On November 16, the California DFPI released Version 2.0 of its Annual Report of Finance Lenders, Brokers and PACE Administrators Licensed under the California Financing Law (CFL). The Annual Report examined unaudited data gathered from finance lenders, brokers, and Property Assessed Clean Energy (PACE) administrators licensed under the CFL, as well as new data from the “buy now, pay later” or BNPL industry.
The report featured some eye-opening information on the expansion last year in BNPL loans, which appear to have replaced consumer loans between $2,500 and $10,000 with interest rates of 100% or more. The super high interest rate loans decreased from 376,645 in 2019 to 36 in 2020, a decrease of over 99%. Also down significantly were consumer loans secured by auto title, which decreased from 106,070 in 2019 to 5,994 in 2020, a decrease of 94.4%. At the same time, however, finance lenders originated almost 12 million consumer loans in 2020, an increase from 2019 of 530%. The top six BNPL lenders accounted for almost 11 million of those loans. In addition, the number of online consumer loans originated in 2020 increased by 1,589%, from 664,488 to 11,226,399.
Interestingly, though, the total principal amount of online loans increased by only 24.18% in 2020, from $11.7 billion to $14.5 billion. Increased reporting of the BNPL loans may account for the bulk of the increase in consumer loans, and issues relating to the COVID-19 pandemic may also account for some of these changes, but the precipitous drop in super high interest rate loans and auto title loans would seem to indicate that these loans have fallen out of favor. DFPI also discussed recent BNPL enforcement actions, which required companies to consider a consumer’s ability to repay a loan and subjected the companies to rate and fee caps.
The total number of consumer loans originated by finance lenders, excluding loans made by BNPL lenders, decreased overall by 41.1 percent to 1,005,094 from 1,707,651 in 2019. However, the total principal amount of such consumer loans increased by 94.8 percent over the same period, to $111 billion from $57 billion. Setting aside the BNPL loans, the total aggregate principal amount of consumer loans increased mainly due to the increase in originations of consumer loans secured by real estate. The number of consumer loans secured by real estate originated in 2020 increased by 117.2 percent to 261,777 from 120,519 in 2019. The total principal amount of such consumer loans increased by 113.8 percent over the same period, to $101 billion from $47.3 billion.
Finally, the Report examined PACE financing data. PACE program administrators reported gross income of $43,478,875 from PACE program assessment financing in 2020, representing a 30 percent decrease since 2019.
Putting It Into Practice: As consumer behavior continues to shift towards BNPL products and away from traditional lending products or installment loan options as a result of myriad factors, industry participants can expect the DFPI and other regulators to focus their attention here (we discussed this trend in an earlier Consumer Finance & FinTech Blog post here).