As the nation waits and drama builds over expected new guidelines from the Consumer Financial Protection Bureau on short-term lending, the government watchdog has issued a new report that indicates that the high cost of payday loans is even higher than most people think.
The CFPB report notes that attempts by online lenders to collect payments directly from consumer banking accounts has a high correlation with leaving those borrowers with even more debt. Half of all consumers surveyed by the CFPB were found to be racking up an average bank fee of $185 in penalties because at least one debit attempt overdrafts or fails. Of that half, about a third face account closures as an outcome.
The study also found that, despite this high cost to consumers, lenders’ repeated debit attempts typically fail to collect payments.
“Taking out an online payday loan can result in collateral damage to a consumer’s bank account,” said CFPB Director Richard Cordray. “Bank penalty fees and account closures are a significant and hidden cost to these products. We are carefully considering this information as we continue to prepare new regulations in this market.”
The data in the report was drawn from an 18-month study of consumer payday and installment loans done between 2011 and 2012 taken out over 330 lenders. The focus was on the methodology that lenders use when attempting to collect their owed funds.
The CFPB has been considering a rule change that would ban short-term lenders from making more than two unsuccessful attempts in succession on a borrower’s checking or savings account.
That rule is likely to be packaged into forthcoming guidelines.