Pew Cautions Against Risky Third-Party Bank Partnerships

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

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
Money jigsaw
Issue Brief

Standards Needed for Safe Small Installment Loans

Quick View
Issue Brief

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

State Laws Put Installment Loan Borrowers at Risk

Quick View
Report

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.

Spotlight on Mental Health

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?

Pills illustration
Pills illustration

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.

Explore Pew’s new and improved
Fiscal 50 interactive

Your state's stats are more accessible than ever with our new and improved Fiscal 50 interactive:

  • Maps, trends, and customizable charts
  • 50-state rankings
  • Analysis of what it all means
  • Shareable graphics and downloadable data
  • Proven fiscal policy strategies

Explore

Welcome to the new Fiscal 50

Key changes include:

  • State pages that help you keep track of trends in your home state and provide national and regional context.
  • Interactive indicator pages with highly customizable and shareable data visualizations.
  • A Budget Threads feature that offers Pew’s read on the latest state fiscal news.

Learn more about the new and improved Fiscal 50.