Payday loans are small cash loans usually payable in a single payment on the borrower’s next payday. These are forms of consumer credit with very short terms and generally high interest rates. If the borrower cannot repay the loan when due, some states allow the borrower to pay a fee to defer full payment of their loan or “defer.” A 2014 report from the Consumer Financial Protection Bureau (CFPB) found that more than 80% of payday loans are renewed within two weeks.
The CFPB notes that more than 12 million borrowers use payday loans each year. 16 states now require payday lenders to allow borrowers to repay their payday loans at regular intervals through extended payment plans, or EPPs, usually at no additional cost to the borrower.
On April 6, 2022, the CFPB released a report examining state PEPs. Here are some of the key findings from the CFPB report.
Variation and commonalities between state PEP laws
The CFPB report found “substantial variation” among state PPEs, particularly in consumer eligibility requirements. Depending on the state in which they are borrowing, consumers may become eligible for PPE after exceeding a set number of rollovers, after paying a certain percentage of the outstanding balance, or after signing up for credit counseling.
Most states require PEPs to include at least four equal or substantially equal installments, and consumers are generally limited to one election of PEPs in a 12-month period. Many states require lenders to disclose the availability of an EPP option to consumers at the time they enter into the payday loan agreement or at the time of default.
EPP utilization, default and rolling rates
According to the CFPB report, utilization rates for extended payment plans vary widely by state, with Washington reporting that 13.4% of payday loans were converted to EPPs in 2020, compared to 0.4 % in Florida. In California, EPP utilization rates doubled from 1.2% in 2019 to 3.0% in 2020. As the COVID-19 pandemic saw payday loan volume decline by 65%, PPE utilization rates tended to increase slightly. The report attributes the decline in overall payday loan volume to federal economic impact payments.
Meanwhile, turnover and default rates remain higher than EPP utilization rates. For example, 27% of Washington payday borrowers defaulted on their loan in 2020, and 47.1% of Idaho borrowers renewed their loan in 2016. The CFPB attributes these high rates to lenders implementing practices that discourage the use of PPE. In the report’s press release, CFPB Director Rohit Chopra acknowledged that “[p]payday lenders have strong incentives to protect their income by inducing borrowers to re-borrow in expensive ways,” prompting “state laws that require payday lenders to offer extended repayment plans at no cost [to] does not work as expected.”
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The CFPB’s clear preference for expanding PPE opportunities to prevent consumers from racking up repeat rollover charges is embedded throughout the report. In 2014, the CFPB reported that most borrowers renew their payday loans enough times that accrued refinance fees exceed the original loan amount. Lenders should note that the CFPB “will continue to monitor lender practices that discourage consumers from taking extended payment plans and will take appropriate action.”  Payday loans are only legal in 26 states: Alabama, Alaska, California, Delaware, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Nevada, North Dakota, Rhode Island, South Carolina, Tennessee, Texas, Utah, Washington, Wisconsin and Wyoming. CFPB finds four out of five payday loans are rolled over or renewedCFPB (March 25, 2014).  CFPB finds payday borrowers continue to pay significant rollover fees despite state-level protections and payment plansCFPB (April 6, 2022).  Alabama, Alaska, California, Delaware, Florida, Idaho, Indiana, Louisiana, Michigan, Nevada, South Carolina, Utah, Washington, Wisconsin and Wyoming.  Market Snapshot: Consumer Use of Extended Government Payday Loan Payment PlansConsumer Financial Protection Bureau (April 2022).  ID. at 5, 7.  CFPB finds payday borrowers continue to pay significant rollover fees despite state-level protections and payment plans, above footnote 3.  CFPB Data Point: Payday LoansCFPB (March 2014).  Market overview, above note 5, at 14.