Pew Cautions Against Risky Third-Party Bank Partnerships

Letter to House committee provides evidence base to identify safe and unsafe small-dollar lending models

Speeches and Testimony Read time:
Projects: Consumer Finance
Pew Cautions Against Risky Third-Party Bank Partnerships

To inform discussion at the Feb. 5 hearing, “Rent-A-Bank Schemes and New Debt Traps: Assessing Efforts to Evade State Consumer Protections and Interest Rate Caps,” The Pew Charitable Trusts provided the U.S. House Financial Services Committee with a summary of its research on small-dollar loans. 

In its letter, Pew drew stark contrasts between two types of partnerships between banks and third-party financial operators: one that allows mobile or online banking providers to help small and medium-sized banks offer safe, small installment loans, and another that permits payday or other nonbank lenders to use banks’ charters to originate high-cost loans that would otherwise violate state usury laws, putting consumers at extreme risk.

Money jigsaw
Issue Brief February 15, 2018

Standards Needed for Safe Small Installment Loans

Quick View
Issue Brief February 15, 2018

Several recent developments have raised the possibility of banks and credit unions offering small installment loans and lines of credit—which would provide a far better option for Americans, who currently spend more than $30 billion annually to borrow small amounts of money from payday, auto title, pawn, rent-to-own, and other small-dollar lenders outside the banking system. Consumers use these high-cost loans to pay bills; cope with income volatility; and avoid outcomes such as eviction or foreclosure, having utilities disconnected, seeing their cars repossessed, or going without necessities. Many of these loans end up harming consumers because of their unaffordable payments and extremely high prices; in the payday and auto title loan markets, for example, most borrowers pay more in fees than they originally received in credit.

Broken money
Broken money
Report October 17, 2018

State Laws Put Installment Loan Borrowers at Risk

Quick View
Broken money
Report October 17, 2018

Approximately 14,000 individually licensed stores in 44 states offer installment loans, and the largest lender has a wider geographic presence than any bank and has at least one branch within 25 miles of 87 percent of the U.S. population.

Downloads Pew Cautions Against Risky Third-Party Bank Partnerships (PDF)
Downloads Pew Cautions Against Risky Third-Party Bank Partnerships (PDF)
America’s Overdose Crisis
America’s Overdose Crisis

America’s Overdose Crisis

Sign up for our five-email course explaining the overdose crisis in America, the state of treatment access, and ways to improve care

Sign up
Quick View
America’s Overdose Crisis

America’s Overdose Crisis

Sign up for our five-email course explaining the overdose crisis in America, the state of treatment access, and ways to improve care

Sign up
RELATED
Topics
Family Finances U.S. State Policy
Tags
Small-dollar loans Banks & credit unions
Projects
Consumer Finance

ADDITIONAL RESOURCES

A presentation being given by a businesswoman to a group of participants at a business conference.

Fact Sheet

April 12, 2024 Four Plan Features Can Boost 'Retirement Readiness'
A photograph of City Hall in Philadelphia, Pennsylvania

Article

March 19, 2024 Philadelphia to Address Pressing Policy Challenges
Water-logged furniture and rugs are piled on grass in front of a small white house. Behind the house is a steep grassy hill, and beside the house is a black all-terrain vehicle. In front of the pile is an orange construction sign.

Article

February 27, 2024 Why West Virginia Should Invest in Flood Resilience

MORE FROM PEW

An aerial view of a vast wetland, with scattered vegetation visible on sandy islands. In Western Australia, a Conservation Model for the World
A large group of people in formal or traditional attire stands together on a stage, with a digital background depicting marine life and the large text “WTO Agreement on Fisheries Subsidies.” WTO Needs to Redouble Its Effort on Fishing Subsidies
A man in a winter hat and sunglasses kneels on a rocky shoreline in front of a campfire, holding a metal mug with gloved hands. Behind him, in the water, a motorboat is moored to the shore. Cliffs rise on both sides of the water. Why Newfoundland’s South Coast Fjords Are Sacred
An illustration of a couple holding hands walking away from an outline of houses behind them Pathways to Homeownership: Housing in America
Composite image of modern city network communication concept

Learn the Basics of Broadband from Our Limited Series

Sign up for our four-week email course on Broadband Basics
Quick View

How does broadband internet reach our homes, phones, and tablets? What kind of infrastructure connects us all together? What are the major barriers to broadband access for American communities?

What Is Antibiotic Resistance—and How Can We Fight It?

Sign up for our four-week email series The Race Against Resistance.
Quick View

Antibiotic-resistant bacteria, also known as “superbugs,” are a major threat to modern medicine. But how does resistance work, and what can we do to slow the spread? Read personal stories, expert accounts, and more for the answers to those questions in our four-week email series: Slowing Superbugs.