Unlike store-front lenders that perform transactions on an in-person basis, online lenders use automated networks to directly deposit funds into consumers’ accounts, and also to collect payment. The report found that in many cases, the accounts of borrowers who are unable to pay receive multiple payment requests, and that online payday lenders sometimes split a single payment into multiple debit requests. Each debit request made to an account that contains insufficient funds may result in an additional overdraft charge to the customer from the bank.
As ABA EVP Wayne Abernathy pointed out, however, the report – which is composed of data from an 18-month period between 2011 and 2012 – also showed that 94% of initial payment requests were successful, and of those, only 7% were covered with overdraft funds. The bureau’s findings, therefore, focus on the experience of a very small but important number of consumers, Abernathy added.
It is unfortunate that the CARD Act, the MLA rule, direct deposit advance guidance issued by the OCC and FDIC and anticipated small dollar lending rules have created a situation in which the only available option for these consumers is an online lender. ABA believes there should be a vibrant credit market with many choices for short term and small dollar credit, and we look forward to working with the bureau to expand this market.Read the CFPB report.