Research Summary
The report provides an in-depth analysis of the personal loan market in the U.S., highlighting the regulatory environment, market dynamics, and key players. It discusses the role of depository institutions, finance companies, and FinTech lenders, and the impact of regulations on interest rates and lending practices. The report also provides data on personal loan holdings, borrower demographics, and loan acquisition offers.
Key Takeaways
Regulatory Environment and Market Dynamics
- Dynamic and complex regulations: The regulatory environment for personal loans in the U.S. is characterized by state-level flexibility in adopting and repealing legislation, with interest rate ceilings and banks’ interest rate exportation ability being key regulatory elements.
- Impact of the Marquette ruling: The U.S. Supreme Court ruling in Marquette National Bank v. First Omaha Service Corporation has allowed national banks to charge interest rates permitted by the lending bank’s home state, benefiting credit card companies by enabling geographical expansion.
- Adoption of 36 percent interest rate cap: The adoption of a 36 percent interest rate cap has been dynamic, affecting the profitability and legality of payday loans. Some lenders have circumvented low interest rate ceilings by partnering with banks.
Personal Loan Holdings and Borrower Demographics
- Personal loan sector size: The personal loan sector reached $356 billion, consisting of 36.2 million accounts. Depository institutions hold 77 percent of personal loan balances, while finance companies hold 23 percent.
- Median account balance and monthly payment: The median personal loan account balance is $4,198, and the median monthly payment is $202. Approximately one-fourth of loan balances are secured.
- Borrower risk scores and age: Depository institutions primarily lend to higher credit score borrowers, while finance companies cater to riskier borrowers. The median borrower age varies slightly across different types of lenders.
Role of FinTech Lenders
- Market share of FinTech lenders: FinTech lender balances currently stand at $49.9 billion, representing 14 percent of the market. They hold 7.7 million accounts, with a median account balance of $4,256 and a median monthly payment of $197.
- FinTech-bank partnerships: FinTech lenders often partner with banks to circumvent low interest rate ceilings and target riskier consumers. WebBank and Cross River Bank dominate the partnership structure.
- Loan characteristics: Nearly all FinTech loans are unsecured and have fixed rates. About 70 percent of loans are issued for debt consolidation purposes.
Loan Acquisition Offers
- Volume of loan acquisition offers: Approximately 1.5 billion personal loan acquisition offers were sent to consumers in 2022. Offers for unsecured loans dominate the personal loan supply.
- Main issuers of loan offers: Finance companies and FinTech lenders in partnership with specialist banks are the main issuers of loan offers. Discover Bank leads among traditional banks in terms of solicitations.
- Concentration of credit supply: Finance companies concentrate their credit supply in states where they can be profitable, as shown by the mail volume concentration over the period.
Actionable Insights
- Understanding regulatory dynamics: Stakeholders should stay abreast of the dynamic regulatory environment for personal loans, particularly regarding interest rate ceilings and the impact of court rulings.
- Exploring FinTech partnerships: Banks and other financial institutions could explore partnerships with FinTech lenders to expand their reach and cater to a wider range of borrowers.
- Targeting loan offers: Lenders should consider the profitability of different states and borrower demographics when targeting their loan acquisition offers.
