Annual DFPI Report Shows Significant Decline of Payday Loans Amid COVID-19 Pandemic

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By Summer M. Bosse

On July 22, 2021, the Department of Financial Protection and Innovation (DFPI) released its Annual Report of Payday Lending Activity Under the California Deferred Deposit Transaction Law to the public. This report is required through the California Deferred Deposit Transaction Law, found in section 23026 of the Financial Code. The trend of the annual report revealed an overall decrease in payday lending amidst a global pandemic.

Payday loan transactions occur when a consumer provides a lender a personal check for $300 or less. Upon receiving this check, the lender gives the consumer the money minus an agreed upon fee that, by law, cannot exceed 15% of the personal check amount. The lender then defers depositing the consumer’s check for a specific period not exceeding 31 days.

The data reporting period for this report ended December 31, 2020, with 144 of the 150 payday lender licensees reporting data from the calendar year in time to be included in the annual report. In the 2020 calendar year, fewer than 6.1 million payday loans were obtained, representing a 40% decline in loans and a 30% decline in customers since the 2019 calendar year. The dollar volume of payday loans in 2020 showed a decrease of 40%, a much more substantial decrease than the pattern of the past decade suggested. The loss of nearly half of payday loan dollar volume is believed to be due to the pandemic for a number of reasons that may include factors such as stimulus checks, loan forbearances, and growth in alternative financing options.

In addition to the decrease of payday loans, the report indicates an increased dependence on electronic transactions and noncash financial products. Online payday loans accounted for one-third of all payday loans (2,066,113 loans) which represents 41% of customers. Cash disbursements decreased from 75.2% in 2019 to 64% in 2020, with 16% of licensees making payday loans over the internet.

The report also indicates a need for the DFPI’s regulation of the payday loan industry, as this industry is typically utilized by financially vulnerable Californians.  A majority of licensees (61.8%) reported serving customers who received government assistance, while 49% of customers had an average income of or below $30,000 and 30% of customers had an average income of or below $20,000.  In a press release addressing the annual report, acting Commissioner Christopher S. Shultz stated, “[w]e continue to closely monitor all financial products marketed to those in desperate financial need.” This statement is backed up by the data collected in this annual report, for instance, payday lenders collected roughly $250.8 million in fees on payday loans in 2020, a majority of which (66%) came from customers who made seven or more payday transactions during the year.

During the time period this data was collected, DFPI did not have jurisdiction over debt collection. The California Consumer Financial Protection Law (CCFPL) was enacted on September 25, 2020, and conferred new authority to DFPI, allowing the Department to supervise and regulate “consumer financial products and services.” DFPI’s new authority over the debt collection industry is entwined with the payday loan industry, as represented in the annual report, 99% of payday loan licensees reported owning an outside collection agency.

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