Consumer Financial Protection Bureau (CFPB) officials said an agency report determined payday loan borrowers continue to pay significant rollover fees despite available protections and payment plans.
“Our research suggests that state laws that require payday lenders to offer no-cost extended repayment plans are not working as intended,” CFPB Director Rohit Chopra said. “Payday lenders have a powerful incentive to protect their revenue by steering borrowers into costly re-borrowing.”
Per the CFPB, while no-cost extended payment plans are established to aid borrowers in exiting the cycle of rollovers and fees – the payday business model depends on high rollover rates and fees.
The report showed rollover fees serve as an incentive for lenders to keep borrowers unaware of no-cost extended payment plans – and the CFPB indicated its supervision of the industry determined some payday lenders have deceived borrowers by misrepresenting or withholding information about payment options.
Over 12 million borrowers secure payday loans annually in the 26 states where payday lending is not prohibited. The CFPB said 16 states require payday lenders to offer no-cost extended payment plans, allowing borrowers to repay only the principal and fees already incurred, splitting the remaining balance over several months.
If a borrower does not repay their loan, they do have the option to roll over their loan. However, that is a costlier option as a rollover renews the borrower’s loan for another pay period, and the borrower is charged an additional payday loan fee.
The CFPB noted it would continue to monitor the payday loan industry, deploying enforcement and supervisory authorities where abuses and violations exist.