According to a new report from the California Department of Business Oversight (DBO), installment consumer lending by nonbanks grew almost 50 percent in 2015, with the majority of loans between $2,500 and $5,000 featuring an annual percentage rate (APR) of more than 100 percent.
What happened
The 2015 Annual Report on Operation of Finance Companies under the California Finance Lenders Law examined data provided by licensed lenders for the calendar year ending December 31, 2015.
According to the report, the number of all consumer loans originated in 2015 increased 25.6 percent over the prior year, to 1,392,289 from 1,108,345. Over the same period, the aggregate principal amount increased 48.7 percent, from $22.9 billion to $34.1 billion.
What was driving the increases? Largely mortgage loans, the DBO said, which loans grew 61.7 percent (from 48,271 in 2014 to 78,073 in 2015). The aggregate principal of mortgage loans more than doubled, up 55.3 percent to $24.6 billion from $15.8 billion.
Installment consumer loans made by nonbanks also delivered bigger numbers, growing 48.7 percent in 2015 and increasing in dollar amount from $22.9 billion in 2014 to $34.1 billion in 2015.
The DBO further noted "interesting data" related to interest rates. The California Finance Lenders Law (CFLL) caps rates on loans under $2,500 but places no limits on loans valued at $2,500 or higher. The report found that more than half of the consumer loans valued at $2,500 to $4,999 had APRs of 100 percent or higher.
In that dollar range, licensed lenders made 535,585 secured and unsecured loans—the highest total for any loan value category, the regulator noted. Of those loans, 54.7 percent (or 293,248) had APRs of 100 percent or higher. The 411,822 unsecured consumer loans in the $2,500 to $4,999 range carried APRs of 100 percent or higher 57.7 percent of the time.
Unsecured loans falling under the rate caps also experienced a significant increase, according to the report. The number of loans under $2,500 grew 30.2 percent with an aggregate principal rise of 28.1 percent (to $312.1 million).
Other findings reported by the agency included slowed growth in the auto title loan sector, with upward movement of only 9.5 percent, a drop from the 16.2 percent growth seen in 2014. Aggregative principal on such loans demonstrated similar slowed growth, up 10.9 percent last year (to $423.5 million) as compared to a 14.1 percent increase in 2014.
To read the 2015 Annual Report on Operation of Finance Companies under the California Finance Lenders Law, click here.
Why it matters
The California DBO report on loans made under the CFLL triggered concern about the small loan rates with APRs in excess of 100 percent. "The good news is the increased lending activity reflects continued improvement in California's economic health," DBO Commissioner Jan Lynn Owen said in a statement about the report. "Less heartening is the data that show hundreds of thousands of borrowers facing triple-digit APRs. We will continue to work with policymakers and hope they find the report helpful as they consider reforms of California's small-dollar loan market." Lenders may see legislation or proposed regulation as a result.
