The Agencies note that because clients making use of DAP frequently have cashflow problems or blemished credit records, such loans provide a heightened credit risk to lending banks
The combination of a high-cost product and short repayment period creates a risk of some customers becoming trapped in a cycle of high-cost borrowing over an extended period of time in the Agencies’ view. 5 This period, described as “churning” of loans, is characterized by the Agencies as “just like” the practice of “loan-flipping,” that they have actually formerly recognized as a feature of predatory financing. 6 The Agencies suggest that the style among these services and products frequently leads to such consumer behavior and it is “detrimental to” the client. Read more →