A representative for Enova directed Bloomberg to the firm’s latest quarterly filings, wherein the company says that Virginia’s claims are without merit.
“The benefit of installment loans is you have more time to make the payments; the downside is the payments on these high-cost loans go exclusively towards the interest, possibly for up to the first 18 months,” the National Consumer Law Center’s Saunders said.
The industry, for its part, argues that just as with payday loans, higher interest rates are needed to counter the fact that non-prime consumers are more likely to default.
Gavin Newsom earlier this month signed into law a measure capping interest rates on loans between $2,500 and $10,000 at 36% plus the Federal Reserve’s benchmark rate, currently around 2%
, write-offs for installment quick payday loans Defiance loans in the first half of the year averaged about 12% of the total outstanding, well above the 3.6% of the credit card industry.
“With high-cost credit, you’re only serving people that won’t qualify for other types of credit, so you’re already in a hardship situation,” said John Hecht, an analyst at Jefferies. “Companies have to price for that.”
According to Elevate’s most recent quarterly financials, net charge-offs for its Rise installment loan product equaled about 45% of the revenue those loans generated.
“By the time they get to be our customers, they may have hit that speed bump at least once; often they will have run into medical bills or a job loss, which knocks out their ability to get other forms of credit,” said Jonathan Walker, who heads Elevate’s Center for the New Middle Class, a research and data gathering unit that analyzes the borrowing habits of the more than 150 million Americans without prime credit scores.
Protections from abusive short-term lenders were set to take effect Monday. The Trump administration is now delaying them by 15 months — and may get rid of the rules entirely.
The Trump administration’s decision earlier this year to delay and potentially weaken planned restrictions on payday lending that were announced in 2016 has also bolstered the industry’s outlook
Elevate’s average online subprime installment loan customer has an annual income of about $52,000. About 80% have been to college and 30% own a home, according to Walker. More than 10% of the company’s core customer base makes more than $100,000 a year.
“Ten years ago it was payday loans or nothing, and today there has been a lot of innovation to meet the consumer where they are,” Walker said.
The surging popularity of online installment loans, combined with a growing ability to tap into big data to better screen customers, has helped boost the fortunes of many subprime lenders.
Elevate’s annual revenue rose about 1,000% in the five years through December to $787 million, while Enova has seen growth of 46% in the span to $1.1 billion, according to data compiled by Bloomberg.
Subprime installment loans are now being bundled into securities for sale to bond investors, providing issuers an even lower cost of capital and expanded investor base. Earlier this month Enova priced its second-ever term securitization backed by NetCredit loans. The deal paid buyers yields of 4% to 7.75%. Its debut asset-backed security issued a year ago contained loans with annual interest rates as high as 100%.
About 45% of online installment borrowers in 2018 reported annual income over $40,000, according to data from Experian unit Clarity Services, based on a study sample of more than 350 million consumer loan applications and 25 million loans over the period. Roughly 15% have annual incomes between $50,000 and $60,000, and about 13% have incomes above $60,000.