Annual Report Of Payday Lending Activity Under The California Deferred .
2020California Department ofFinancial Protection and InnovationAnnual Report of Payday Lending Activity Underthe California Deferred Deposit Transaction LawReport Required by Financial Code Section 23026
Lourdes M. Castro Ramírez, SecretaryBusiness, Consumer Services and Housing AgencyChristopher S. Shultz, Acting CommissionerDepartment of Financial Protection and InnovationEdgar L. Gill Jr., Senior Deputy CommissionerDivision of Corporations and Financial InstitutionsMona Elsheikh, Deputy CommissionerFinancial ServicesPublished July 2021
TABLE OF CONTENTSExecutive Summary . 3Part I: Consolidated Annual Report. 5Background . 5CDDTL Historical Data – Transactions . 6CDDTL Historical Data - Returned Checks . 8CDDTL Historical Data – Licensing . 11Part II: Consolidated Industry Survey . 12Background . 12Payday Loan Transaction Volumes Per Customer . 13Customer Age . 14Customer Income . 16Internet Transactions . 17Lead Generators . 18Disbursements to Customers . 20Payments from Customers . 22Collections . 25Fees . 28Subsequent Customers . 29Customers Receiving Government Assistance . 32Dispute Arbitration . 35Covered Borrowers . 36
EXECUTIVE SUMMARYThe Department of Financial Protection and Innovation licenses and regulates deferred depositoriginators, better known as payday lenders, pursuant to the California Deferred Deposit TransactionLaw (CDDTL).In a payday loan transaction, the consumer provides the lender a personal check for 300 or less.Also called “cash advances” or “deferred deposits,” the lender gives the consumer the money, minusan agreed upon fee. By law, the fee cannot exceed 15 percent of the amount of the personal checkand the lender then defers depositing the consumer’s check for a specific period, not to exceed 31days. Starting in 2005, the Department began regulation of payday loans to provide greater regulatoryoversight and guarantee that consumers have the disclosures necessary to make informed decisions.The COVID-19 pandemic had a significant impact on the state and national economy and likelyplayed a role in the decline in payday lending activity in California. There is evidence that thedecrease in payday activity correlates with COVID-19 relief efforts. While there are a number offactors in the decrease, they likely include the distribution of stimulus checks, loan forbearances, andgrowth in alternative financing options.The annual report and survey data in this report is unaudited and covers licensees’ activities incalendar year 2020. The report also provides historical data back to 2011.Key Findings California’s payday lenders made almost 6.1 million loans in 2020, worth 1.68 billion. Theserepresent a 40 percent decline from 2019 totals. In 2020, more than 1.1 million individual customers took out payday loans, a 30 percentdecline from 2019 total. Almost 61.8 percent of licensees reported serving customers who received governmentassistance. Subsequent loans by the same borrower accounted for 69 percent of the payday loans in2020 and 78 percent of the aggregate dollar amount. Of subsequent payday loans by the same borrower, 55 percent were made the same daythe previous transaction ended. Another 21 percent of payday loans were made one to seven days after the previousloan. Respondent licensees collected 250.8 million in fees on payday loans in 2020. Of that total,66 percent – or 164.7 million – came from customers who made seven or moretransactions during the year.California Department of Financial Protection and Innovation3
For the year, 49 percent of payday loan customers had average annual incomes of 30,000 or less, and 30 percent had average annual incomes of 20,000 or less. The number of payday loan customers referred by lead generators declined from 315,030 in2019 to 98,555 in 2020, a 69 percent decrease. Almost 16 percent of licensees made payday loans over the internet during 2020. However,online payday loans accounted about one-third (2,066,113) of all payday loans. About 41 percent of customers (460,458) took out payday loans over the internet. In 2020, 277,130 consumers took out single payday loans, compared to 212,003 in 2019.Typically, consumers took 10 or more payday loans more than a single payday loan in thepast. The use of cash to disburse funds to customers and receive payments from customerscontinued to decline in 2020. Measured in dollar amounts, cash disbursements decreasedfrom 75.2 percent in 2019 to 64 percent in 2020. Other forms of disbursements, including wire transfers, bank cards, and debit cards, climbedto 13.3 percent from 4.5 percent over the same period. In 2020, 47 percent of customers’payments were made with cash, down from 55.4 percent in 2019. Electronic transfers accounted for 25.2 percent of payments, compared to 23.5 percent in2019.California Department of Financial Protection and Innovation4
PART I: CONSOLIDATED ANNUAL REPORTBACKGROUNDIn this report, the Department of Financial Protection and Innovation (DFPI) has compiled datasubmitted by licensed deferred deposit originators, better known as payday lenders, under theCalifornia Deferred Deposit Transaction Law (CDDTL). Financial Code section 23026 requireslicensees to file with the DFPI Commissioner annual reports that provide information related totheir lending activities under the program.This report contains unaudited data provided by licensees for the calendar year ending Dec. 31,2020. The numbers are statistical in nature.As of Dec. 31, 2020, the DFPI licensed 150 payday lenders. Of those, 144 filed required annualreports in time to be included in this report, and four surrendered their licenses after Jan.1, 2021.Data from two licensees is not included, however the omission does not materially affect the integrityof the data compiled in this composite report.Due to rounding, numbers presented throughout this report may not add up precisely to the totalsprovided, and percentages may not precisely reflect the absolute figures.This report and prior years’ reports can be found on the DFPI’s website publications/.California Department of Financial Protection and Innovation5
CDDTL Historical Data – TransactionsIn 2020, the total dollar amount of payday loans decreased by 40 percent from the previous year,while the number of payday loans declined 40 percent. Table 1 also reflects a 30 percent drop from2019 in the number of payday loan customers obtained. The average number of payday loans percustomer has declined from 7.3 in 2010 to 5.4 in 2020.Table 1: Total Dollar Amount and Number of TransactionsYearTotal dollar amount ofpayday loansTotal number of paydayloansTotal number of individualcustomers who obtainedpayday loans**2020 1,683,782,7926,084,9591,128,3422019* 2,819,552,89110,181,2471,612,5932018* 2,817,530,72010,240,8941,622,9692017* 2,940,236,40210,734,2261,688,7192016* 3,140,937,92211,502,3971,796,5152015 4,170,267,95112,261,8851,885,9342014 3,376,447,23912,407,4221,818,5242013 3,165,667,70712,163,8321,779,4712012 3,229,018,35212,255,0261,768,5012011 3,276,629,49712,427,8101,738,219* Variances from data published in the annual report due to late filings by licensees.** Repeat customers counted onceCalifornia Department of Financial Protection and Innovation6
CDDTL Historical Data - Transactions (continued)The average payday loan dollar amount decreased to 246 in 2020. The average APR for paydayloans decreased to 361 percent in 2020 from 369 percent in 2019.Table 2: Transaction AnalysisYear*Average dollar amount ofpayday loans**Average annual percentagerate (APR)Average number of days ofpayday loans2020 246361%162019 250369%172018 250376%172017 250377%172016 251372%172015 237366%172014 235361%162013 260408%172012 260411%172011 263411%17* Maximum transaction amount, per statute, is 300.** APR is calculated using the average method, in which all APRs reported are divided by the number of licensees.California Department of Financial Protection and Innovation7
CDDTL Historical Data - Returned ChecksFrom 2019 to 2020, the number of returned checks in payday loan transactions decreased by 48.2percent. The number of returned checks as a share of total payday loans in 2020 decreased to 5.57percent from 6.43 percent in 2019 and was at its lowest level since 2012.Table 3: Returned Checks: Total Number and Dollar AmountYearTotal number of returnedchecksTotal number aspercentageTotal dollar amountTotal dollar amount aspercentage2020338,8885.57% 90,354,3735.37%2019*654,3546.43% 176,818,6096.27%2018*647,0696.32% 177,785,6946.31%2017*660,3516.15% 178,500,3076.07%2016*773,3686.72% 193,301,2106.15%2015780,8566.37% 212,767,3305.10%2014725,1705.84% 196,652,6805.82%2013706,2145.81% 191,816,9066.06%2012674,6485.51% 180,460,4665.59%2011931,3877.49% 246,769,4627.53%* Variances from data published in the annual report due to late filings by licensees.California Department of Financial Protection and Innovation8
CDDTL Historical Data - Returned Checks (Continued)From 2019 to 2020, the total dollar amount of returned checks recovered in payday loan transactionsdecreased 24.2 percent, to 72.5 million. The number of recovered returned checks as a share oftotal payday loans in 2020 increased to 4.94 percent from 4.18 percent in 2019 and at its highestlevel since 2011.Table 4: Returned Checks RecoveredYearTotal number of returnedchecks recovered**Total numberas percentageTotal dollar amount ofreturned checksrecovered**Total dollar amount aspercentage2020300,3214.94% 72,540,9324.31%2019*425,5674.18% 95,672,4813.39%2018*418,1554.08% 90,553,6023.21%2017*421,5613.93% 89,419,6793.04%2016*421,3713.66% 92,191,7392.94%2015417,9573.41% 96,878,4352.32%2014399,9733.22% 93,854,3692.78%2013370,8123.05% 88,276,5762.79%2012389,3123.18% 92,394,2612.86%2011642,0695.17% 160,480,8584.90%* Variances from data published in the annual report due to late filings by licensees.** Includes partial recoveriesCalifornia Department of Financial Protection and Innovation9
CDDTL Historical Data - Returned Checks (Continued)From 2019 to 2020, the number and dollar amount of returned checks charged off, meaning paydayloans unlikely to be collected, decreased by 40.3 percent. The number of charged off returned checksas a share of total payday loans in 2020 remained at 2.6 percent, virtually the same as the prior year.Table 5: Returned Checks Charged OffYearTotal number ofreturned checkscharged off**Total numberas percentageTotal dollar amountof returned checkscharged off**Total dollar amountas percentage2020158,2852.60% 39,725,7822.36%2019*265,2582.61% 66,551,3792.36%2018*265,0342.59% 66,514,6842.36%2017*343,8653.20% 82,592,7122.81%2016*548,0014.76% 143,439,2014.57%2015380,9253.11% 92,891,1272.23%2014376,7283.04% 99,586,6572.95%2013336,7802.77% 88,390,9202.79%2012289,9822.37% 73,647,1442.28%2011285,5552.30% 72,367,6892.21%* Variances from data published in the annual report due to late filings by licensees.** Includes partial balancesCalifornia Department of Financial Protection and Innovation10
CDDTL Historical Data – LicensingThe information in Table 6 and Table 7 reflects licensing activity for calendar years 2011 through2020. The long form application refers to the first application for a CDDTL license. The short formapplication refers to a license for an additional business location. Applications are subject toabandonment if a deficiency is not corrected within 90 days of notification. Applications can bewithdrawn at the request of the applicant.The information in Table 6 shows there has been a decline in the number of licensed locations. From2019 to 2020, the number dropped by 430, or 27.72 percent. From 2011 to 2019, the numberdropped by 568, or 26.81 percent.Table 6: Licensed 20112,119Table 7: Applications FiledYearLong Form Applications Filed(License for the FirstLocation)Short Form Applications Filed(License for an AdditionalBusiness Location)Total Applications 24880California Department of Financial Protection and Innovation11
PART II: CONSOLIDATED INDUSTRY SURVEYBACKGROUNDIn January 2021, the DFPI provided the California Deferred Deposit Transaction Law – 2020 IndustrySurvey to all licensed payday lenders. The DFPI conducts this survey pursuant to Financial Codesection 23015.The survey allows the Department to gather up-to-date information on transaction activities to assessthe financial health and compliance practices of California’s licensed payday lenders, as well aspotential consumer risks. The industry survey collected information on licensees’ activities in calendaryear 2020 related to the following: Volume of transactions per customerCustomer ages and incomeInternet transactionsLead generatorsDisbursements to customersPayments from customersCollectionsFees Subsequent transactions by the sameborrowerTransactions with customers whoreceive government assistanceDishonored checksDispute arbitrationCovered borrowersSome data included in this survey may not exactly match data in the annual report due to minordifferences in the data reported by licensees (Part I of this report).California Department of Financial Protection and Innovation12
Payday Loan Transaction Volumes Per CustomerQuestions one through ten of the survey asked licensees to report the number of customers whoobtained a specified number of transactions during 2020. Chart 1 provides the aggregated responsedata for each question.Chart 1: Total Number of Customers by Number of TransactionsSource: Survey questions 1-10QuestionNumber12345678910QuestionTextObtained 1Payday LoanObtained 2Payday LoansObtained 3Payday LoansObtained 4Payday LoansObtained 5Payday LoansObtained 6Payday LoansObtained 7Payday LoansObtained 8Payday LoansObtained 9Payday LoansObtained 10 ormore 57,87548,22040,85136,155212,003California Department of Financial Protection and Innovation13
Customer AgeChart 2: Number of Customers by Customers' AgeSource: Survey questions 12-17California Department of Financial Protection and Innovation14
Customer Age (continued)Chart 3: Number of Transactions by Customers' AgeSource: Survey questions 19-24California Department of Financial Protection and Innovation15
Customer IncomeChart 4: Average Annual IncomeSource: Survey questions 26-35California Department of Financial Protection and Innovation16
Internet TransactionsChart 5: Percentage of Payday Lenders Conducting Transactions on InternetSource: Survey question 37Table 8: Internet Transaction Volumes and AmountsSource: Survey questions 38 – 402020Number of Customers460,458Number of Transactions2,066,113Transaction Amounts 564,290,701California Department of Financial Protection and Innovation17
Lead GeneratorsThe number of payday loan customers referred by lead generators in 2020 decreased by 68.7percent from 216,475 in 2019 to 98,555 in 2020.Chart 6: Number of Payday Lenders Using Lead GeneratorsSource: Survey question 41Table 9: Lead Generator FeesSource: Survey questions 43 and 442020Fees Paid to Lead GeneratorsNumber of Customers Who Made Payday Loansthat Resulted from LeadsCalifornia Department of Financial Protection and Innovation 4,832,99798,55518
Lead Generators (continued)Chart 7: Percentage of Qualified Leads Resulting in TransactionsSource: Survey question 43 & Annual Report question 3Transactions made from qualified leadsTransactions not made from qualified leadsThe number of payday loan customers referred by lead generators decreased toalmost 9 percent in 2020, from 20 percent in 2019.California Department of Financial Protection and Innovation19
Disbursements to CustomersChart 8: Number of Disbursements to CustomersSource: Survey question 54Of the disbursements above, Cash represented 64 percent; Electronic ACH, 21.4percent; Paper Check, 1.3 percent; and Other, 13.3 percent.California Department of Financial Protection and Innovation20
Disbursements to Customers (continued)Chart 9: Dollar Amount of Disbursements to CustomersSource: Survey question 55Of the disbursements above, Cash represented 64.4 percent; Electronic ACH, 21.6percent; Paper Check, 1.3 percent; and Other, 12.7 percent.The “other” category includes the following payment types as described by licensees: wiretransfer, bank cards, and debit cards.California Department of Financial Protection and Innovation21
Payments from CustomersChart 10: Number of Payments from CustomersSource: Survey question 58Cash accounted for 47 percent of customer payments; Electronic ACH, 25.2 percent;Paper Check, 2.3 percent; Debit Card, 7.7 percent; Credit Card, 0.1 percent; and Other,17.7 percent.California Department of Financial Protection and Innovation22
Payments from Customers (continued)Chart 11: Amount of Payments from CustomersSource: Survey question 59Of the payments above, Cash represented 47.5 percent; Electronic ACH, 24.7 percent;Paper Check, 2.2 percent; Debit Card, 7.9 percent; Credit Card, 0.1 percent; and Other,17.6 percent.California Department of Financial Protection and Innovation23
Payments from Customers (continued)Chart 12: Percentage of Payday Lenders Offering Written Payment PlanSource: Survey question 61Table 10: Payment Plan Volumes for RepaymentSource: Survey questions 61 - 642020Total Dollar Amount of Outstanding Payment Plans 38,416,426Total Number of Outstanding Payment Plans180,286California Department of Financial Protection and Innovation24
CollectionsDuring the time period for which data was obtained for this report, the Department did not havejurisdiction over debt collectors. However, legislation passed in 2020 granted the Departmentsupervision and enforcement authority over debt collectors starting in 2021.The California Consumer Financial Protection Law (CCFPL) (Financial Code 90000-90019) wasenacted on Sept. 25, 2020 and it conferred new authority to the Department to supervise and regulate“consumer financial products and services.” The CCFPL became effective on Jan. 1, 2021. Debtcollectors squarely fall under that definition and are now subject to the Department’s supervisoryjurisdiction. Debt collectors must also comply with the CCFPL’s general prohibition of unlawful, unfair,deceptive, or abusive acts or practices, which the Department enforces. In addition, the DebtCollection Licensing Act (Financial Code 100000-1000025) was enacted on Sept. 25, 2020. Itrequires debt collectors to be licensed by the Department.Debt collectors must apply for licenses by Jan. 1, 2022, in order to continue doing business inCalifornia. Several other laws regulate the conduct of debt collection companies in California,including the federal Fair Debt Collection Practices Act and California's Rosenthal Fair DebtCollection Practices Act (Civil Code 1788-1788.33). The Department can enforce these laws pursuantto the CCFPL, which provides that the Department can enforce any California or federal “consumerfinancial law.”California Department of Financial Protection and Innovation25
Chart 13: Percentage of Licensees with In-House CollectionsSource: Survey question 66A total of 236,153 customers were not in a payment plan and paid in full as a result of inhouse collection in 2020. Those customers accounted for 509,850 transactions. (Source:Survey questions 67 and 68)The total dollar amount of 2020 transactions that were not in a payment plan and paid in fullas a result of in-house collections was approximately 131.9 million. (Source: Surveyquestion 69)California Department of Financial Protection and Innovation26
Collections (continued)Chart 14: Percentage of Licensees That Own Outside Collection AgencySource: Survey question 70Chart 15: Percentage of Licensees Associated with Outside Collection AgencySource: Survey question 71California Department of Financial Protection and Innovation27
FeesRespondent licensees collected 250.8 million in fees on payday loans they originated in 2020. Ofthat total, 65.7 percent – or 164.7 million – came from customers who took out seven or morepayday loans during the year.Chart 16: Payday Loan Transaction Fees per Financial Code section 23036(a)Source: Survey questions 1Transaction fees Transaction fees Transaction fees Transaction fees Transaction fees Transaction fees Transaction feescollected fromcollected fromcollected fromcollected fromcollected fromcollected fromcollected fromcustomers who customers who customers who customers who customers who customers who customers whomade 1 payday made 2 payday made 3 payday made 4 payday made 5 payday made 6 payday made 7 or moreloanloansloansloansloansloanspayday loans 14,733,396 12,818,151 14,658,323 15,680,572 14,361,850California Department of Financial Protection and Innovation 13,854,258 164,709,12728
Subsequent CustomersChart 17: Subsequent Transactions by Same Borrower: NumberSource: Annual Report question 1 and Survey question 89Number of all payday loansNumber of subsequent transactions by same borrowerOf the 6.1 million payday loans reported for 2020, 69.3 percent were subsequenttransactions by the same borrower.California Department of Financial Protection and Innovation29
Chart 18: Subsequent Transactions by Same Borrower: Dollar AmountSource: Annual Report question 2 and Survey question 90Dollar amount of all payday loan transactionsDollar amount of subsequent transactions by same borrowerOf 1.68 billion in payday loan transactions reported for 2020, 78 percent of the totaldollar amount represented transactions with repeat borrowers.California Department of Financial Protection and Innovation30
Subsequent Customers (continued)Chart 19: Subsequent Transactions by Same Borrowers: Days Between Transactions byVolumeSource: Survey questions 85 - 88Of subsequent payday loan transactions, 55.1 percent were made by the sameborrowers on the same day the previous transaction closed; 21.1 percent were madeone to seven days later; 7 percent were made eight to 14 days later; and 16.8 percentwere made 15 days or more after the previous transaction closed. These percentagesare based on 4.2 million subsequent transactions for which licensees provided thebreakdown in Chart 19.California Department of Financial Protection and Innovation31
Customers Receiving Government AssistanceLoans Made to Customers Receiving Government AssistanceAlmost 61.8 percent of licensees reported serving customers who received government assistance.Those customers accounted for 8.4 percent of all customers for those licensees. Almost 15 percentlicensees reported that more than 25 percent of their customers received government assistance.Table 11 reflects number of customers received government assistance in 2020.Table 11: Number of Customers Receiving Government AssistanceSource: Survey question 91 and Annual Report question 3Number of customersreceiving assistanceNumber oflicensees94,29889California Department of Financial Protection and Innovation32
Dishonored Checks (continued)Chart 20: Payday Loan Transactions: Dishonored Check VolumeSource: Survey question 83 and Annual Report question 1Number of transactions with returned check fees chargedNumber of transactions without returned check fees chargedOf 6.1 million payday loan transactions in 2020, 5.2 percent or 316,430 resulted indishonored check fees.California Department of Financial Protection and Innovation33
Dishonored Checks (continued)Chart 21: Dishonored Check Fees vs. Transaction FeesSource: Survey questions 82 and 84California Department of Financial Protection and Innovation34
Dispute ArbitrationChart 22: Percentage of Licensees with Dispute Arbitration Clause in Written AgreementSource: Survey question 92Chart 23: Percentage of Licensees with Dispute Arbitration Clause in Written Agreement ThatProhibits Borrowers from Joining Class ActionSource: Survey question 93California Department of Financial Protection and Innovation35
Covered BorrowersReport of Payday Loans to Active Military Servicemembers and DependentsAlmost 0.7 percent of reporting licensees indicated they had customers who were “coveredborrowers,” which include active members of the military and their dependents. The total numberof such customer was one, and the customer made one transaction amounting to 300. (Source:Survey questions 49-52)California Department of Financial Protection and Innovation36
California Department of Financial Protection and InnovationToll-Free: 1-866-275-2677TTY: 1-800-735-2922Online: www.dfpi.ca.gov1
online payday loans accounted about one-third (2,066,113) of all payday loans. About 41 percent of customers (460,458) took out payday loans over the internet. In 2020, 277,130 consumers took out single payday loans, compared to 212,003 in 2019. Typically, consumers took 10 or more payday loans more than a single payday loan in the past.
likelihood of payday loan usage among different demographic groups. Though like the general population, most payday loan borrowers are white, white respondents were less likely to have used a payday loan than others. In fact, after controlling for other factors, African Americans were 103 percent more likely to use payday loans than others.
Payday loans are extremely high-interest, short-term loans offered to cash-strapped consumers. Some of the problems with payday loans can be illustrated succinctly by the experience of one payday loan customer, Leticia Ortega.' Realizing that her next payday was two weeks away, Ortega worried about how
A typical payday loan incurs 15 interest per 100 borrowed over two weeks, implying an annual percentage rate (APR) of 391 percent, and more than 80 percent of payday loans nationwide in 2011-2012 were reborrowed within 30 days (CFPB 2016). As a result of these concerns, 18 states now e ectively ban payday lending (CFA 2019), and in 2017, the .
missouri permits single-repayment payday loans with finance charges and interest not to exceed 75 percent of the borrowed principal. The 2011 payday lending report from missouri's Division of Finance cites a fee of 52.45 for a 14-day loan of 307.56 (444.61 percent aPR).45 Payday loans are available for up to 500.
Payday loan companies have recently come under scrutiny thanks to triple digit interest rates and strategic placement in impoverished neighborhoods.6 Payday lending businesses have been banned in eleven states,7 and as of October 1, 2007, many lenders in the United States, including payday loan businesses, may not charge more than a 36% .
Payday L ending Rule's mandatory underwriting provisions to November 19, 2020 and made technical corrections to the 2017 Payday Lending Rule. On July 7, 2020, the Bureau issued a . (NCUA 's) requirements for the Payday Alternative Loan (PAL) program set forth in 12 CFR 701.21(c)(7)(iii)are exempted from being covered loans . E ight
the nation combined. These payday lending facilities extend about 38.5 billion in short-term credit to 19 million American households a year. Typically, a payday lending arrangement issues the customer a loan in the amount of 100 to 600 in exchange for a personal check written out in the amount of the loan plus fees, which are
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