Short-term consumer installment loans (commonly referred to as personal loans) are provided to consumers by banks and other regulated depository institutions as well as nonbank financial institutions. Since at least 2015, there has been a major shift in the market share of personal loans to so-called fintech companies. Generally speaking, fintechs are nonbank consumer finance companies that are distinguished from banks and other, more traditional nonbank providers of financial services by their reliance on technological innovations or data applications.[1]
Fintechs have drawn market share mostly from other nonbank lenders, which include payday loan companies, title lenders, consumer finance companies offering personal installment loans and lending affiliates of retail stores. Fintechs’ gains versus these other, more traditional nonbanks may in part reflect innovations in data analysis and risk modeling that have provided them with cost advantages in some contexts. Banks have also lost some market share to fintechs since 2015, although they regained a portion after 2020. Banks’ increasing regulatory costs over this period have likely been a factor contributing to their loss of market share to less heavily regulated fintech companies.
This note compares the lending performance across these three categories of lenders in the personal loan market—banks, fintech companies and other nonbanks—regarding complaints submitted to the Consumer Financial Protection Bureau. The analysis demonstrates that banks have offered superior customer experience by this measure. This assessment suggests that banks’ loss of market share may have left consumers worse off, and the shift in market share from traditional nonbanks to fintechs does not appear to have markedly benefited consumers.
The analysis relies on the CFPB’s complaint database covering the period 2015 through 2022, supplemented with a specially and meticulously constructed lender-type classification. Various performance metrics, including trends in complaint volume, share of complaints by type and frequency of remuneration or remediation provided, are compared across three lender categories: banks, traditional finance companies and fintechs.
Key findings include:
- Both fintechs and other nonbanks have a comparatively high concentration of complaints in the arguably most concerning complaint category, alleged deceptive practices.
- Fintechs are over-represented in the critical category of disputed information in the credit report, accounting for close to half of the complaints in this category, with an increasing trend over the analysis period.
- More frequently than banks, fintechs and other nonbanks fail to provide a timely response to complaints filed with the CFPB.
- For nearly every complaint category, banks have provided both monetary and non-monetary restitution more frequently than either fintechs or other, more traditional nonbank lenders.
- Banks’ share of complaints has declined significantly relative to their share of originations since 2015, suggesting that the quality of banks’ lending conduct has improved.
In addition, the note tabulates CFPB enforcement actions related to personal loans conducted since 2015. In none of these actions have the defendants been depository institutions. Fintechs were defendants in eight of the cases, and other nonbank companies or associated individuals were defendants in the other cases. This provides further confirmation of the relatively high quality of banks’ customer relationships in the personal loan market and their compliance with consumer protection laws.