PaydayLendinginAmerica

FDICAdvisoryCommitteeonEconomicInclusion
April24,2014
NickBourke,ProjectDirector
www.pewtrusts.org/smallloans

rev4/22

PewsSmallDollarLoansResearch

PaydayLendinginAmericaseries(3reports)
Researchbeganin2011
Unique,nationallyrepresentative
surveyofpaydayborrowers
Administrativedatareviews
Focusgroupsandinterviews

www.pewtrusts.org/smallloans
www.pewtrusts.org/small-loans

HowPaydayLoansWork
Packagedasshorttermloanfortemporaryneeds
Obtainedfromstorefronts,online,somebanks(depositadvance)

Littletonounderwriting
Borrowerhasanincomesourceandcheckingaccount

Lendercandebitbankaccounttocollect(deferredpresentment)
Shortrepaymentperiod,tiedtoborrowerpaycycle
Ifborrowercannotpayinfull,paysfeetorenew,orborrowsagain

Avg.loanis$375
Feeper2wks:$55store,$95online,$35bank
www.pewtrusts.org/small-loans

WhoUsesPaydayLoans?

Formoreinformation,
seePewJuly2012
reportatAppendixA

www.pewtrusts.org/small-loans

ProfileofPaydayBorrowers
12millionusersperyear,spendingabout$7.4billion
Haveacheckingaccount Thesearebankcustomers
Haveincome about$30,000peryear
ThickFilecredithistories
Morethan90%haveacreditscore low500s
Mosthavecreditcards usuallymaxedout

www.pewtrusts.org/small-loans

MostUsePaydayLoansforMonthlyBills

www.pewtrusts.org/small-loans

ACoreProblem:
PaydayLoansAreFundamentallyUnaffordable
Typicalpaydayloantakes36% ofborrowerspretaxpaycheck
Fartoomuch underminesabilitytomeetotherfinancialobligations
withoutborrowingagain.

Butwhatpercentagewouldbemorereasonable?
Mostborrowerscannotaffordtopaymorethan
5%oftheirpretaxpaycheck
Asshownbynationalsurveydata,underwritteninstallmentloan
markets,conventionalpaydayloanfeeamount,COcasestudy

www.pewtrusts.org/small-loans

RenewingisAffordable,ButPayingOffisNot

www.pewtrusts.org/small-loans

WhenLoansExceedBorrowerCapacity,
ExtendedUsageistheNorm
Averageborrowerindebtfor5monthsoftheyear
Eventhoughmanysoughttoavoiddebtoranotherbill

Averageborrowerpays$520peryear
Eventhoughmanyrespondedtothefixedfeeproposition

Borrowersreportthatpayingbillsisharder
Eventhoughmosttookaloantogethelppayingbills

www.pewtrusts.org/small-loans

Volume/RenewalisNotaGoodMeasureofNeed
Nearlyallloansgotorepeatborrowers
97%ofloansgotothoseusing3+peryear;63%tothoseusing12+/year

Consecutiveusageisthenorm
80%ofloansoriginatew/in14daysofapreviousloan
Halfofallloansoccurwithinasequencelasting10+loans

Countingnumber/sizeofloansoverinflatesneedestimates
Infrequentborrowersaccountfornegligiblevolume/revenue
Frequent/longtermuseisdrivenbyunaffordablenatureoftheloan,
coupledwithlenderabilitytocollateralizeborrowersincomestream
Sources:Analysisofstateregulatorydata;CFPB;StephensInc.
www.pewtrusts.org/small-loans

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SelectedOtherFindings,BrieflyNoted

www.pewtrusts.org/small-loans

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OtherKeyTakeaways:
PewsPaydayLendingInAmericaSeries
Borrowershaveotheroptions
Cutexpenses,borrowfromfamily/friends,sell/pawnitems,delaybills

Choicetousepaydayloansisdrivenbyunrealistic
expectations,anddesperation
Toeventuallypayoff,41%neededacashinfusion
Borrowfromfriends/family,sell/pawn,otherloans,taxrefunds.

Restrictivestatelawsnotdrivingpeopleonline
Onlineusageratessameeverywhere,evenwheretherearenostores

www.pewtrusts.org/small-loans

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PaydayLoansDoNotEliminateOverdraftRisk

Report:
See p.32-35

www.pewtrusts.org/small-loans

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DepositAdvanceLoans
DidNotEliminateOverdraftRisk

CFPB
Data

www.pewtrusts.org/small-loans

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BorrowersHaveTornFeelings
Gratefultoreceivecash
Friendlycustomerservicefromlocalstores
But58%feeltheproducttakesadvantageofthem

www.pewtrusts.org/small-loans

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www.pewtrusts.org/small-loans

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BorrowersOverwhelminglySupport
RequiringInstallmentPaymentStructure
Smaller
Amortize
Payments

Smaller
Payments

More
Time

Smaller
Installments
Payments

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www.pewtrusts.org/small-loans

Government Relations:
Steve Abbott
202.540.6647
sabbott@pewtrusts.org

Project Director:
Nick Bourke
202.552.2123
nbourke@pewtrusts.org

Research:
Alex Horowitz
202.540.6315
ahorowitz@pewtrusts.org

Postscript

www.pewtrusts.org/small-loans

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AMarketLackingPriceCompetition

Howmuchdoesa$500paydayloancost?
Advance
America

AceCash
Express

Checkinto
Cash

ChecknGo

Florida

$55

$55

$53

$55

Michigan

$65.45

$65.45

$65.45

Kansas

$75

$75

$75

$75

Alabama

$87.50

$87.50

$87.50

$87.50

Nevada

$92.50

$85

$110

$125

CostslistedoncompanywebsitesasofNovember1,2013

www.pewtrusts.org/smallloans

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AMarketLackingPriceCompetition

Stategrouping

Averagecosttoborrow
$300for5months

Medianstoresper
100,000residents

Lowerthanaverageratecap

$281

3.0

Averageratecap

$435

7.2

Higherthanaverageratecap

$528

14.9

Noratecap

$604

12.9

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