1. Small-Dollar Loans Research National Federation of Community Development Credit Unions June 7, 2013 www.pewtrusts.org/small-loans

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

3. How Payday Loans Work How Payday Loans Work www.pewtrusts.org/small-loans 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

4. 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 www.pewtrusts.org/small-loans 4

5. 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 www.pewtrusts.org/small-loans 5

6. The Fundamentals (Pew’s July 2012 Report) www.pewtrusts.org/small-loans 6

7. Why Do Borrowers Use Payday Loans? www.pewtrusts.org/small-loans 7

8. What Would Borrowers Do Without Payday Loans? www.pewtrusts.org/small-loans 8

9. State Of Regulation State Of Regulation www.pewtrusts.org/small-loans 9 55% of population 16% 29%

10. Payday Lending Regulation Is Not Leading To Increased Online Borrowing www.pewtrusts.org/small-loans 10

11. How Borrowers Choose and Repay (Pew’s February 2013 Report) www.pewtrusts.org/small-loans 11

12. Most Use Payday Loans For Recurring Expenses Most Use Payday Loans For Recurring Expenses www.pewtrusts.org/small-loans 12 Report: See p.10

13. Renewing Is Affordable, But Paying Off Is Not Renewing Is Affordable, But Paying Off Is Not www.pewtrusts.org/small-loans 13 < $ 430

14. Renewing Is Affordable, But Paying Off Is Not Renewing Is Affordable, But Paying Off Is Not www.pewtrusts.org/small-loans 14 Report: See p.15

15. www.pewtrusts.org/small-loans 15 So, why do people use unaffordable loans?

16. Why People Use Unaffordable Loans Why People Use Unaffordable Loans www.pewtrusts.org/small-loans 16 Report: See p.20

17. Why People Use Unaffordable Loans Why People Use Unaffordable Loans www.pewtrusts.org/small-loans 17 Report: See p.22

18. Why People Use Unaffordable Loans Why People Use Unaffordable Loans www.pewtrusts.org/small-loans 18 Report: See p.23-25

19. What Are the Options? What Are the Options? www.pewtrusts.org/small-loans 19 Payday Loan, Cash Advance Payday Loan, Cash Advance Home Equity Credit Card Bank / CU / Installment Loan Bank / CU / Installment Loan

20. What Are the Options? What Are the Options? Seeking Credit vs. Seeking Ways to Manage Finances Seeking Credit vs. Seeking Ways to Manage Finances www.pewtrusts.org/small-loans 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

21. Paying Off The Loans Paying Off The Loans www.pewtrusts.org/small-loans 21 Report: See p.37

22. Payday Loans Do Not Eliminate Overdraft Risk Payday Loans Do Not Eliminate Overdraft Risk www.pewtrusts.org/small-loans 22 Report: See p.32-35

23. Loans Take Advantage… But Also Help Loans Take Advantage… But Also Help www.pewtrusts.org/small-loans 23 Report: See p.39-44

24. Borrowers Have Torn Feelings Borrowers Have Torn Feelings www.pewtrusts.org/small-loans 24 Report: See p.42

25. Borrowers Want Changes Borrowers Want Changes www.pewtrusts.org/small-loans 25 Report: See p.39-44

26. By Nearly a 3-to-1 Margin: Borrowers Favor More Regulation By Nearly a 3-to-1 Margin: Borrowers Favor More Regulation www.pewtrusts.org/small-loans 26 Report: See p.48

27. www.pewtrusts.org/small-loans Project Director: Nick Bourke 202.552.2123 nbourke@pewtrusts.org Research: Alex Horowitz 202.540.6315 ahorowitz@pewtrusts.org Media Relations: Samantha Lasky 202.540.6390 slasky@pewtrusts.org