Payday Loan and Overdraft Fees Are Unnecessarily High

On April 11, 2022, The Pew Charitable Trusts submitted a letter to the Consumer Financial Protection Bureau on so-called junk fees, such as costs to borrow small amounts of money, that are not just high, but unnecessarily high. As the letter explained, because payday lenders compete on speed and ease of access to credit and not on price, they tend to charge the maximum fees allowed in each state, inflating prices and harming consumers. But data shows that when fees are curtailed, credit remains widely available.

Pew’s letter also summarized a decade of research on consumer experiences with overdraft and high-cost small loans showing that to reduce prices and deliver better outcomes for consumers, policies must focus on limiting costs, not merely on improving disclosure practices.

Pew also highlighted recent positive market changes. Payday loan reforms in several states have driven down prices and increased transparency. And some of the nation’s largest banks have eliminated non-sufficient funds fees and reduced overdraft fees while also expanding small installment loans and lines of credit, a two-fold approach that protects consumers and increases the availability of safe and affordable credit.