On April 6, 2022, the CFPB published a report which reveals few payday loan borrowers are benefiting from no-cost extended payment plans, which are required to be offered to borrowers in the majority of states that do not prohibit payday lending. According to the CFPB, borrowers continue to pay for costly loan rollovers instead of using the payment plans. While no-cost extended payment plans are meant to help borrowers exit the cycle of rollovers and fees, the payday business model continues to depend on high rollover rates and fees.

CFPB Director Rohit Chopra said:

“Our research suggests that state laws that require payday lenders to offer no-cost extended repayment plans are not working as intended. Payday lenders have a powerful incentive to protect their revenue by steering borrowers into costly re-borrowing.”

The report, titled Market Snapshot: Consumer use of State payday loan extended payment plans, found the following substantial differences among the 16 states that require lenders to offer no-cost payment options.

State no-cost extended payment plans vary substantially. Typically, extended payment plans are disclosed to borrowers at the time of signing a payday loan contract, repayment is required in several installments, and no additional fees are charged for extended payment plans.
Usage rates for extended no-cost extended payment plans are low in all states. Washington state, which has one of the most lenient extended payment plans, has only a 13.4% usage rate for payday loans overall while states with more restrictive requirements, have even lower usage rates.
The pandemic has affected payday loan volumes, but not no-cost extended payment plan usage. The number of payday loans declined by 65% in 2020 from 2019, whereas the number of payment plans stayed the same. However, there was variation within states. In California, for instance, payment plan enrollment has more than doubled

Read the CFPB’s full press release here.

The full report, Market Snapshot: Consumer use of State payday loan extended payment plans can be found here.

Adam Witmer

Adam Witmer is a speaker, author, and founder of the Compliance Cohort. Adam has taught hundreds of seminars and training sessions to thousands of bankers throughout the United States and teaches on all areas of regulatory compliance. Adam has written five e-books that he never published, hit a grizzly bear while driving in a National Park, and is an award winning photographer and musician (though he no longer takes photos nor plays any instruments). In his spare time, Adam can be found kayaking on the lake, doing taekwondo with his kids, working on his (project) house, or spending time with his family.

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