6 CFPB REPORT: ONLINE PAYDAY LOAN PAYMENTS
advance products during the sample period, which may limit the generalizability of the results to
other populations, such as checking account customers who do not receive their income via
direct deposit. However, customers are typically required to state their income when applying
for online payday loans. Customers with direct deposit are likely to have regular income,
whereas customers without direct deposit may be less likely to have regular income. Thus,
customers without direct deposit may be less likely to qualify for an online payday loan as they
may be unable to state income that meets the lender’s requirements.
The datasets used for this analysis include all of the de-identified transactions of a checking
account during the sample period. For each transaction, the depository institution provided the
amount of the transaction, the type of transaction, such as a debit from a debit card or a credit
from a personal check, and whether the transaction was paid normally, was paid as an overdraft,
or was refused because of insufficient funds. The depository institution also identified if the
transaction had a depository assessed fee associated with it due to overdraft or NSF. Depository
institutions typically have a maximum number of transactions in a day that are allowed to incur
overdraft and NSF fees. Transactions that result in overdraft or NSF can still occur once the
maximum number that are allowed to incur fees is reached; however, transactions that overdraft
or fail due to NSF beyond the maximum number would not incur fees from the depository
institution. A subset of the depositories provided information identifying the merchant
initiating electronic transactions, including ACH transactions, and the data used in this analysis
is limited to that subset of depositories. The data do not include specifics relating to what was
purchased. Any personally identifiable information, such as account holder name or social
security number, was removed from the data before Bureau staff began this analysis.
To identify online lenders in the data, we examined each merchant description in the data with
50 or more ACH debit transactions, a total of 14,099 merchant descriptors. We identified
possible online lenders based on the merchant descriptions, and used online search engines to
determine whether the merchant was, in fact, an online lender making payday or similar high-
cost loans. For this analysis, online lenders include companies providing high-cost, short-term
loans and operating strictly over the internet or by phone. In addition to lenders making
traditional payday loans with a single balloon payment, we include lenders making high-cost
installment loans with various payment structures, typically with payments timed to coincide
with a borrower’s payday. While a small number of online lenders offer loans secured by an
auto title, the overwhelming majority of lenders included in this analysis only offer unsecured
loans. Loans secured by an auto title typically require a borrower to visit a physical location,
and thus, lenders making such loans are less prevalent in the online market. Due to our limited