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Deep, Deep Dive into Payday Rule

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Presentation on theme: "Deep, Deep Dive into Payday Rule"— Presentation transcript:

1 Deep, Deep Dive into Payday Rule
Using Data to Understand Impacts of the Rule Rick Hackett, Hudson Cook, LLP

2 Options for Single-Pay Lenders
Option One: Rationing without ATR screen Six loans/90 days in debt, rolling 12 months Max 3 loan sequence (30 day “sequence” rule) Max $500 Principal reduction of 1/3 + 2/3 in sequence Option Two: ATR computed as Income minus obligations minus basic living expenses exceeds loan payment.

3 Dataset : Clarity Services
20% of storefront single pay market in 2013 Full storefront dataset Approximately 13 MM loans Full set used for rationing test 90,000 random sample for ATR test All storefront states Large national chains

4 Clarity Approaches Rationing: Screen loans for annual exclusions
(6 loans/ 90 days maxima) Screen serially for more than 3 loans in sequence Haircut loans over $500 Principal reduction of surviving loans

5 Clarity Approaches ATR: Consumer stated income from multiple sources
Pull in national CBR for debt payments and, in some cases, basic living expenses (e.g., shelter) BLS and Census proxied expenses for Shelter, food, transportation, medical, child care Segmented by location, age, income

6 Outcomes - Rationing

7 Outcomes - ATR Median 2013 Income - Clarity Application Income Clarity
Insolvent Before Apply 31.5% 39.0% Insolvent With Loan Payment 66.9% 71.5% Solvent With Loan Payment 33.1% 28.5% % of 2013 Loans to Solvent Borrowers 34.0% 31.1% 2013 Loans/Borrower Who Pass ATR 9.4 loans 10.0 loans

8 Median Income Clarity Measure Last Seen Income Clarity Measure
Effect on Loan Amount "ATR" Analysis: Summary Statistics for Loan Amount- Median Income vs. "Last Seen" Income Clarity Values Median Income Clarity Measure Last Seen Income Clarity Measure All Loans Passed the ATR Mean $447 $496 $448 $508 Median $369 $459 $370 $478

9 Outcomes: Add 30-day Cooling Off to ATR Screen
Clarity Median Income (2013) Application Income Count of +ATR Loans Lost to Cooling off Period 72.2% 73.7% Remaining % of Original Loan Volume 9.5% 8.2% Remaining Count of 2013 Loans for +ATR Borrowers 2.6 loans

10 Does ATR Predict Behavior?
Percentage Default by Sample Median Income Clarity Measure Year Median Income Storefront Measure 1 Year Last Seen Income Clarity Measure Last Seen Income Storefront Measure Average Default Rate 5.1% 4.5% 4.8% Borrowers with Negative Residual Income- Before Loan Payment 3.9% 4.9% 5.3% Borrowers with Positive Residual Income- Before Loan Payment 4.3% 5.0% Borrowers with Negative Residual Income- After Loan Payment 5.4% Borrowers with Positive Residual Income- After Loan Payment 3.5% 4.4% All 2013 Loan Default Rates

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