1. Payday Lending Research September 30, 2013 www.pewtrusts.org/small-loans

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

3. How Payday Loans Work How Payday Loans Work Packaged as “short-term” loan for “temporary needs” – Obtained from storefronts, online, some banks Little to no underwriting – Borrower has an income source and checking account – Lender can debit account to collect payment (deferred presentment) Short repayment period, tied to borrower pay cycle – Balloon or lump-sum repayment – If borrower cannot pay that, pays fee to renew, or borrows again Avg. loan is $375 – Fee per 2 wks: $55 store, $95 online, $35 bank www.pewtrusts.org/small-loans 3

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% to those using 12+ – Average borrower in debt five months during year Consecutive usage is the norm – More than three quarters of loans originated before next pay period Profitability of payday lenders depends on repeat borrowing – 4 to 5 loans before customer is profitable (industry estimate) High overhead costs – 2/3 of revenue covers overhead; 1/6 covers losses www.pewtrusts.org/small-loans 4

5. State of Regulation State of Regulation www.pewtrusts.org/small-loans 5 55% of population 16% of population 29% of population

6. Bank Deposit Advance Loans (DAP) Bank Deposit Advance Loans (DAP) www.pewtrusts.org/small-loans 6 Report: See p.11

7. Methodology – Pew Survey Research Methodology – Pew Survey Research First-of-its-kind survey of American payday loan borrowers – Random Digit Dialing, including cell phones, Spanish, minimum of six attempts per phone number Two-part survey: Omnibus (49,684 total screens) – Margin of error +/-0.2 percentage points (usage and demographics) Follow-up, in-depth survey with 451 to 703 borrowers – Margin of error +/- 4.2 to 4.6 percentage points (opinion research) 10 two-hour borrower focus groups in five cities www.pewtrusts.org/small-loans 7

8. Why Do Borrowers Use Payday Loans? Why Do Borrowers Use Payday Loans? www.pewtrusts.org/small-loans 8

9. Most Use Payday Loans for Recurring Expenses Most Use Payday Loans for Recurring Expenses www.pewtrusts.org/small-loans 9 Report: 2/2013 See p.10

10. Renewing is Affordable, But Paying Off is Not Renewing is Affordable, But Paying Off is Not www.pewtrusts.org/small-loans 10 < $430 $375 principal + $55 fee = $430 due in two weeks Report: 2/2013 See p.14

11. Renewing is Affordable, But Paying Off is Not Renewing is Affordable, But Paying Off is Not www.pewtrusts.org/small-loans 11 Report: See p.15

12. What Are the Options? What Are the Options? www.pewtrusts.org/small-loans 12 Payday Loan, Cash Advance Payday Loan, Cash Advance Home Equity Credit Card Bank / CU / Installment Loan Bank / CU / Installment Loan

13. 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 13 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

14. Why People Use Unaffordable Loans Why People Use Unaffordable Loans www.pewtrusts.org/small-loans 14 Report: 2/2013 See p.20

15. Payday Loans Do Not Eliminate Overdraft Risk Payday Loans Do Not Eliminate Overdraft Risk www.pewtrusts.org/small-loans 15 Report: 2/2013 See p.32-35

16. Payday Loans Do Not Eliminate Overdraft Risk Payday Loans Do Not Eliminate Overdraft Risk www.pewtrusts.org/small-loans 16 Report: 2/2013 See p.32-35

17. Deposit Advance Loans Deposit Advance Loans Do Not Eliminate Overdraft Risk (CFPB Report) Do Not Eliminate Overdraft Risk (CFPB Report) www.pewtrusts.org/small-loans 17 CFPB Data

18. Paying Off the Loans Paying Off the Loans www.pewtrusts.org/small-loans 18 Report: See p.37

19. Borrowers Have Torn Feelings Borrowers Have Torn Feelings www.pewtrusts.org/small-loans 19 Report:2/2013 See p.39-44

20. By Nearly a 3-to-1 Margin: Borrowers Want More Regulation By Nearly a 3-to-1 Margin: Borrowers Want More Regulation www.pewtrusts.org/small-loans 20 Report: 2/2013 See p.48

21. www.pewtrusts.org/small-loans Project Director: Nick Bourke 202.552.2123 nbourke@pewtrusts.org Research: Alex Horowitz 202.540.6315 ahorowitz@pewtrusts.org