CFPB Report Blasts Payday Lenders over Bank Fees
In advance of the CFPB’s proposed rule on payday loans, the bureau has released a new report critical of payday lenders’ practice of debiting borrowers’ checking accounts, which often leads to overdrafts, penalty fees and account closures, while failing to actually recover payments, according to the report, which is based on data from more than 330 lenders.
Lenders that make loans over the Internet often use the ACH network to deposit loan funds into borrowers’ checking accounts. Repayment is made by making a pre-authorized debit from the same account. However, if a borrower’s account lacks sufficient funds, the bank may charge the borrower an overdraft fee or a non-sufficient funds (NSF) fee—both of which averaged $34 in 2011 and 2012, the period covered by the survey. In addition, borrowers may incur late or nonpayment fees from the lender if the payment is denied.
Over the 18 months studied in the survey, half of borrowers’ checking accounts had at least one payment request from an online lender result in overdraft or be rejected for non-sufficient funds. Accounts were charged an average of $185 in overdraft and NSF fees—and $50 of that amount, on average, was the result of a lender re-presenting a debit request after a previous request had failed. The practice of repeated payment requests is especially un-fruitful, the report noted; 70 percent of re-presentments fail on the second attempt, with subsequent tries even less likely to succeed.
Last year, the CFPB announced it was considering a proposal that would prohibit payday and deposit advance lenders from making more than two unsuccessful attempts in succession on a borrower’s checking or savings account. That practice is among the topics expected to be addressed in the bureau’s proposed rule on short-term loans, which is scheduled to be released later this year.