Small-Dollar Loans Research National Federation of Community Development Credit Unions June 7,

2 Pew’s Consumer Financial Security Work Pew’s Consumer Financial Security Work Safe Small-Dollar Loans pewtrusts.org/small-loans Checking, debit and overdraft Prepaid cards Credit cards

How Payday Loans Work How Payday Loans Work 3 Packaged as “short-term” loan for “temporary needs” Borrower has income and checking account – Writes a check, post-dated for next payday, or gives electronic authorization to debit account Repayment due on borrower’s next payday – Conventional payday loan is 2 weeks w/ single lump-sum repayment – If borrower cannot pay that, pays fee to renew or re-borrow before next payday Average loan size $375 Avg. fee per two weeks $55 storefront

Payday Loan Business Model Payday Loan Business Model Nearly all loans go to repeat borrowers – 97% of loans go to those using 3+ per year – 63% of all loans go to people using 12+ per year Consecutive usage is the norm – More than three quarters of loans originated before next pay period The business model requires extended or repeat usage Similar problems may arise in installment lending variations – Refinancing (“loan flipping”), add-on fees 4

Methodology – Pew Survey Research Methodology – Pew Survey Research First-of-its-kind survey of American payday loan borrowers Two-part survey: – Omnibus (49,684 total screens), demographic and usage – Follow-up, in-depth survey with 703 payday borrowers 10 two-hour borrower focus groups in five cities 5

The Fundamentals (Pew’s July 2012 Report) 6

Why Do Borrowers Use Payday Loans? 7

What Would Borrowers Do Without Payday Loans? 8

State Of Regulation State Of Regulation % of population 16% 29%

Payday Lending Regulation Is Not Leading To Increased Online Borrowing 10

How Borrowers Choose and Repay (Pew’s February 2013 Report) 11

Most Use Payday Loans For Recurring Expenses Most Use Payday Loans For Recurring Expenses 12 Report: See p.10

Renewing Is Affordable, But Paying Off Is Not Renewing Is Affordable, But Paying Off Is Not 13 < $ 430

Renewing Is Affordable, But Paying Off Is Not Renewing Is Affordable, But Paying Off Is Not 14 Report: See p.15

15 So, why do people use unaffordable loans?

Why People Use Unaffordable Loans Why People Use Unaffordable Loans 16 Report: See p.20

Why People Use Unaffordable Loans Why People Use Unaffordable Loans 17 Report: See p.22

Why People Use Unaffordable Loans Why People Use Unaffordable Loans 18 Report: See p.23-25

What Are the Options? What Are the Options? 19 Payday Loan, Cash Advance Payday Loan, Cash Advance Home Equity Credit Card Bank / CU / Installment Loan Bank / CU / Installment Loan

What Are the Options? What Are the Options? Seeking Credit vs. Seeking Ways to Manage Finances Seeking Credit vs. Seeking Ways to Manage Finances 20 Payday Loan, Cash Advance Payday Loan, Cash Advance Home Equity Credit Card Bank / CU / Installment Loan Bank / CU / Installment Loan Budget / Cut Back Delay Paying Bills Family / Friends Sell / Pawn 41% Payday borrowers own a home 60% Payday applicants have a credit card CREDIT OPTIONSOTHER OPTIONS 81% 62% 57% Payday borrowers who would use these options if payday loans did not exist

Paying Off The Loans Paying Off The Loans 21 Report: See p.37

Payday Loans Do Not Eliminate Overdraft Risk Payday Loans Do Not Eliminate Overdraft Risk 22 Report: See p.32-35

Loans Take Advantage… But Also Help Loans Take Advantage… But Also Help 23 Report: See p.39-44

Borrowers Have Torn Feelings Borrowers Have Torn Feelings 24 Report: See p.42

Borrowers Want Changes Borrowers Want Changes 25 Report: See p.39-44

By Nearly a 3-to-1 Margin: Borrowers Favor More Regulation By Nearly a 3-to-1 Margin: Borrowers Favor More Regulation 26 Report: See p.48

Project Director: Nick Bourke Research: Alex Horowitz Media Relations: Samantha Lasky