Previously, payday loans, typically a few hundred dollars lent at a high rate of interest on the agreement that they will be repaid when the borrower receives the next paycheck, had dominated the market for these borrowers, according to the Center for Responsible Lending, a watchdog group.
The Online Lenders Alliance, a Virginia-based, roughly 130-member national trade association that includes publicly traded companies, entrepreneurs and other lenders, defended the installment loans.
The organization says its members share a common goal to "serve hardworking Americans who deserve access to trustworthy credit," and the loans go to consumers with low credit scores, known in the industry as subprime or near-prime, who often cannot obtain loans from traditional banks or credit unions because of their poor financial track record.
The Center for Responsible Lending, a Durham, North Carolina, financial watchdog, recently raised warning flags about triple-digit installment loans when it released a study in late September called "Unsafe Harbor: The Persistent Harms of High-Cost Installment Loans.".
The center said while there have been studies on payday loans, there has been little examination of the problems associated with high-cost installment borrowing.
But the Online Lenders Alliance said the center's report reflects an "ongoing war to harm consumers by eliminating their credit access.".
“If CRL were to get their way, the consumers who rely on short-term credit products to manage their finances and make ends meet would be worse off, period,” Duke said.
Justin Fisk, director of research and policy for the alliance, points to a 2015 George Washington University and Stevens Institute of Technology study that said the payoff rate is 69% on small-dollar loans.
For example, that 2015 study said a typical installment loan was $900 to be repaid in 12 biweekly installments over six months, and the annual percentage rate for those loans was 200% to 400%. .
Farahi of the Center for Responsible Lending said its study found 3 in 4 survey participants took out short-term installment loans in excess of $1,000. And interest rates ranged from 100% to 189%, even though 34 states and the District of Columbia have limits on lending rates, known as usury caps, of 36% or lower for larger, longer-term, high-cost installment loans.
Farahi said financial companies that offer triple-digit loans get around these laws by what she calls a "rent-a-bank" scheme, which state and federal regulators should end.
The National Consumer Law Center, a Boston-based nonprofit that specializes in consumer issues on behalf of low-income people, has done extensive research on so-called "rent-a-bank" loans.
The National Consumer Law Center has identified a handful of banks in Utah and a few other Federal Deposit Insurance Corp.-supervised banks that provide the loans?
Lauren Saunders, associate director of the center, said there are at least nine companies that have "significant rent-a-bank operations" that offer loans through multiple partners.
Elevate, in a securities filing, denied it had violated any law or engaged in any deceptive or unfair practice. The company in a statement said it agreed to the settlement "in order to move forward and maintain our focus facilitating access to responsible credit options for those who need it."
The first was a $2,300 line of credit, while the other was a $1,500 installment loan he said he obtained in May