WASHINGTON (8/10/15)--A study released last week by the National Consumer Law Center examines the strengths and gaps of state-to-state installment loan regulations, which is a market projected to increase as payday loans become more restricted.
The study examines all 50 states and the District of Columbia for regulations on installment loans, which are loans repaid over time with a set number of scheduled payments.
The Consumer Financial Protection Bureau placed supervision of larger participants in the installment loan and vehicle title loan markets on its spring 2015 rulemaking agenda, with January 2016 set as the initial timetable for pre-rule activities.
According to the study, consumers mostly use credit cards for small-dollar credit, and policymakers generally focus on the harms of payday loans, while installment loans have flown under the radar.
The study surveyed regulations that would affect two sample loans--a six-month loan for $500 and a two-year loan of $2,000. States almost always impose lower rate caps on for larger loans, the study found.
For the $500 loan, it found:
For the $2,000 loan, the study found:
The study also found that many states permit charges for credit insurance and other add-on products, which can add to the cost of the loan while providing little to no benefit.
The National Consumer Law Center recommends states place clear, loophole-free caps on interest rates for installment loans and open-ended credit; prohibit or strictly limit loan fees; and ban the sale of credit insurance or other add-on products.