The Center for Financial Services Innovation (CFSI) released a new study that uncovers reasons why consumers use potentially harmful small-dollar credit products and highlights the need for better high-quality credit solutions.
“Every year, millions of American consumers use small-dollar credit products for quick access to cash,” said lead author, Rob Levy, Manager, Innovation and Research at CFSI. “These products — payday loans, pawn loans, direct deposit advance loans, auto title loans, and non-bank installment loans — often come with high fees or interest rates and can lead consumers into a cycle of repeat usage and mounting debt. Our goal with this study was to see where the market is today, and encourage development of high-quality credit as defined by affordability, transparent marketing, a structure that supports repayment without creating a cycle of repeat borrowing, and offering the opportunity for credit-building.”
The study, supported by the Ford Foundation, surveyed over 1,100 small-dollar credit (SDC) consumers, plus an additional 500 non-SDC consumers for comparison.