An Extended Payment Plan, or EPP, is a scheme that provides payday borrowers with more time to pay back the loan without incurring extra fees. Lenders sometimes try to discourage the use of EPPs, since they aren’t as lucrative as simple renewals, but in many states, they are obliged to provide this opportunity if a lender requests it. In this article, we’ll cover how EPPs work, state-by-state terms and fees, and how to ask for one.
What is the Goal of EPP?
According to a 2014 report by the Consumer Financial Protection Bureau, 80% of payday loans are rolled over, and 60% of such loans are issued to people who roll them over 7 times or more. If the average interest on a payday loan is 15%, seven renewals result in paying 105% in interest, plus the potential renewal fees and bank charges. Simply put, the cumulative interest becomes larger than the principal.
The authorities in many states are concerned that borrowers become trapped in payday debt. One of the measures introduced to combat predatory charges is EPPs or Extended Payment Plans.
The idea is simple: instead of rolling over a loan without paying any of the principal, the borrower pays off a part of the principal plus some of the interest at regular intervals.
Normally these installments are due every week over the course of a month.
Note that not all payday lenders offer EPPs, but only those that are members of the Community Financial Services Association of America (CFSA). Moreover, different states have different regulations concerning specific EPP terms:
- who can request in EPP (e.g. in some states you’re not eligible if the lender has already initiated a debt collection procedure);
- how long the extension period can be and the number of installments;
- if lenders are allowed to charge EPP default fees (e.g. Michigan, Oklahoma);
- if the borrower can take out a new loan immediately after paying off an EPP;
- how the customers should be informed about the EPP option and if they should be offered credit counseling;
- if the information about the EPPs needs to be recorded in a database, etc.
How to Apply for an EPP
As we’ve said, the procedure varies from state to state, but the following scheme is the most common:
1) You have to contact the lender and request an extended payment plan no later than the end of the last working day before the day when the payday loan is due to be paid. For example, if the payment is due on Monday, you have to submit the request before the end of the working hours on Friday.
2) The way to request an EPP depends on how you took out the loan in the first place. If it was at a brick-and-mortar loan store, you’ll need to go back there; if everything was done online, you’ll need to contact the lender by email or phone.
3) The lender will compile an amendment to the loan contract with the new payment due dates (usually once a week for 4 weeks).
4) In most states, you won’t have to pay anything extra to switch to an EPP: the service is free of charge (with the exception of Michigan and Oklahoma – see below).
Normally you can use this option once in a 12-month period. Once again, remember that the lender needs to be a member of the CFSA and/or operate in a state where EPPs are instituted by law to offer extended payment plans.
What Happens if You Can’t Pay up on an EPP?
Failing to pay an EPP installment on time usually incurs a special fee. Moreover, the lender has the right to take measures to make you pay – for instance, turn the debt over to collectors, or even initiate court proceedings. Other late payment charges (such as bank fees) can also apply.
EPPs are designed to make it easier for borrowers to pay, but they aren’t supposed to be rolled over or renewed. Defaulting on an EPP is not a good idea.
A List of States That have Adopted EPPs
So far 18 states have passed legislation that institutes EPPs:
- Florida (where the extension is called a grace period)
- New Mexico
- South Carolina
The following states don’t have any specific legislation concerning EPPs yet:
- New Hampshire
- North Dakota
- Rhode Island
- South Dakota
EPP Regulations State by State
Entering an EPP agreement: the lender must offer you the EPP option if you fail to pay up on a payday loan.
Duration: up to 180 days
Entering an EPP agreement: 5% of the whole amount due must be paid when entering into an EPP plan.
In these states, the lender is not obliged to agree to provide you with an EPP.
Duration: at least 90 days, no set number of installments
EPP duration: 60 days
Entering an EPP agreement: the terms include credit counseling sessions.
EPP duration: 60 days or more, 4 installments or more
EPP frequency: once every 12 months (e.g. you can’t take out two EPPs in one year)
Entering an EPP agreement: it has to be signed before or on the day when you are supposed to repay the original payday loan, and the EPP terms can’t be worse than those of the original loan. The maximum amount that the lender can make you pay under the EPP also can’t be greater than what you owed in the first place.
Duration: at least 55 days
Entering an EPP agreement: the lender must offer this option if you fail to pay up on a payday loan for 35 days.
Duration: no less than 60 days, 4 installments or more.
Entering an EPP agreement: the lender is obliged to offer you an EPP if you’ve taken out three payday loans in a row (i.e. if you’ve rolled over a loan twice).
Number of installments: no more than four.
EPP duration: the time required for the borrower to receive three paychecks, with a standard EPP consisting of 3 installments.
EPP fee: Michigan is one of the few states where you have to pay a fee to enter an EPP (around $20), and you can’t take out any new payday loans while you are paying off an extended plan.
EPP duration: at least 60 or 120 days, with installments due when the borrower receives their paycheck.
Frequency: no more than one EPP every 12 months
EPP duration: up to 90 days
EPP duration: 4 installments.
Fee: 10% of the amount owed, but no more than $15.
Entering an EPP agreement: the lender is supposed to offer the EPP option after you’ve rolled over a payday loan twice (i.e. taken out three consecutive loans).
Duration: 60 days
Entering an EPP agreement: the borrower has the right to an EPP after three rollovers; before that, a mutual agreement between the lender and the borrower is required.
EPP duration: 90 days for loans of up to $400 and 180 days if the loan is over $400
Default fee (i.e. the fee charged if you fail to pay): $25
Entering an EPP agreement: the lender is obliged to inform you about the EPP option if you let them know that you can’t pay the loan no later than the original due date (i.e. you have to make the first step).
Number of installments: 4
Frequency: no more than one EPP over the course of a 12-month period.
The Key Problems Related to EPPs
In theory, EPPs are a great alternative to rollovers: they reduce the debt burden and give borrowers a chance to get their finances back on track instead of getting ever deeper into debt.
In practice, however, lenders are reluctant to offer extended payment plans, preferring much more lucrative rollovers instead. Indeed, CFPB reports that some lenders encourage their loan sellers to ‘forget’ to mention the EPP option unless a customer specifically asks for it.
As a result, not many lenders actually get an opportunity to enter EPPs. For example, in Utah, only 6% of payday borrowers use this option (resource link). A potential solution is to reformulate the legislation to make extended plans more accessible and to prevent lenders from concealing or withholding this possibility from customers. In the same state of Utah, for instance, EPP installment payments have to be scheduled in such a way as to make it easier for borrowers to repay the debt; if the terms don’t provide real benefit or relief to the debtor, then it’s not a valid EPP.
If you are struggling to pay off a payday loan, make sure to check if an extended payment plan is available. If the lender operates from one of the states that have introduced EPP regulations, you have the right to request an EPP, even if the lender hasn’t told you anything about it.
Remember: payday lenders often try to discourage their customers from entering EPPs, promoting rollovers instead.
If you are indeed eligible for an extended payment plan, the terms should be more favorable than those of a rollover. An EPP can become your chance to get out of debt and even stop using payday loans altogether.
Remember: however, that failing to pay up on an extended plan will have ramifications, so use this chance wisely.