Transcript Alex Horowitz, Research Manager, Pew Charitable Trusts

Small-Dollar Loans Research
National Federation of Community Development
Credit Unions
June 7, 2013
www.pewtrusts.org/small-loans
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
2
How Payday Loans Work
• 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
www.pewtrusts.org/small-loans
3
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
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
The Fundamentals
(Pew’s July 2012 Report)
www.pewtrusts.org/small-loans
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Why Do Borrowers Use Payday Loans?
www.pewtrusts.org/small-loans
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What Would Borrowers Do Without Payday Loans?
www.pewtrusts.org/small-loans
8
State Of Regulation
55% of population
16%
29%
www.pewtrusts.org/small-loans
9
Payday Lending Regulation Is Not Leading
To Increased Online Borrowing
www.pewtrusts.org/small-loans
10
How Borrowers
Choose and Repay
(Pew’s February 2013 Report)
www.pewtrusts.org/small-loans
11
Most Use Payday Loans For Recurring Expenses
Report:
See p.10
www.pewtrusts.org/small-loans
12
Renewing Is Affordable, But Paying Off Is Not
< $430
www.pewtrusts.org/small-loans
13
Renewing Is Affordable, But Paying Off Is Not
Report:
See p.15
www.pewtrusts.org/small-loans
14
So, why do people use unaffordable loans?
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15
Why People Use Unaffordable Loans
Report:
See p.20
www.pewtrusts.org/small-loans
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Why People Use Unaffordable Loans
Report:
See p.22
www.pewtrusts.org/small-loans
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Why People Use Unaffordable Loans
Report:
See p.23-25
www.pewtrusts.org/small-loans
18
What Are the Options?
Payday Loan,
Cash Advance
www.pewtrusts.org/small-loans
Bank / CU /
Installment
Loan
Credit
Card
Home
Equity
19
What Are the Options?
Seeking Credit vs. Seeking Ways to Manage Finances
OTHER OPTIONS
81%
62%
Payday borrowers
who would use these
options if payday
loans did not exist
CREDIT OPTIONS
41%
Budget /
Cut Back
Home
Equity
Delay
Paying
Bills
Payday Loan,
Cash Advance
57%
Credit
Card
60%
Family /
Friends
57%
www.pewtrusts.org/small-loans
Payday borrowers
own a home
Payday applicants
have a credit card
Sell /
Pawn
Bank / CU /
Installment
Loan
20
Paying Off The Loans
Report:
See p.37
www.pewtrusts.org/small-loans
21
Payday Loans Do Not Eliminate Overdraft Risk
Report:
See p.32-35
www.pewtrusts.org/small-loans
22
Loans Take Advantage… But Also Help
Report:
See p.39-44
www.pewtrusts.org/small-loans
23
Borrowers Have Torn Feelings
Report:
See p.42
www.pewtrusts.org/small-loans
24
Borrowers Want Changes
Report:
See p.39-44
www.pewtrusts.org/small-loans
25
By Nearly a 3-to-1 Margin:
Borrowers Favor More Regulation
Report:
See p.48
www.pewtrusts.org/small-loans
26
www.pewtrusts.org/small-loans
Media Relations:
Samantha Lasky
202.540.6390
[email protected]
Project Director:
Nick Bourke
202.552.2123
[email protected]
Research:
Alex Horowitz
202.540.6315
[email protected]