US Government Review of Payday Loans

The Consumer Financial Protection Bureau  is a good resource for finding out more about the payday loan industry. It has a wealth of knowledge, literally reports with hundreds of pages!

Skimming their reports

DAP is a Fancy Finance way of saying a Bank Payday Loan

Interestingly, in one of their reports titled “Supplemental findings on payday, payday installment, and vehicle title loans, and deposit advance products” they go into explaining what a deposit advance product (DAP) is. They define a DAP as: 

a line of credit offered by depository institutions as a feature of an existing deposit account. They are offered to checking accountholders who receive recurring electronic deposits and who maintain accounts in good standing

So, basically, it’s a payday loan from a bank, available when someone has a paycheck coming in regularly. I’d be interested to hear from my readers if anyone has experience with one of these. I may also write a follow up article to go a bit more into this.

With DAP’s, it seems according to the study,  “As with payday loans, fees are expressed in dollars per $20 or $100 borrowed”. And they conclude that in the end, “when expressed as an annual percentage rate, are similar to those characteristic of payday loans”.

There are cooling-off periods and some restraint with banks

All banks required a “cooling-off period” after a certain number of months of continuous DAP use; the number of months to trigger a cooling-off period ranged from six to nine. At most banks a consumer’s DAP credit limit and overdraft limit were connected: for example, if a consumer had a $200 DAP advance outstanding, her available overdraft limit would be reduced by a corresponding $200. However, this was not the case at every bank. Generally, DAP credit limits were set at the lesser of 50% of the monthly qualified direct deposit amount or $500, but some banks utilized different metrics to set credit limits, and product terms evolved over time.

Good Screenshots of State Payday Loan Disclosures

Within the report are a couple good infographics:

Example of a Texas Single Payment Payday Loan Dislosure

Comparison of Payday Loan to other financing

These are great! But still in some ways burdened with so much information and legalese (on the second one) that it could seem complicated to consumers.

Online Payday Loans are Mentioned

There are a number of chapters cover various aspects of the payday lending industry, but the last chapter hold what we’re looking for, the only mention of online payday loans: 6.4 Estimated impact of the limitation on payment collection attempts on the online payday loan market

Unfortunately, there is not much useful information for the online consumer here… just a hypothetical model that looks at what impact would happen if the online lenders were prevented from further attempts to collect money after two failures of automatic withdrawal.