The State of Lending in America:
Senior Policy Researcher
Center for Responsible Lending
4 December 2013
The overall level of lending is shrinking because of
decisive state and federal action. However, for those who
receive payday loans, the consequences remain dire.
Borrowers pay $3.4 billion in payday fees each year.
Payday lenders continue to be dependent on creating a
long-term cycle of debt that leads to a cascade of financial
consequences, despite codification of industry “best
22 states have rate caps that eliminate the debt trap or other
reforms that limit the debt trap. Despite an aggressive push by
payday lenders to reverse these laws, states are holding firm
with broad public support, and borrowers are better off.
The states should continue to push for 36% APR caps where
The CFPB should require underwriting, prohibit the
requirement to hold a post-dated check or to provide
electronic account access as a condition of receiving the loan,
and put in place a 90 days of indebtedness limit for high-cost,
Repeat Borrowing Fuels Payday Lending
(Even with “Best Practices” Codified )
% of loans to
% of loans to
% of loans to
2006 Average (from
Current Industry Landscape
• The number of storefront locations has declined
from around 25,000 in 2006 to around16,000
• Borrowers pay $3.4 billion annual in payday loan
fees, at least $2.6 billion of which is due to loan
• Payday lenders are able to maintain growth by
charging higher fees and making larger loans in
Payday Loans Create a Long-Term
Cycle of Debt for Borrowers
• CFPB: Median loan size $350, total interest $458. Average
borrower takes out ten loans per year and is indebted
199 days (55%) of the year. Two-thirds of borrowers
receive seven or more loans in a year.
• CRL Analysis of state regulator data finds an average of
nine loans per year, paying back $504 for an initial loan
• Total fees paid: $3.4 billion.
• Most loans are taken out in rapid succession; 76% of fees
($2.6 billion) are the result of lenders churning borrowers
every two weeks.
Effective State and Federal Action to Curb
Payday Debt Trap
• 22 states have implemented rate caps or other reforms to curb the
debt trap since 2001. No new state has authorized payday loans since
• Payday lenders have aggressively tried to reverse this trend. They have
been unsuccessful because of broad opposition.
• Voters have consistently supported ballot initiatives to impose rate caps
on payday loans (e.g., OH, AZ, and MT).
• States have been effective at enforcing their laws, particularly as federal
regulators helped end evasion attempts, such as the “rent-a-bank”
Movement to Payday Installment Loans
In states with little-to-no regulation of installment loans—particularly
those with no rate cap—some payday lenders have migrated to highcost installment loans (but not to the exclusion to the single-payment,
two-week payday loan).
Payday lenders are pushing debt-trap payday installment proposals in
states that have significant payday regulations
Some states specifically authorize payday installment loans
These payday-like installment loans are still structured as debt trap
• Federal regulators have cracked down on bank payday
The OCC and FDIC issued final guidance directing
their banks to avoid payday lending.
The Federal Reserve Board issued a statement of
guidance expressing concerns about bank payday
products. (We still hope the Fed will join the OCC
and FDIC in their guidance.)
Regulatory Action (Continued)
• The CFPB is expected to issue rules that would likely
cover all payday lenders, non-bank and bank. Earlier
this year, it issued a white paper on payday loans.
• The Federal Trade Commission issued an enforcement
action applying the Truth in Lending Act and the
Electronic Funds Transfer Act to online tribal lenders.
• States have been effective at enforcing their laws.
36% APR limit (states, Congress)
Prohibit requiring a post-dated check or electronic
account access as a condition of receiving credit.
Underwriting: Assess ability to repay the loan and
cover other expenses without having to take out
90 days of indebtedness limit for high-cost, shortterm credit.
Vigorous enforcement from federal and state regulators.
Other Recent Research Papers
• Lohrenz, 2013 (Insight Center) finds that the payday lending industry had
a negative economic impact in 2011 of $774 million, resulting in the
estimated loss of more than 14,000 jobs. U.S. households lost an
additional $169 million as a result in increased bankruptcy filings
resulting from payday loan usage, bringing the total loss to nearly $1
• Kaufman, 2012 (Fed) examines the effects of various state regulatory
approaches on payday lending, providing support for the contention that
payday lenders charge the maximum they can in a state. For each $1
increase in the maximum fee allowed in the state, the actual price goes
up by 75 cents. He also finds that increases in the maximum fee allowed
and the maximum loan size are associated with a higher delinquency
Other Recent Research Papers (Continued)
McKernan/Ratcliffe/Kuehn, 2013 (Urban Institute) find that state
payday lending prohibitions/price caps do not lead people to use
other alternative financial services (AFS) products; i.e., they find
no evidence of a substitution effect.
Bhutta, 2013 (Fed) finds that payday loans do not have a
statistically significant impact on credit scores, new delinquencies,
or the likelihood of overdrawing credit lines. The author did not
use a data set with actual payday loan usage, a key drawback of
his approach. Other papers have found that payday loan usage is
associated with negative financial outcomes, such as defaulting on
credit card debt, filing for bankruptcy, incurring overdraft fees, and
losing the bank account.