisions. Key provisions include, among other things, number of installments, plan length, allowable fees, frequency of use, consumer eligibility, and disclosures. While specific requirements vary by state, typical features include: disclosure of the right to elect an extended payment plan at the time consumers 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.
  • Eligibility requirements for extended payment plans vary by state and likely impact usage rates. For example, in Washington, which has possibly the most borrower-friendly extended payment plan, the usage rate is 13.4 percent, whereas states with more restrictive requirements, such as Florida, which requires credit counseling to be eligible, may have usage rates under 1 percent.
  • Despite the prevalence of state laws providing for no-cost extended payment plans, rollover and default rates consistently exceed extended payment plan usage rates. According to the report, monetary incentives encourage lenders to promote higher-cost rollovers, and collect the fees associated with such rollovers, at the expense of extended payment plans.
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