The Consumer Financial Protection Bureau's Targeting Credit Builder Loans
Author: Noah Gomez
Published: 12 December 2023
Updated: 30 May 2024
Description
The Consumer Financial Protection Bureau's controlled study on credit builder loans and their efficacy for consumers is arguably the most cited attempt to understand these products and their effects. It represents a key driver for insights shared via ThickCredit's content and products.
Clinical description
Controlled experiment assessing the efficacy of credit builder loan on real world subjects.
Organization
Consumer Financial Protection Bureau
Authors
The authors are not disclosed by the bureau.
Link & Meta
Status: Published
Date: 13 July 2020
Report Type: Report
ID: CFPB Credit Builder Loans Report
Insights
This study provides evidence for the following claims, among other:
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Approximately 26 million Americans, or 10%, are credit invisible, meaning they have.
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Credit builder loans can improve credit score by up to 60 points
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On average, credit builder loans help save $250 per consumer
Full Abstract
"This report presents the results of a Consumer Financial Protection
Bureau (CFPB) funded evaluation of a Credit Builder Loan (CBL) product.
CBLs are designed for consumers looking to establish a credit score or
improve an existing one, while at the same time giving them a chance to
build their savings.
The study used random assignment to explore four research questions:
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How does the CBL affect participants’ likelihood of having a credit score?
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For participants who already had a credit score, how does the CBL affect their score?
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How likely are CBL borrowers to make late payments on the CBL and other loans?
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Does the CBL affect participants’ savings balances?
Overall,
the CBL proved more effective for participants who entered the study
without existing debt, both in terms of helping people establish a
credit score and in improving their scores. Taking out a CBL appeared to
reduce borrowers’ abilities to keep up on other existing loan payments,
even though CBL payments were released immediately back to them.
The
CBL appears to have helped some participants build savings, but these
results were less conclusive than others. The report presents the full
results and synthesizes their implications for lenders, financial
capability practitioners, and consumers."
Limitations
Like many economic studies, the CFPB's credit builder loan study suffers from representation. It focuses on a small community using the same product from the same lender, a Midwestern credit union. It uses the same dataset as the NBER's study, completed by RAND.
Moreover, the credit builder loan used is a "standalone" product that does not incorporate a program, in contrast with ThickCredit's method.
Similar Reports
This report is part of ThickCredit's "Public Studies & Reports" collection, which includes other governmental and non-governmental studies and reports about credit building and its products. Others include:
This report is part of ThickCredit's "Public Studies & Reports" collection, which includes other governmental and non-governmental studies and reports about credit building and its products. Others include:
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Your Money, Your Goals Toolkit (Original)
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Serving the Credit Invisible (Original)
-
Credit Building or Credit Crumbling? (Report Page)
About the Author
Noah Gomez (founder of Thick Credit) is a transatlantic professional and entrepreneur with 3+ years experience in consumer finance education. He also has 5+ years of experience in corporate finance, including debt financing, M&A, listing preparation, US GAAP and IFRS.
Thick Credit is not a credit repair organization, a credit conseling agency, or a debtor education providor. It does not act on your behalf to communicate with credit reporting agencies or provide pre-bankruptcy credit counseling and pre-discharge debtor education for bankruptcy.
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