CFPB publishes report on consumer use of alternative financial services – Consumer protection
United States: CFPB publishes report on consumer use of alternative financial services
To print this article, simply register or connect to Mondaq.com.
As part of its Making Ends Meet survey, the CFPB published a report last week on how consumers use payday loans, auto titles and pawn shops (“alternative financial services” or “AFS”) and the other sources of credit available to them. The consumers surveyed include only those with a traditional credit history and the sampling focused on consumers with lower credit scores, recent credit defaults, or living in rural areas.
It was found that many consumers who obtained an AFS product in 2019 were still using AFS products in 2020. The 2019 survey asked consumers if they had obtained an AFS product in the previous 6 months and found the following usage rates: 4.4% for payday loans (defined as “a loan that you must repay, make a payment or carry over to your next payday”), 2% for auto title loans and 2.5% for pawn shops. Of those who have used an AFS product in the past six months, at the time of the survey, 63% still owed a payday loan, 83% still had an auto title loan, and 73% still owed a payday loan. ‘a pawnshop and 48% percent of consumers specifically said they rolled over at least one payday loan in the past six months. The 2020 survey extended the retrospective period to 12 months and revealed the following utilization rates: 5.7% for payday loans, 2.9% for auto loans and 2.5% for loans. on pledge. The survey also found that 52% of consumers who said they used a payday loan in 2019 had also used one in 2020, while only 3.5% of consumers who had not used a payday loan in 2019. reported using one in 2020.
The report states that 74% of AFS users in the previous year reported experiencing an income or expense shock that same year, compared to only 57% of non-AFS users. The report also states that in June 2019, 77% of AFS users reported experiencing a financial shock and having difficulty paying a bill or expense, compared to 29% of non-AFS users. Additionally, 10% of AFS users reported difficulty paying a bill or expense without experiencing financial shock. Regarding the impact on liquidity of consumers who reported having difficulty paying a bill due to an adverse event, the report states that after paying the expense, AFS users had a median deficit of 800 $, compared to a median of $ 435 of funds available to non-AFS users.
The report finds that over 60% of AFS users had poor or very low credit scores, which affects their options for paying bills or spending. Among AFS users who said they applied for credit in the past year, 60% said they were turned down or offered less credit than requested. Among AFS users who had not applied for credit in the past year, 48% said they did not because they expected the request to be denied. Among borrowers who had obtained a loan in the past six months and still owed money as of June 2019, 63% of AFS users reported having a credit card, but only 28% of payday borrowers had at least $ 300 credit available in June 2019, as are 33% of auto securities borrowers and 16% of pawnbrokers.
The CFPB concludes the report by noting that while relatively few consumers use AFS products, consumers who use these products do so repeatedly. The report includes additional details on AFS user demographics, financial shocks, and other available payment options.
While the data on which the report was based were collected by the Kraninger administration in June 2019 and June 2020 as part of the first two waves of the CFPB’s “Making Ends Meet” survey, it must nevertheless be considered in the context of Acting Director Uejio’s March 23 statementst that the “great majority of [the small dollar
lending] the industry’s revenue came from consumers who could not afford to repay their loans, with most short-term loans being in re-borrowing chains of 10 or more “and the CFPB is” keenly aware of the harm done to consumers. consumers in the low dollar loan market, and is particularly concerned with the business model of any lender that depends on the inability of consumers to repay their loans. “Accordingly, despite the cancellation of the ‘repayment capacity’ provisions of the CFPB rule on” pay day, vehicle title and certain high cost installment loans “, the report is yet another point. data indicating CFPB’s belief that “the harms identified by the 2017 rule still exist” and a warning to small-value lenders of its intention to remedy such harms “through vigorous market surveillance, supervision, enforcement and, where appropriate, regulations “.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought on your particular situation.
POPULAR ARTICLES ON: US Consumer Protection