A Complex Portrait- An Examination of Small-Dollar Credit Consumers

Every year, millions of American consumers use small-dollar credit (SDC) products for quick access to cash. This study seeks to elucidate the reasons why so many consumers rely upon these potentially dangerous products and to glean what can be learned from their experiences to promote the development of high-quality credit solutions.

While some of the needs that borrowers seek to fill with SDC may be better served by non-credit options such as budgeting guidance, better jobs, income support, or savings tools, these solutions will not entirely address the needs that high-quality credit can fill. Having the ability to borrow, under reasonable terms, can help consumers weather a financial shock, support the ability to save, build a positive credit history, and facilitate a wealth-building purchase. To accomplish this, high-quality credit must be affordable, marketed transparently, priced fairly, structured to support repayment without creating a cycle of repeat borrowing, and should support credit building. Unfortunately, most SDC products currently available do not meet these criteria, and relatively little is known about the full SDC experience from the consumer’s point of view and across multiple channels.

To understand why consumers use these products, how they choose among them, how they fare afterwards, and what they think about their experiences, the Center for Financial Services Innovation (CFSI) with the support of the Ford Foundation, surveyed over 1,100 small-dollar credit (SDC) consumers, plus an additional 500 non-SDC consumers for comparison. The findings suggest several important implications for financial services providers, policymakers, consumer advocates, and others working to improve the quality of small-dollar credit products and to expand high-quality options and alternatives.