On November 16, the California DFPI released version 2.0 of its annual report on PACE Lenders, Brokers and Administrators licensed under the California Finance Act (CFL). The annual report reviewed unaudited data collected from CFL-licensed Property Assessed Clean Energy (PACE) lenders, brokers and administrators, as well as new “buy now, pay later” industry data. or BNPL.
The report presented revealing information about last year’s expansion of BNPL loans, which appear to have replaced consumer loans between $2,500 and $10,000 with interest rates of 100% or more. Ultra-high interest rate loans fell from 376,645 in 2019 to 36 in 2020, a decline of more than 99%. Consumer loans secured by car titles are also down sharply, from 106,070 in 2019 to 5,994 in 2020, a drop of 94.4%. At the same time, however, financial lenders issued nearly 12 million consumer loans in 2020, a 530% increase from 2019. BNPL’s top six lenders accounted for nearly 11 million of those loans. In addition, the number of online consumer loans initiated in 2020 increased by 1,589%, from 664,488 to 11,226,399.
Interestingly, however, the total principal amount of online loans only increased by 24.18% in 2020, from $11.7 billion to $14.5 billion. The increase in BNPL loan reporting may explain most of the increase in consumer loans, and issues related to the COVID-19 pandemic may also explain some of these changes, but the precipitous drop in consumer loans Very high interest rates and auto title loans would seem to indicate that these loans have fallen out of favor. DFPI also discussed BNPL’s recent enforcement actions, which required businesses to consider a consumer’s ability to repay a loan and subject businesses to caps on rates and fees.
The total number of consumer loans issued by financial lenders, excluding loans originated by BNPL lenders, overall decreased by 41.1% to 1,005,094 from 1,707,651 in 2019. However , the total principal amount of these consumer loans increased 94.8% over the same period, to $111 billion from $57 billion. Excluding BNPL loans, the total 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 issued in 2020 increased by 117.2% to 261,777 from 120,519 in 2019. The total principal amount of these consumer loans increased by 113.8% over the same period, from $47.3 billion to $101 billion.
Finally, the report examined CAPC funding data. PACE program administrators reported gross income of $43,478,875 from PACE program evaluation funding in 2020, which represents a 30% decrease since 2019.
Put into practice : As consumer behavior continues to shift towards BNPL products and away from traditional loan products or installment loan options due to a myriad of factors, industry players can expect the DFPI and other regulators are focusing their attention here (we discussed this trend in a previous Consumer Finance & FinTech blog post here).