Credit Union Small-Dollar Loan Volume Hit New High in 2022: PEW

Helped by automation, total for low-cost payday alternative reached $227 million, up 30% from 2019 figure

Editor’s note: This article was updated on April 7, 2023, to correct the total volume of Payday Alternative Loans issued by credit unions in 2022. The piece described the loan volume as if each quarter’s reported lending was originated during that quarter, but each quarter’s report actually covers a rolling 12-month period, meaning aggregate volume is lower than originally described.

New data from the National Credit Union Administration (NCUA) shows that credit unions issued $227 million in loans through the administration’s Payday Alternative Loan (PAL) program in 2022, topping the previous record of $174 million, set in 2019, by 30%.

This increase in affordable, small-dollar credit benefits consumers, because each loan represents hundreds of dollars in potential savings compared with high-cost loans from payday, rent-to-own, or other similar lenders. The growth means that more borrowers with limited or no credit history have been able to borrow funds quickly to cover urgent expenses and avoid more costly alternatives. Expanded automation has helped drive recent increases.

The PAL program, which began in 2010 and was expanded in 2019 to boost consumers’ access to affordable small loans limits application fees to a $20 maximum and interest rates to a 28% maximum. So borrowing $500 for three months under this program costs no more than $44, compared with an average of $450 to borrow that same amount via payday loans.

Read more at The Pew Charitable Trusts

Chatbots in consumer finance: CFPB

Executive summary

Working with customers to resolve a problem or answer a question is an essential function for financial institutions – and the basis of relationship banking.1 Customers turn to their financial institutions for assistance with financial products and services and rightfully expect to receive timely, straightforward answers, regardless of the processes or technologies used.

The following research conducted by the Consumer Financial Protection Bureau (CFPB) explores how the introduction of advanced technologies, often marketed as “artificial intelligence,” in financial markets may impact the customer service experience. The purpose of this report is to explain how chatbot technologies are being used by financial institutions and the associated challenges endured by their customers. The CFPB’s analysis suggests that:

Financial institutions are increasingly using chatbots as a cost-effective alternative to human customer service. Our review found that each of the top 10 largest commercial banks have deployed chatbots as a component of their customer service. Approximately 37% of the U.S. population is estimated to have interacted with a bank’s chatbot in 2022, a figure that is projected to grow.2 As chatbot technology has evolved, so too has banks’ use of the technology. Banks are moving from simple, rule-based chatbots towards more sophisticated technologies such as large language models (“LLMs”) and those marketed as “artificial intelligence.”

Read more at Consumer Financial Protection Bureau (CFPB)

Payday Loans and Overdraft: PEW

A short history and what's next

Since the 1990s, millions of Americans have borrowed small sums of money each year through payday lenders or by overdrafting their checking accounts, often with poor results and high costs. But the market for small-dollar credit has improved substantially in recent years, thanks to state and federal reforms.

A look at the history of small loans and what has changed helps provide context on the underlying problems and how to ensure a safe and affordable future for borrowers.

Mass market for consumer credit replaced salary loans

In the early 1900s, unlicensed “salary lenders” offered one-week loans at annual percentage rates (APRs) of 120% or more using a borrower’s wages as collateral. As wage garnishment and abusive collection practices spread, state lawmakers sought to create a mainstream consumer credit market from state-licensed lenders. The Uniform Small Loan Law, guidance for states published in 1916, permitted 42% annualized interest on loans of up to $300 (equivalent to more than $8,000 today). Two-thirds of states adopted some form of the law.

Read more at The Pew Charitable Trusts

How younger voters will impact elections: The gender gap: BROOKINGS

Afunny thing happened slightly more than fifty years ago. In the 1980 presidential election, pollsters and politicians alike noticed that women were more likely to vote for the Democratic candidate, incumbent Jimmy Carter, than to vote for the Republican Ronald Reagan. In 1976, when Jimmy Carter defeated Gerald Ford, men and women were the same in their partisan preferences. But in 1980, the gap was nine points. Although this gap has been smaller in some elections than in others, for the past half century the gender gap has been a regular feature of American elections. The gender gap was 12 points in 2020, with 57% of women preferring Biden compared to 45% of men. Now, election results from last year’s midterms suggest it may be disappearing among younger voters.

As we have done in other articles in this series, we divide the electorate into two groups — those under 45 years of age and those over 45 years of age.[1] As the first graph illustrates, younger white men prefer Democrats in about the same percentages as do younger white women — 55% to 52%. However, among older Americans the gender gap is ten points — only 31% of white men prefer Democrats, whereas 41% of white women do — numbers that are more in keeping with those we’ve seen in the past 50 years.

Read more at The Brookings Institution

Hey, Bankers, Being Active on LinkedIn Pays Off

Bankers Should Be Active on LinkedIn — Leaders Need to Encourage It

The idea of employees using “social media” can be worrisome to compliance departments at financial institutions. But LinkedIn, which celebrates its 20th anniversary this year, has established a track record of helping people across many industries expand their networks, deepen connections and boost the bottom line. Too many banks and credit unions still discourage use of this valuable tool, says Jack Hubbard, a longtime industry consultant. Banking leaders should set an example, because it does, in fact, pay to be more social in this particular media.

Reid Hoffman is a serial entrepreneur. You may not have heard his name, but you are sure to know some of the innovations he has been part of.

In 1997 he co-founded SocialNet.com, a platform focusing on matching people of similar interests. He later became chief operating officer of PayPal. Hoffman’s legacy, however, will always be associated with LinkedIn, which he launched May 5, 2003.

Read more at The Financial Brand

Payday Loans and Overdraft: PEW

A short history and what's next

Since the 1990s, millions of Americans have borrowed small sums of money each year through payday lenders or by overdrafting their checking accounts, often with poor results and high costs. But the market for small-dollar credit has improved substantially in recent years, thanks to state and federal reforms.

A look at the history of small loans and what has changed helps provide context on the underlying problems and how to ensure a safe and affordable future for borrowers.

Mass market for consumer credit replaced salary loans

In the early 1900s, unlicensed “salary lenders” offered one-week loans at annual percentage rates (APRs) of 120% or more using a borrower’s wages as collateral. As wage garnishment and abusive collection practices spread, state lawmakers sought to create a mainstream consumer credit market from state-licensed lenders. The Uniform Small Loan Law, guidance for states published in 1916, permitted 42% annualized interest on loans of up to $300 (equivalent to more than $8,000 today). Two-thirds of states adopted some form of the law.

Read more at The Pew Charitable Trusts.

Young Americans Reaching Life Milestones Later: PEW

Young adults in the United States are reaching key life milestones later than they did 40 years ago, according to a new Pew Research Center analysis of Census Bureau data.

Adults who are 21 are less likely than their predecessors four decades ago to have reached five frequently cited milestones of adulthood: having a full-time job, being financially independent, living on their own, getting married and having a child. By the time they are 25, however, today’s young adults are somewhat closer to their predecessors in 1980 on two of these milestones: having a full-time job and financial independence.

In 2021, the most recent year with available data, 39% of 21-year-olds were working full time, compared with 64% in 1980. And only a quarter of people this age in 2021 were financially independent of their parents – meaning that their income was at least 150% of the poverty line – compared with 42% in 1980.

One factor that has contributed to fewer 21-year-olds having full-time jobs is the increase in college enrollment over the past four decades. Today, almost half of 21-year-olds (48%) are enrolled in college, whereas about three-in-ten (31%) were enrolled in 1980.

Read more at The Pew Charitable Trusts

CFPB Finds that Billions of Dollars Stored on Popular Payment Apps May Lack Federal Insurance: Consumer Financial Protection Bureau (CFPB) 

Agency issues notice to consumers advising them to transfer balances to insured banks and credit unions

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) published an issue spotlight on digital payment apps heavily used by consumers and businesses. The analysis finds that funds stored on these apps may not be safe in the event of financial distress, since the funds may not be held in accounts with federal deposit insurance coverage. The CFPB also issued a consumer advisory for customers holding funds in these apps and how they can make sure their funds remain safe.

"Popular digital payment apps are increasingly used as substitutes for a traditional bank or credit union account but lack the same protections to ensure that funds are safe,” said CFPB Director Rohit Chopra. “As tech companies expand into banking and payments, the CFPB is sharpening its focus on those that sidestep the safeguards that local banks and credit unions have long adhered to."

Use of nonbank payment apps such as PayPal, Venmo, and Cash App have rapidly grown in the past few years. These apps allow people to quickly pay retailers and others, while providing the option to store funds. Unlike traditional bank and credit union accounts which have deposit insurance, funds stored in these nonbank payment companies may be unprotected.

Read more at Consumer Financial Protection Bureau (CFPB)