White paper on payday loans and deposit advance products
During the past year, the Consumer Financial Protection Bureau (CFPB) has engaged in an indepth review of short-term small dollar loans, specifically payday loans extended by nondepository institutions and deposit advance products offered by a small, but growing, number of depository institutions to their deposit account customers. This review began with a field hearing held in Birmingham, Alabama in January 2012. At that event, CFPB Director Richard Cordray noted that “the purpose of th[e] field hearing, and the purpose of all our research and analysis and outreach on these issues, is to help us figure out how to determine the right approach to protect consumers and ensure that they have access to a small loan market that is fair, transparent, and competitive.”
Director Cordray went on to state that “[t]hrough forums like this and through our supervision program, we will systematically gather data to get a complete picture of the payday market and its impact on consumers,” including how consumers “are affected by long-term use of these products.”
Updated on August 16, 2013
Note of clarification regarding online payday lending: The white paper provides a brief description on page 10 of the online lending model, including a summary of how lenders electronically initiate repayment from borrowers’ bank accounts. The following provides a more precise description of the repayment process: In the online lending model, a consumer completes a loan application online and provides an authorization for the lender to electronically debit her deposit account when the loan comes due. The loan proceeds are then deposited electronically into the consumer’s deposit account. The lender later submits an ACH debit entry to its depository institution or processor to obtain repayment from the consumer’s account at her depository institution. Other repayment methods such as remotely-created checks or money transfers may also be used.