Short-term, small-dollar loans are consumer loans with relatively low initial principal amounts (often less than $1,000) with short repayment periods (generally for a small number of weeks or months). Short-term, small-dollar loan products are frequently used to cover cash flow shortages that may occur due to unexpected expenses or periods of inadequate income. Small-dollar loans can be offered in various forms and by various types of lenders. Federally insured depository institutions (i.e., banks and credit unions) can make small-dollar loans via financial products such as credit cards, credit card cash advances, and checking account overdraft protection programs. Nonbank lenders, such as alternative financial service (AFS) providers (e.g., payday lenders, automobile title lenders), also provide small-dollar loans. Affordability is a concern surrounding small-dollar lending. The costs associated with small-dollar loans appear to be higher in comparison with longer-term, larger-dollar loans. Furthermore, borrowers may fall into debt traps . A debt trap occurs when borrowers who may be unable to repay their loans reborrow (roll over) into new loans, incurring additional charges, rather than make progress toward paying off their initial loans. When individuals repeatedly reborrow similar loan amounts and incur fees that steadily accumulate, the rising indebtedness may entrap them into worse financial situations. Debt traps are frequently discussed in the context of nonbank products such as payday loans; but they may occur when a consumer makes only the minimum payment (rather than paying off the entire balance at the end of each statement period) on a credit card, which is an example of a loan product provided by depositories. Borrowers' financial decisionmaking behaviors arguably must be carefully observed before concluding that frequent usage of small-dollar loan products results in debt traps. Determining how borrowers habitually get into cash flow (liquidity) shortages requires knowledge about their cash management practices and their perceptions of prudent spending and savings decisions. Policy initiatives to protect consumers from what may be considered expensive borrowing costs could result in less credit availability for financially distressed individuals, which may place them in worse financial situations (e.g., bankruptcy). The academic literature has not reached a consensus about whether access to expensive small-dollar loans contributes to or alleviates financial distress. Some academic research suggests that access to high-cost small-dollar loans improves well-being during temporary periods of financial distress but may reduce well-being if used for extended periods of time. Whether access to relatively expensive small-dollar loans increases or decreases the likelihood of bankruptcy is still debated. Congress has taken some measures to address concerns related to small-dollar lending. For example, Congress passed the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act; P.L. 111-24 ) in light of concerns that cardholders may be paying excessive credit card rates and fees, especially in cases where they are unaware of assessed penalty fees and interest rate increases. Congress also passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act; P.L. 111-203 ), which created the Consumer Financial Protection Bureau (CFPB). The CFPB was given the authority over both banking and nonbanking firms offering consumer financial products. The CFPB has subsequently implemented and proposed rules pertaining to small-dollar lending products. A recent proposed rule by the CFPB, which would implement federal requirements that would act as a floor for state regulations, would, among other things, require lenders to underwrite small-dollar loans to ensure borrower affordability unless the loan meets certain conditions. The CFPB estimates that its proposal would result in a material decline in small-dollar offerings by AFS lenders. The CFPB proposal has been subject to debate. H.R. 10 , the Financial CHOICE Act of 2017, which was passed by the House of Representatives on June 8, 2017, would prevent the CFPB from exercising any rulemaking, enforcement, or any other authority with respect to payday loans, vehicle title loans, or other similar loans. This report provides an overview of the small-dollar consumer lending markets and related policy issues. It provides various small-dollar loan product descriptions, product usage information, and market metrics. The report also discusses current federal and state regulatory approaches to consumer protection in lending markets, followed by a summary of the recent CFPB proposal and policy implications. It then examines pricing dynamics in the small-dollar lending market. The degree of market competitiveness, which may be revealed by analyzing market price dynamics, may provide insights pertaining to affordability concerns as well as available options for users of certain small-dollar loan products. Using various industry profitability indicators, some research finds evidence of competition in the small-dollar (payday) lending industry. Other factors, however, would indicate that pricing is not necessarily competitive. For example, banks and credit unions face restrictions on permissible activities, which limit their ability to compete with nonbank small-dollar (e.g., payday) lenders. In addition, borrowers may prefer certain product features or delivery methods, meaning that they may be willing to pay a premium for some loan products relative to others. Given that small-dollar markets contain both competitive and noncompetitive price dynamics, determining whether borrowers pay "too much" for small-dollar loan products is challenging. These issues are discussed in more detail in the report. The Appendix describes how to calculate the annual percentage rate (APR) and provides information about general loan pricing. Table 1 provides descriptions of various small-dollar and short-term lending products. Depository institutions typically provide products such as credit cards, overdraft protection, and installment loans. AFS providers typically provide small-dollar short-term credit products such as payday loans, auto title loans, and tax-refund anticipation loans. Small-dollar loan or cash advance products may be an expedient option during unexpected periods of income shortfalls, particularly for individuals lacking sufficient emergency savings as well as those with impaired credit. According to the Survey of Household Economics and Decisionmaking (SHED), conducted in October 2014 by the Board of Governors of the Federal Reserve System, approximately 25% of U.S. households experienced a form of economic hardship that may have resulted in a temporary disruption in income. According to a study released in 2012 by Pew Charitable Trusts, 69% of respondents used a payday loan (for the first time) to cover a recurring expense, such as rent, utilities, and other bills; and 16% of the respondents reported using a payday loan for unexpected expenses. Apart from credit cards, full (lump-sum) payment is normally expected when small-dollar loans are due. The costs of small-dollar loans may quickly escalate if they are repeatedly renewed because little or none of the initial principal amount is being repaid. The failure to make full and timely payments results in rollovers with additional interest charges on the outstanding principal balance and fees. Indebtedness levels quickly rise if borrowers repeatedly roll over their small-dollar loans. The text box below contains information on average loan sizes and costs to use various small-dollar loan products. Short-term, small-dollar market aggregate data metrics vary in availability due to nonstandardized reporting requirements. Metrics can vary depending upon the definitions used when constructed (e.g., metrics can be computed with or without the inclusion of individuals who have outstanding balances; interest rates and fees can be reported separately or combined into a single metric). Data are also collected from different years and sources. Maturity lengths also differ among loan product types, raising questions about their comparability. Hence, comparing the relative costs of small-dollar loan products is challenging. Consumer lending is largely regulated for the protection of consumers and to ensure compliance with fair-lending laws. The regulatory framework for small-dollar lending involves different compliance regulators and different approaches, which apply to different products. A detailed assessment of the regulation of all small-dollar products is beyond the scope of this report, but broad observations of the consumer regulatory framework are discussed in this section. Both bank and nonbank lenders are subject to federal consumer protection and fair-lending laws and regulations if they offer a credit (loan) product covered by those laws and regulations. The Consumer Financial Protection Bureau is a federal regulator that has the authority to issue regulations pursuant to most federal consumer financial protection laws that cover an array of consumer financial products and services. Different lenders are supervised by different regulators. Depository institutions (i.e., banks and credit unions) having assets below $10 billion are supervised for consumer protection compliance by their prudential regulators. Banks are supervised by the federal prudential regulators, namely the Federal Reserve System, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC). The federal prudential regulator of credit unions is the National Credit Union Administration (NCUA). Depository institutions having assets above $10 billion are supervised for consumer protection compliance by the CFPB. Banks and credit unions may also receive state charters and may face additional regulations at the state level, but they would still be required to comply with federal prudential regulations if their deposits are federally insured. Depositories with national charters are generally exempt from additional state consumer regulations, but there may be exceptions for certain circumstances. Financial firms that offer consumer products and do not have national or state bank or credit union charters will be referred to as nonbank lenders in this report. Nonbank lenders include many AFS providers, such as payday and auto-title lenders, and they may be supervised by the CFPB or state financial regulators. Different approaches are used to regulate small-dollar products, including disclosure requirements; usury laws; product-feature requirements; underwriting requirements; and unfair, deceptive, or abusive acts or practices (UDAAP) requirements.