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Request for Work Session_Payday Lenders
THE CITY OF Dui Masterpiece on the Mississippi TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Scheduling Work Session on Payday Lenders DATE: April 17, 2014 Dubuque band AI -America City r 2007 • 2012 • 2013 Planning Services Manager Laura Carstens recommends the City Council schedule a Work Session for May 19, 2014, on payday lenders. I concur with the recommendation and respectfully request Mayor and City Council approval. brilvt4 ., Mic ael C. Van Milligen MCVM:jh Attachment cc: Barry Lindahl, City Attorney Cindy Steinhauser, Assistant City Manager Teri Goodmann, Assistant City Manager Laura Carstens, Planning Services Manager THE CITY OF DUB E Masterpiece on the Mississippi MEMORANDUM TO: Michael C. Van Milligen, City Manager FR011li: Laura Carstens, Planning Services Manager SUBJECT: Set a Date for Work Session on Payday Lenders DATE: April 16, 2014 Dubuque All AmerlCa City 11111f 2007 • 2012 • 2013 Introduction This memorandum requests City Council set the date for a work session on payday lenders for May 19, 2014 at 5:15 p.m. in the City Council Chamber at the Historic Federal Building. Initial Research Enclosed is initial research on possible zoning regulations for payday lenders previously provided to the City Council on March 17, 2014. Planning Services staff explored zoning regulations for separation of the eight payday lenders in Dubuque. Staff's initial analysis based on ordinances in seven Iowa cities that have a physical separation between payday lenders as well as from residential districts is shown on Map One and Map Two. Additional Research Based on additional input from concerned citizens and City Council members, Planning Services Staff reexamined the Iowa ordinances that regulate payday lenders. Generally, they require separation from residential districts and from each other. Some ordinances also require separation from schools, playgrounds, parks, pawn shops and liquor stores. Staff determined that a separation buffer from residential districts, where most schools, parks and playgrounds are located, serves to achieve the intended goal of making the existing payday lenders non -conforming and preventing others from locating in the buffer area in the future. This method would also be easier to regulate business locations. There are approximately 120 carry -out liquor outlets within Dubuque. Staff did not have to use liquor stores as a buffer because buffering from residential districts and from other payday lenders achieved almost the same effect. Planning Services staff looked to the City's regulations for buffering adult entertainment establishments as a way to regulate the location of payday lenders. These regulations require a minimum of 1,200 feet from residential districts and a minimum of 2,500 feet between each establishment. These buffers are the most restrictive separation requirements in the City's zoning regulations. Work Session on Payday Lenders Map Three applies the buffering for adult entertainment establishments to payday lenders. The map shows the locations of the payday lenders, schools and liquor stores, as well as eligible areas left for new payday lenders. The residential buffer can be increased at the City Council's discretion to reduce the eligible areas for new payday lenders. Map Four compares the city's Community Development Block Grant (CDBG) target areas in relation to payday lenders. CDBG target areas are where most of the city's low-income households, those most likely to need the services provided by a payday lender, reside. Note that only two of the eight payday lenders are located in or near these areas. Both locations would become non -conforming and no new payday lenders could locate here. Stakeholder Input The City Council discussed receiving input from various stakeholders on both sides of the issue of payday loans, including payday lenders and civic and non-profit organizations. Since City Council work sessions generally are limited to a presentation by City staff without public input, interested parties typically can only listen to the discussion. Planning Services staff suggests notifying various stakeholders of the City Council work session and inviting them to contact City Council members directly or in writing prior to the meeting to express their views. A sample letter and a list of possible invitees are enclosed for City Council consideration. Requested Action The requested action is for the City Council to provide further direction with respect to possible regulation of payday lenders, to set the date of the work session for May 19, 2014, and to provide further direction on soliciting stakeholder input for the work session. Enclosures c: Kyle Kritz, Associate Planner Guy Hemenway, Assistant Planner F\USERSTCARSTEMW P\ZONING\Memo MVM payday loans doc 2 Dubuque THE CITY OF DUB E '� �' NMmeiica Ctt/ II Masterpiece on the Mississippi 2007.2012.2019 Planing Services Department City Hall - 50 West 13th Street Dubuque, IA 52001-4805 (563) 589-4210 phone (563) 589-4221 fax (563) 690-6678 TDD planning@cityofdubuque.org April 17, 2014 Name Organization Street Address City State Zip Code SUBJECT: May 19, 2014 Work Session on Possible Zoning Regulations for Payday Lenders The Dubuque City Council is considering the enclosed research they requested on possible zoning regulations for payday lenders in the city of Dubuque. If adopted, new zoning regulations would impact future payday lenders. Existing locations would not be impacted. The City Council will hold a work session on this topic on May 19, 2014 at 5:15 p.m. in the Council Chambers of the Historic Federal Building, 350 W. 61h Street, in downtown Dubuque. You are invited to contact the City Council prior to their work session in person, via telephone or email, or by mailing written correspondence to the City Clerk, 50 W. 13th Street, Dubuque, Iowa 52001. To send an email to the entire City Council, visit the City website, www.cityofdubuque.orq to complete our Contact Form and select "City Council" as the department. Individual telephone numbers and email addresses are provided below. Name Position Telephone Email Address Roy D. Buol Mayor 563.564.5455 rdbuol@cityofdubuque.org Ric Jones At -Large Councilman 563.556.3490 rjones@cityofdubuque.org David Resnick At -Large Councilman 563.582.9217 dresnick@cityofdubuque.org Kevin Lynch Ward One Councilman 563.582.2655 klynch@cityofdubuque.org Karla Braig Ward Two Councilwoman 563.582.0595 kbraig@cityofdubuque.org Joyce Connors Ward Three Councilwoman 563.582.3843 jconnors@cityofdubuque.org Lynn Sutton Ward Four Councilwoman 563.845.0252 Isutton@cityofdubuque.org You also are invited to attend the work session to listen to the discussion but not speak. Public input at work sessions is at the discretion of the Mayor, who decides if anyone may speak. The City Council will not vote on zoning regulations at the work session. Adoption of new zoning regulations requires public hearings before the Zoning Advisory Commission and City Council. If you have any questions regarding this information, please feel free to contact the Planning Services Department at 563-589-4210 or planninq(a�cityofdubuque.orq. Sincerely, WWRU Laura Carstens Planning Services Manager Service People Integrity Responsibility Innovation Payday lenders work session invitees Advance America 2600 Dodge Street Dubuque, IA 52003 Allied Pawn and Payday Partners 2013 Central Avenue Dubuque, IA 52001 Check Into Cash 3500 Dodge Street Dubuque, IA 52003 Check -N -Go 806 Wacker Drive Dubuque, IA 52002 EZ Money 3301 Pennsylvania Avenue Dubuque, IA 52002 Hometown N Cash Advance 3416 Pennsylvania Avenue Dubuque, IA 52002 Hometown N Cash"Advance 605 West Locust Dubuque, IA 52001 Payday: Partners' 3305 Asbury Dubuque, lA 52002 Bridget Fagan Iowa Citizens for Community Improvement 3424 Cottage Grove Drive Des Moines, IA 50311;;:, David Roberts Dubuque County League of Women Voters 2282 Pasadena Drive Dubuque, IA 52001 Sr. Ruth Fagan Sisters of Saint Francis 3390 Windsor Avenue Dubuque, IA 52001 THE CITY OF Dui Masterpiece on the Mississippi TO: The Honorable Mayor and City Council Members FROM: Michael C. Van Milligen, City Manager SUBJECT: Regulation of Payday Lenders DATE: March 6, 2014 Dubuque band AI -America City r 2007 • 2012 • 2013 Planning Services Manager Laura Carstens is transmitting information on possible zoning regulations for payday lenders in response to a request by the City Council on November 18, 2013. 7.- Mic ael C. Van Milligen bc./1144 tvii MCVM:jh Attachment cc: Barry Lindahl, City Attorney Cindy Steinhauser, Assistant City Manager Teri Goodmann, Assistant City Manager Laura Carstens, Planning Services Manager THE CITY OF Dui Masterpiece on the Mississippi MEMORANDUM TO: Michael C. Van Milligen, City Manager FROM: Laura Carstens, Planning Services Manager SUBJECT: Regulation of Payday Lenders DATE: March 7, 2014 Dubuque AFAmetteaCity 11111, 2007 • 2012 • 2013 Introduction This memorandum transmits information on possible zoning regulations for payday lenders in response to a request by the City Council on November 18, 2013. Background Information on the nature, impacts, and regulation of payday lenders is enclosed from the Iowa Citizens for Community Improvement and the Pew Charitable Trust. Payday loans are defined as small, short-term, unsecured loans, and are sometimes referred to as cash advances. Payday loans generally require that the consumer have a previous payroll and employment record, generally charge a much higher interest rate than a standard bank loan, and carry a substantial risk to the lender. Opponents of payday lenders recommend that cities and states regulate the industry by capping interest rates, requiring credit checks for patrons and by implementing zoning regulations that limit new business locations using density and separation requirements. In Iowa, cities can regulate the location of payday lenders, but cities cannot regulate their interest rates or prohibit payday lenders. Des Moines, West Des Moines, Clive, Ames, Iowa City, Cedar Rapids and Windsor Heights require a physical separation between payday lenders as well as separation from residentially -zoned districts, as shown below. Municipal Zoning Regulations for Separation of Payday Lenders Iowa Community Separation between Lenders Separation from Residential Ames 1,000 feet 1,000 feet Cedar Rapids 1,000 feet 1,000 feet Clive 1,000 feet 1,000 feet Des Moines % mile 250 feet Iowa City 1,000 feet 1,000 feet West Des Moines % mile 250 feet Windsor Heights 1,000 feet 1,000 feet Regulation of Payday Lenders Discussion Planning Services staff explored zoning regulations for separation of the eight payday lenders in Dubuque. These businesses are mostly located in the west side commercial areas with two found in the downtown area. Map One shows each payday lender's location ringed with 500 -foot, 1,000 -foot and 2,500 - foot separation buffers from other lenders. At 500 and 1,000 feet, only two of the eight lenders would be made legally non -conforming, or "grandfathered". At 2,500 feet, six of the eight would be made legally non -conforming. Map Two illustrates that using a 1,200 -foot buffer from any residentially -zoned district, for example, would make seven of the eight payday lenders legally non -conforming and significantly reduce the area where new lenders could locate. The eligible locations for new lenders under this scenario would include areas at Asbury Plaza, Wal-Mart, Inn Plaza, Wacker Plaza, Westside Court / Menards, the former Dubuque Pack site, Historic Millwork District, Port of Dubuque, and Chaplain Schmitt Island. Recommendation By adopting separation requirements, the City Council could eliminate much of the eligible locations within the city and make most or all of the existing payday lenders legally non- conforming. New lenders could not open in the non -eligible areas. In determining how to restrict locations for future payday lenders, the City Council may wish to consider whether the intent is to concentrate this activity in a limited area or disperse it to reduce its concentration. Reducing the area where lenders may locate by creating a buffer from residentially -zoned districts would concentrate the activity. Having a separation between payday lenders would tend to disperse them. Using both separation from residential districts and from each other would tend, over time, to accomplish both goals. However, Planning Services staff cannot predict how many payday lenders, if any, would be eliminated over time using zoning regulations. Non -conforming businesses could remain open, and even reopen at the same location if closed for less than a year. Also, on-line services generally are exempt from zoning regulations. Conclusion Zoning regulations to separate payday lenders would have little effect on the existing businesses or on consumers using either an existing business or an on-line resource. It may be more effective for the City Council to encourage State lawmakers to establish more stringent banking and loan regulations for these businesses, such as maximum interest rates and other terms that help protect the consumer from what has been deemed predatory lending practices. Requested Action The requested action is further direction with respect to possible zoning regulations of payday lenders. Enclosures F W SERSILCARSTENIW PIZONING'Memo MVM payday loans doc 2 THE CITY OF Dui Masterpiece on the Mississippi TO: Laura Carstens, Planning Services Manager FROM: Guy Hemenway, Assistant Planner SUBJECT: Regulation of Payday Loan Businesses DATE: March 5, 2014 Dubuque All AmerlcaCBy 2007 • 2012 2013 INTRODUCTION Based on a request from a City Council member, the City Manager has asked that Planning Services staff investigate regulation of payday loan (PDL) businesses in the City of Dubuque. BACKGROUND Payday loans are defined as small, short-term, unsecured loans, and are sometimes referred to as cash advances. Payday loans generally require that the consumer have a previous payroll and employment record, generally charge a much higher interest rate than a standard bank loan, and carry a substantial risk to the lender with default rates of 10-20%. The City of Ames, Iowa defines a payday lender as a company that: 1. Accepts a check dated subsequent to the date it was written, and/or; 2. Accepts a check on the date it was written and holds the check for a period of time prior to deposit or presentment pursuant to an agreement with, or any representations made to, the maker of the check, whether expressed or implied. For purposes of this discussion staff will use this two- part definition. A recent search of phone book and internet records indicates that there are eight PDL businesses within the city of Dubuque. The local PDL businesses are somewhat broadly distributed, most being located on the city's west side in commercialized areas with two located in the downtown area. DISCUSSION Opponents of PDL businesses contend that they prey upon low income individuals that can least afford higher interest rates. The PDL industry states that they provide a service not available to many low income individuals that enable them to pay short-term critical bills, such as utilities, rent, and auto repair. Regulation of Payday Loan Businesses Page 2 Opponents of PDLs recommend that cities and states regulate the industry by capping interest rates, requiring credit checks for patrons and by implementing zoning regulations that limit a PDL's ability to locate new businesses using density and separation requirements. Separation requirements have been used effectively to limit the number and location of other potentially detrimental businesses such as adult entertainment establishments. Currently, within the state of Iowa, the cities of Des Moines, West Des Moines, Clive, Ames, Iowa City, Cedar Rapids and Windsor Heights have approved ordinances that require a physical separation between PDLs as well as separation from residentially -zoned districts. An advocacy group, listed as Iowa CCI, notes that the Iowa Attorney General has stated that, by law, municipalities can legally implement both separation and density ordinances in an effort to regulate PDLs. ANALYSIS Credit.com reports that almost anyone with a checking account and steady income can obtain a payday loan. However, PDLs are most commonly used by borrowers who do not have access to credit cards or savings accounts. Also, because these loans do not generally require a credit check, people with no credit or with credit problems turn to PDLs. Although PDLs can be a tool for quickly and easily borrowing cash during an emergency, people can get into financial trouble when they are unable to repay the debt within the specified time period. This can lead to expensive additional fees and to what is called the payday loan cycle. Those borrowers who are not able to repay within the allotted time frame often borrow additional money and sink deeper into debt. Credit.com also notes that many states have very specific laws that regulate the lending industry. Although these laws vary widely, some states have usury laws that strictly regulate the amount that a payday lender can charge and some states, such as New York, ban payday lenders outright. Credit.com also notes, however, that payday lenders often work around these regulations by partnering with banks based in other states, or by offering services on-line. Under Iowa law, a city may not categorically exclude payday lending or regulate terms such as interest rates. However, cities in Iowa are empowered to regulate the place at which payday lending occurs. This can be accomplished using zoning regulations. To restrict the locations eligible for PDLs using zoning regulations, it is necessary to distinguish payday lenders from other types of lenders and credit services in the zoning code, and then to identify the particular restrictions that would apply to that class of commercial activity. Using the City of Ames' definition of payday lending, staff has determined that there are currently eight PDLs within the city of Dubuque. The first method of regulation that staff explored is separation of PDLs from each other. Staff applied several minimum separation distances between each PDL. The attached map shows each store's current known location ringed with 500, 1,000 and 2,500 foot separation buffers. At 500 and 1,000 feet, only two of the eight PDLs would be made legally non -conforming. At 2,500 feet, six of the eight would be made legally non- conforming. The City could make some or all of the existing PDLs legally non- conforming by adjusting the separation distance. 2 Regulation of Payday Loan Businesses Page 3 The other method used to limit the PDLs ability to locate a new store is to require their separation from residentially zoned districts. This method is currently used to regulate adult entertainment businesses within the city (along with separation from schools and from other adult entertainment businesses). Using a 1,200 foot buffer from a residentially zoned district, for example, would make seven of the eight existing PDLs non -conforming and significantly reduce the area new stores could locate. The attached map illustrates that the PDL eligible areas would primarily be located on the city's southwest, northwest and far east sides. This would include a portion of Asbury Plaza, the Port of Dubuque, the Wal-Mart area, Inn and Wacker Plazas, Westside Court/Menards, the former Dubuque Pack site, a portion of the Historic Millwork District and Chaplain Schmitt Island. By modifying the separation area(s) outlined above, the City could eliminate much of the PDL eligible area within the city and make most or all of the existing PDLs legally non -conforming. In determining which, if any, of the regulatory methods cited to use in restricting future payday lending business locations, the City Council may wish to consider whether the intent is to concentrate this activity in a limited area or disperse it to reduce its concentration. Reducing the area available in which lenders may locate by creating a buffer from residentially zoned districts would be an effective means of concentrating the activity. Requiring a separation between PDLs would tend to disperse them. Using both separation from residential districts and from each other would tend, over time, to accomplish both goals. It is important to note that, by using municipal zoning regulations, each PDL made legally non -conforming because it did not meet the required separation could continue to operate provided that it met all other local, state and federal regulations. Also, based on current regulations governing non -conformities, if a non -conforming PDL ceased operation for less than a year another could re -open at the same location. However, a non -conforming PDL could not reopen at the same location after the business ceased for a year or more. Also, no new PDL could open at any different location within the separation area after the date that the ordinance was adopted. There are eight existing PDLs and they could legally continue to operate should a separation regulation be adopted. Even if several PDLs were to be lost through attrition, those remaining could continue to operate and would likely absorb the business from the overall client pool. It is important to note that industry research indicates that many payday loan companies are transitioning to on-line services that are remotely located and, therefore, generally exempt from local zoning regulations. The City Council may want to consider the rationale for requiring separation distances for PDLs. In the case of adult oriented businesses, there exists evidence that these establishments should be regulated because of their demonstrable negative secondary effects, such as increased crime rates and negative impact on property values. With PDLs, such concerns may not be as evident. Also, it is not possible to predict how many PDLs, if any, would be eliminated over time using these regulations. It is noteworthy that a recent editorial in the Telegraph Herald (attached) stated that the 3 Regulation of Payday Loan Businesses Page 4 most effective way to regulate PDLs is through state banking and loan regulations that establish maximum interest rates and other terms that help protect the consumer from what has been deemed predatory lending practices. CONCLUSION The information included in this memo demonstrates that the use of zoning regulations for separation requirements could easily make several or all of the existing PDLs within the city limits legally non -conforming. The businesses that were made non -conforming could remain and even reopen at the same location if closed for a year or less. However, new PDLs could not open in the non -eligible separation areas. In all likelihood, this would have little effect on the existing business or on the ability of the consumer to find a payday loan either by frequenting an existing business or by using the on-line resource. Furthermore, zoning based PDL separation regulations will have little to no impact on online payday loan services. The method that may be more effective for municipalities is to encourage State of Iowa lawmakers to establish more stringent banking and loan regulations for these businesses. This memo has been provided for your information. Enclosures 4 Iowa Minns for Community Improvement We talk. We act. We get it done. 2001 Forest Avenue Des Molnes, IA 50311 ph 515.282.0484 fx 515.283.0031 www.iowacci.org WHY PAYDAY LENDING IS A PROBLEM In Iowa, payday loans are effectively capped at $445 and are due in full in just 14 days. To get a payday loan for $445, you write a postdated check or authorize an automatic withdrawal from your bank account for $500. This means that the average APR (annual percentage rate) for a payday loan in Iowa is 430%: $15 charged for the first $100 borrowed and then $10 per every $100 after that, up to $500. For a family living paycheck to paycheck with an emergency need, it can be impossible to pay back a $500 loan in just two weeks. This is why 98% of all payday loans go to repeat customers. 76% of all payday loans go to customers getting a new loan every two weeks. Payday lending creates an instant debt trap that can be impossible to escape. But payday lenders rely on this debt trap to make a profit — which is why they are so opposed to any attempts to curb the practice. And because so many payday loan companies are incorporated as out of state corporations, $40 million in payday loan profits flees the state of Iowa every year, draining local communities of wealth and economic activity. THE FACTS ABOUT PAYDAY LENDING - 98% of payday loan borrowers are repeat customers - 76% of payday loan borrowers have to re -borrower within two weeks of getting their last payday loan - Payday loan customers are four times more likely to have filed for bankruptcy than the average adult - The average APR of mafia loans during the mob's heyday was approximately 250% - The average APR nationally for a payday loan is over 400% - The average payday loan borrower repays $800 for a $325 loan — that's $475 in fees and interest There were 200 payday lending outlets in the U.S. in 1993; there are more than 22,000 today — that means there are more payday lending outlets in the U.S. than there are McDonalds and Burger King restaurants combined WHAT PAYDAY LENDING REALLY MEANS - Loans with 400% (or higher) interest rates - Loans due in full in just two weeks - No regard for your ability to repay (no credit check and no questions about your current financial situation) - A potentially dangerous product that traps the majority of customers in a cycle of debt that can be impossible to escape - Harassing collection techniques towards not only you but your friends and family if you can't pay Iowa Citizens for Community Improvement We talk. We act. We get it clone. 2001 Forest Avenue Des Molnes,IA 50311 ph 515.282.0484 tx 515.283.0031 www.iowacciorg WHAT WE HAVE DONE CCI has worked to pass ordinances to curb the growth by restricting where payday lenders can operate in 7 cities in Iowa — Des Moines, West Des Moines, Clive, Ames, Iowa City, Cedar Rapids and Windsor Heights. Since we started this work in 2010, there has been an almost 20% drop in the number of payday lenders in Iowa. WHAT WE'RE WORKING TO DO We know to really address the problem of payday lending in Iowa, we need legislation to cap the interest rate of a payday loan at 36% - the same usury rate that applies to banks. In the meantime, we will continue to work to pass ordinances throughout the state to curb the growth of payday lenders and send a strong message to our legislature that our communities don't want these predatory businesses in our state. CCI is a statewide grassroots organization with over 3,200 members across the state. One issue CCI works on is payday lending and has worked to pass all 7 ordinances in Iowa. immignow, ZAD: I 40# Hicm payday tho t[lp Wcan.iith fTr® m mac@ WorkOng� POOP for RG©octt Frof[ift A Report by National People's Action January 2012 TABLE OF CONTENTS 1. Report Summary and Main Findings Page 3 11. Payday Loans: An Overview Page 4 Ill. Explosive Growth in Payday Lending Page 7 IV. The Annual Consumer Cost of Payday Lending Page 13 V. Policy Recommendations Page 18 VI. Report Methodology and Data Page 19 NATIONAL PEOPLE'S ACTION 810 North Milwaukee Avenue • Chicago, IL 60642 • 312.243.3035 • www.nna-us.org Author: Nicholas Bianchi National People's Action - January 2012 2 1. Report Summary Despite recent regulatory crackdowns on payday lending in seven states, the payday loan business is flourishing in states with weaker consumer protections. In recent years the major payday lenders have achieved record profits from this form of high-cost, small -dollar loans targeting subprime borrowers. While much of the economy is credit -starved, the nation's major banks continue to provide the payday loan industry with capital to issue millions of usurious and predatory loans. The result is that every year billions of dollars are paid by the working -poor and other cash-strapped borrowers in excessive fees on payday loans. This report urges strong regulatory action by states and the newly empowered Consumer Financial Protection Bureau to reform the costly and financially irresponsible practices of the payday loan industry as it currently exists in 33 states. Main Findings: • The nation's largest payday loan companies have earned a record $1.5 Billion in combined annual revenues from high-cost payday loans. • The nation's major banks including Bank of America, JPMorgan Chase, and Wells Fargo finance approximately 42% of the entire payday loan industry nationwide. • State regulators report that payday loans cost borrowers a minimum of $3.4 Billion in fees annually. • Every year an estimated $3.1 Billion in wealth is "stripped" from the pockets of needy borrowers directly into the coffers of the nation's payday lenders. • The segment of the payday loan industry funded by the big banks results in a minimum of $1.5 Billion annually in wealth -stripping from excessive fees paid by payday loan borrowers nationwide. National People's Action - January 2012 3 II. Payday Loans: An Overview of Legalized Usury Payday loans are short-term cash loans that average $350 borrowed for a two week term. The loan is repaid from a borrower's next paycheck or government benefit check'. To obtain a payday loan, the borrower gives the lender a postdated personal check or authorization to make a withdrawal from the borrower's bank account. In return, the borrower receives cash, minus the lender's fees. Typical loans fees range from $15 to $20 per $100 borrowed, or a $52 to $70 price tag for a single $350 loan. With short loan terms of less than one month, payday loans typically charge an annual percentage rate (APR) between 390% and 550%. These triple digit interest rates along with a business model that encourages repeat borrowing make payday loans one of the most expensive forms of consumer credit available. Despite its explosive growth over the last 15 years, payday lending remains a niche financial product targeting subprime borrowers. 2 Many Americans with access to mainstream banking services and credit cards may never step foot into a payday loan shop. However, an estimated 25.6% of all American households representing 39 million adults are either "unbanked" (7.7% of all households) or "under - banked" (17.9% of households). 3 Also, significant racial and ethnic disparities exist in terms of access to mainstream financial services; 53% of African-Americans, 43% of Hispanics, and 44% of Native Americans are either unbanked or underbanked. ' Eligible sources of government income for a payday loan include U.S. Social Security, Disability Insurance (SSDI), and, in some cases, unemployment benefits. 2 Many payday lenders offer cash advance loans as their sole product while others offer additional financial services, such as check - cashing services, pawn loans, and auto title loans targeting the unbanked, under -banked, or otherwise credit -impaired consumers. 3 FDIC National Survey of Unbanked and Underbanked Households, 2009. The FDIC defines "underbanked" households as those that have a checking or savings account but rely on alternative financial services. National People's Action - January 2012 4 Percent of "Unbanked" and "Underbanked" Individuals by Race, Ethnicity 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Pytiao Qt .c, it e ( P� • % Unbanked • % Underbanked Source: FDIC, 2009 It is these unbanked and under -banked individuals, many of whom comprise the so-called "working poor," that are a target market for the payday loan industry. An estimated 16.2% of under -banked households have used payday loans and 6.6% of unbanked household have used a payday loan, compared with only 3.5% of all households.4 Percent of Households that Have Used Payday Loans 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 6.6% Unbanked 16.2% ■ Underbanked All US Households* Source: FDIC, 2009 FDIC, 2009. National People's Action -January 2012 5 Payday loan customers are predominately lower or moderate income. A 2007 survey of payday loan users found that 95% of borrowers had a household income below the national average. Furthermore, 75% of borrowers had an annual household income of Tess $50,000, and one third had a household income below $25,000. Only 9% of payday loan borrowers had a household income over $75,000.5 Borrowers tend to be disproportionately female and research suggests single mothers make up a key segment of payday customers.6 African-American or Latino customers also make up a disproportionate number of payday loan users'. While the industry denies targeting people of color, the reality is that payday loans stores are highly concentrated in African-American and Latino neighborhoods.8 The consumer appeal of the payday loan is primarily that it offers individuals who may be cut off from mainstream credit sources virtually immediate access to cash. However, this quick access to cash comes at a high financial price to borrowers. Rather than perform meaningful underwriting as do most other lenders, payday lenders instead only verify a source of income for repayment. To offset potential loan defaults, the payday loan industry's business strategy is to charge very high borrowing fees and to encourage repeat borrowing in order to maximize profits. While the payday loan industry advertises the product as a sensible choice for a one time emergency financial need, the reality is that the average borrower takes out 9 payday loans per year in quick succession. Only a small fraction of the 17 to 19 millionpayday loan borrowers take out one loan per year, while a majority of payday loan customers are in effect longer-term borrowers who pay triple -digit interest rates on repeat loans for months at a time.9 An estimated 5% of all payday loans or 800,000 borrowers default on a payday loan every year and likely 5 Elliehausen, Gregory. "An Analysis of Consumers' Use of Payday Loans", Board of Governors of the Federal Reserve System, Division of Research and Statistics, January 2009. The medium household income in 2007 was $52,670 (U.S. Census). 6 Texas Appleseed,"Short-term Cash: Long-term Debt: The Impact of Unregulated Lending in Texas", April 2009. This survey of payday loan users in Texas cities found 59% of all borrowers were women and 40% of all borrowers were single women. . A 2007 national survey performed by Gregory Elliehausen found 23.3% of surveyed payday loan borrowers are unmarried with children, compared with 7.6% of all consumers being unmarried with children. Center for Responsible Lending, "Predatory Profiling", 2009. A survey of California borrowers found African-American and Latino payday loan borrowers made up 56% of all borrowers but only 31% of the total population. Also a survey of borrowers in Pima County Arizona found African-American, Latino, and Native American borrowers made up 60% of payday borrowers but 30% of the overall population. Texas Appleseed, "Short-term Cash: Long-term Debr',2009. A study in Texas found African-Americans using payday loans at twice the rate of Whites. National People's Action, "Credit Segregation: Concentrations of Predatory Lenders in Communities of Color ", February 2011. 9 Center for Responsible Lending, Parrish, Leslie and Uriah King, "Phantom Demand: Short-term due dates generates need for repeat payday loans, accounting of 76% of total volume", July 2009. This study of payday loans in Florida and Oklahoma found only 2% of borrowers took out only one payday loan over a 12 -month period. National People's Action January 2012 6 end up in worse financial condition than before the taking out their Ioans.10 Perhaps not surprisingly, payday loans have been found to contribute to the likelihood of bankruptcy.11 lll. The Rise of Payday Lending and the Regulatory Response Explosive Growth in Payday Lending: 1990's -2000's The payday lending industry has experienced dramatic growth over the last two decades to reach an annual loan volume estimated at $40 Billion with over one hundred million payday loans issued every year.12 From the pawnshop to the loan shark, there have long been businesses catering to lending money at a high cost to the working poor. However, the growth of payday lending perhaps shares more in common with the now infamous subprime mortgage lending industry than with the neighborhood pawn shop. Like subprime mortgages, payday lending was virtually unheard of in the 1980's but emerged in a limited form as the declining real income of lower income workers created more American households dependent on credit to meet everyday expenses. By the mid 1990's more subprime finance businesses realized the profit potential of collecting an average of 20% on every dollar loaned out as a cash advance. The lure of inflated profits from credit -impaired borrowers eventually attracted the interest of Wall Street investors and the mainstream banks, whose deep -pockets financed the rapid nationwide growth of corporations specializing in high-cost cash advance loans. 10 Rivlin, Gary. Broke, USA: from Pawnshops to Poverty, Inc. HarperCollins, 2010. Rivlin estimates the default rate at 5% or one in twenty loans. Advance America reports a 3.3% charge-off rate as of December 2010, Source: SEC 10-K filing. If 5% of all payday loans default, this analysis assumes 5% of the total 17 Million borrowers, or 850,000 borrowers, will be in default annually. Because it is possible that a single payday loan borrower may default on multiple loans at, we discount the estimated total to 800,000 borrowers. 11 Skiba, Paige and Jeremey Tobacman, "Do Payday Loans Cause Bankruptcy?" 2008. 12 Stephens Inc, an investment firm specializing in subprime finance, estimates $29.3 Billion in total storefront payday lending and $10.8 Billion in Internet payday lending in 2010. The estimate of the annual number of payday loans is based on an average loan amount of $350 per transaction. National People's Action - January 2012 7 The rise of payday lending was also enabled by a void in consumer protection laws and financial regulations. No federal regulation covered this new financial product. While ten states never authorized payday lending, most states' financial regulations did not specifically prohibit payday lending, and the industry quickly set up shop. In cases where state law limited payday lending, newly formed payday lending lobby groups poured millions of dollars to make the laws more accepting of this truly high-cost financial service.13 From an estimated 2,000 payday lender storefronts nationwide in 1996 to over 20,000 stores in 2003, in a mere seven years the retail presence of the industry increased tenfold. Stephens Inc., a leading subprime financial industry analyst, reports that storefront payday lending appears to have reached its peak around 2006-2007 with over 24,000 payday loan stores. Number of Payday Loan Stores Nationwide: 1996-2010 25,000 - 20,000 - 15,000 10,000 5,000 0 Source: Stephens, Inc. 1 1 1 ti°°' States Crackdown on Legalized Usury: 2007-2011 The recent decline in the number of payday loan stores is largely due to some states prohibiting triple - digit interest rates on payday loans. Since 2007 there has been a significant trend toward increased 13 Rivlin, Gary. Broke. USA: from Pawnshops to Poverty. Inc. HarperCollins, 2010 National People's Action - January 2012 8 regulatory pressure on payday lending in numerous states. Arizona, Arkansas, Colorado, Montana, New Hampshire, Ohio, and Oregon together were once home to over 3,400 payday loan shops issuing over $3 Billion in payday loans annually. Since 2007, these seven states have limited small -dollar loan interest rates between 17% and 45% APR, effectively ending or severely limiting payday lending. An industry estimate reports that in 2010 there were approximately 19,700 payday stores nationwide which issued $29.3 Billion in cash advance loans. Even with the recent reduction in payday lending stores, the industry is still widespread and pervasive in 33 states. While now limited to two thirds of the country, there are still more payday loan stores in the United States than McDonald's restaurants.14 As the most recent data from the industry and state regulators show, the payday loan industry is thriving and highly profitable where it is allowed to operate. The states with the greatest concentration of payday lenders per capita (based on adult population) are: Mississippi, Alabama, Louisiana, South Dakota, Tennessee, and Missouri. Not surprisingly, these states have the most lenient regulations limiting the payday lending and their residents pay relatively more in payday lending fees compared with other areas of the country.ls While the payday loan industry includes both large and small businesses, the industry is dominated by 15 large corporations which together operate 9,750 payday loan stores or roughly half of the nation's payday lending stores.16 Of these 15 major payday lenders, six are publicly -traded companies: Advance America, Cash America, Dollar Financial, EZ Corp, First Cash Financial, and QC Holdings. Collectively these six corporations at the end of 2010 operated an estimated 4,500 payday loan stores in 33 states nationwide, or approximately 23% of all payday loan stores nationwide. The six publicly -traded payday lenders are of particular interest as their performance collectively offers detailed insight into overall trends in the U.S. payday loan industry and the business practices of the industry's market leaders. 14 There are a reported 18,750 McDonald's restaurants nationwide. 15 See report methodology and notes on pages 19-21 for more details. 76 See SEC.gov for annual 10-K filings for individual store counts, total payday industry total is based on a Stephens Inc. estimate of 19,700 total stores at year-end 2010. National People's Action - January 2012 9 Payday Lending Revenues During the Great Recession Four years into the nation's economic crisis, annual revenues for the country's publicly -traded payday loan companies have risen to their highest level on record. Annual filings show that the nation's major payday lenders collectively earn more from their high-cost cash advances than before the financial crisis. From 2007 to 2010 their combined revenues from payday lending have increased 2.6%, or some $30 Million in annual revenues. Together the six largest finance companies offering payday loans (Advance America, Cash America, Dollar Financial, EZ Corp, First Cash Financial, QC Holdings) reported $1.48 Billion in revenues in 2010, up from $1,45 Billion in 2007. Revenue from Payday Loan Fees for Six Major Payday Lenders (thousands $US) 1,600,000 - 1,400,000 1,200,000 - 1,000,000 - 800,000 600,000 400,000 200,000 0 2007 2008 2009 2010 oFirstCash Financial Services o Dollar Financial ❑ QC Holdings o EZ Corp ❑Cash America International ▪ Advance America The overall increase in revenues earned by the publicly -traded lenders occurred despite a small overall decline in the total volume of payday loans originated by these companies in recent years. From 2007 to 2010, the combined payday loan volume for these six major payday lenders decreased Tess than one percent (0.8%) over the course of recent financial crisis.'' However, compared to other areas of 17 For the six publicly -traded payday lending companies, their collective payday loan volume reached its high point in 2008 with $10.15 Billion in payday loan originations. The business trends do however vary among the individual companies: the nation's National People's Action - January 2012 10 consumer credit and in contrast to subprime mortgage lending18, payday lending has largely maintained its overall market presence and profitability during the country's recent financial troubles —despite major regulatory crackdowns in several states. Although some of the recent decline may be attributed to economic conditions and rising unemployment, the primary reason for the declines in payday lending have been attributed to individual states' efforts to tighten payday lending regulations or imposing interest rate caps.19 Regulation notwithstanding, the business of lending small dollar amounts to desperate borrowers at a high cost appears to be at least recession -resistant, if not recession proof. Big Bank Funding of Payday Loan Industry Continues Unlike some areas of the economy, the major payday lenders have continued to access hundreds of millions of dollars in credit lines from the nation's big banks, which in turn have been given virtually free and practically unlimited access to capital from the Federal Reserve Bank. As previous research has shown, virtually all of the major payday lenders, companies that comprise nearly half of the payday industry, receive their credit from the nation's largest banks, in particular: Wells Fargo, JPMorgan Chase, US Bank and Bank of America.20 By investing in triple -digit payday lending, arguably the small -dollar financial product that carries the most cost and risk to consumers, the big banks willingly display a callous disregard for their own corporate promises to promote the financial well-being of "communities". As recently as December 2011, Wells Fargo, US Bank, and Bank of America together renewed their $300 Million line of credit to the biggest payday lender in the country: Advance America. The nation's largest payday lenders continue to borrow funds from the bailed -out, "Too -Big -To -Fail" banks at rates around 2.5% APR, which they in turn lend out as payday loans charging between 260% and 570% APR depending on the maximum allowed under state law. largest payday lender, Advance America, saw a 14% reduction is loan volume after exiting some states due to tighten regulations, Cash America on the other hand saw 36.8% growth in payday lending due in part to a focus on online payday lending. is According to the Board of Governors of the Federal Reserve System, Americans' total credit card debt has declined by 15.8% and American's mortgage debt has decreased by some 7.4% between 2007 and 2011. 19 SEC 10-K filings for Advance America. The publically traded payday lending companies all name regulation first in their list of potential threats to business activity. ° National People's Action and Public Accountability Initiative, "The Predators' Creditors: How the Biggest Banks Are Bankrolling the Payday Loan Industry", 2010. National People's Action - January 2.012 11 A detailed examination of payday lending on the state level reveals that the big bank -funded payday lenders compose a significant proportion, and in some cases, the majority of the payday lending industry in a state. Percentage of Payday Lenders Financed by Major National Banks: Virginia, Iowa, Illinois, and Nevada State Number of Payday Loan Stores Licenced in State %of Payday Loan Stores Funded by Big Banks Virginia 276 57.9% Iowa 220 47.3% Illinois 564 41.5% Nevada 430 30.9% State Average 42.3% So urce: State regulators, SEC Based on a sample of states, the percentage of payday lenders that are funded by the nation's largest banks ranges from approximately 31% in Nevada to 58% in Virginia. Based on this four state sample, over 42% of all payday lending in a state on average is funded by Wells Fargo, JP Morgan Chase, Bank of America, US Bank or PNC Bank. This percentage of payday lenders funded by the big banks may increase as the publicly -traded and other large payday companies backed by the mainstream bank industry buy out the smaller "mom and pop" payday lending companies. National People's Action - January 2012 12 IV. The Annual Cost of Payday Lending: 3.5 Billion in High Fees for Small Dollar Loans Every year the estimated 17 Million payday loan borrowers pay billions of dollars in fees as the price to access a relatively small cash advance on their next pay check. The most recent data provided by state regulators shows that payday loans cost borrowers no less than $3.4 Billion per year in loan fee payments. This figure is considered a conservative, baseline estimate as it is based on payday loan fee data reported by state regulatory agencies, which in turn is derived from the loan volumes self-reported by the payday loan industry.21 In many cases, online payday loans and other lending activity may be unreported or underreported.22 The $3.4 Billion cost estimate does not rule out that the actual price of payday loan fees may be considerably higher, as other studies have estimated the consumer cost of payday lending to be $4.5 Billion per year or more.23 The nearly three and half billion dollars in payday loan fees are paid in seemingly small but nonetheless costly finance charges by desperate borrowers every year. A borrower who only takes out one loan per year, which research shows represent only on average 15% of all payday loan customers24, might pay approximately $55 in fees per year. However, the average payday borrower who takes out an estimated nine loans per year will pay an estimated $500 per year in loan fees - in addition to the original loan principal. The one third of payday loan borrowers that are heavily indebted and take out 12 or more loans per year25 can pay $1,000 to $2,000 annually in payday loan fees.26 With the average borrower's annual household income of $35,000, this means that over 5% of the entire annual income of a repeat payday loan borrower can be siphoned off as profits for the country's high -interest, small -dollar lenders. 21 In cases where a state does not report loan payday loan volumes, this report estimates loan volume based on the number of license store locations in the state. See Report Methodology on page 19 for more details. 22 According to Stephens, Inc., one forth of the payday loan industry is now online. 23 The Center for Responsible Lending has estimated the cost of payday fees at $4.5 Billion per year. Stephens Inc. has estimated revenues from both storefront and online payday lending at approximately $7.4 Billion. 24 Center for Responsible Lending, "Payday Loans, Inc.: Short on Credit, Long on Debt", Uriah King, Leslie Parish, 2011. This study finds 15% of payday loan borrowers in Oklahoma payday took out only one loan during a two year period. Similarly, in the state of Florida, only 14% of payday borrowers took out one loan within a year. See "Florida Trends in Deferred Presentment", Veritec Solutions LLC, May 2010 25 "Florida Trends in Deferred Presentment", Veritec Solutions LLC, May 2010. In Florida 32.4% of borrowers took out 12 or more loans from June 2009 to May 2010, accounting for 62.7% of all payday loans issued in the state. 26 Rivlin, Gary. Broke, USA: from Pawnshops to Poverty. Inc. HarperCollins, 2010. p 32-33: Industry consultants advise payday lenders in marketing approaches to encourage repeat borrowing claiming that such loyal customers can pay from $2,000-$4,000 per year in fees. National People's Action - January 2012 13 Payday Lending Excessive Fees = $3.1 Billion in Wealth -Stripping from Financially -Troubled Borrowers An estimated $3.1 Billion dollars of wealth is "stripped" every year from payday borrowers to pay high- cost cash advance fees. If a 36% annualized interest rate (APR) rate was enacted on small dollar loans in the 33 states with triple -digit interest rate payday lending, the current volume of storefront payday lending would generate an estimated $300 Million in loan fees annually. Compared to the actual amount paid annually in fees for high-cost payday lending ($3.4 Billion) borrowers nationwide ever year pay a minimum of $3.1 Billion more in fees than they would under a 36% interest rate cap scenario. This $3.1 Billion is real income "stripped" from millions financially -strapped borrowers and it represents a direct drain of wealth from low and moderate -income citizens into the profit margins of money lenders. National People's Action - January 2012 14 Annual Amount of Payday Loan Annual Fees and "Wealth -Stripping" by State27 State Number of Licenced Payday Lenders (2011) Payday Loan APR Charged Annual Fees from payday Loans Estimated Wealth - Stripping from Fees Alaska 32 520% $6,618,225 $6,154,949 Alabama 1,067 455% $238,102,472 $219,054,274 California 2,123 414% $468,794,874 $425,040,685 Delaware 144 417% $20,806,978 $18,986,367 Florida 1,450 281% $270,963,000 $235,543,000 Iowa 220 301% $40,966,843 $36,463,845 Hawaii 35 460% $3,400,000 $3,132,600 Idaho 226 443% $37,060,000 $34,465,800 • Illinois 564 328% $17,935,836 $16,307,026 Indiana 414 391% $61,102,224 $54,521,984 Kansas 311 391% $63,300,000 $57,392,000 Kentucky 579 459% $108,897,100 $99,632,470 Louisiana 942 560% $287,000,000 $266,910,000 Michigan 651 417% $131,794,558 $118,693,358 Missouri 975 445% $127,453,500 $116,990,309 Minnesota 100 196% $14,166,667 $12,844,444 Mississippi 938 574% $267,009,242 $250,017,745 North Dakota 69 502% $7,365,784 $6,845,031 Nebraska 111 460% $35,928,682 $33,361,882 Nevada 430 521% $109,681,159 $102,003,478 New Mexico 215 346% $4,493,921 $4,076,721 Oklahoma 356 358% $51,645,580 $46,277,035 Rhode Island 25 260% $1,660,000 $1,427,600 South Carolina 418* 390% $62,640,000 $56,793,600 South Dakota 156 427% ' $17,058,601 $14,274,927 Tennessee 1,205 380% $186,051,972 $171,294,308 Texas 2,540 417% $446,265,300 $407,088,457 Utah 270* 443% $76,315,789 $70,015,789 Virginia 276 290% $20,444,811 $18,058,511 Washington 244 390% $65,116,761 $59,039,197 Wisconsin 436 574% $96,800,000 $90,024,000 Wyoming 90 521% $19,377,864 $18,021,414 US Totals 17,630 0,366,217,743 $3,070,752,807 Sources: State Financial Regulatory Agencies, Center for Responsible Lending, Consumer Federation °f America: 27 See report methodology for details, pages 19- 21. National People's Action - January 2012 15 Major Bank Finance Payday Lending Responsible for $1.3 Billion in Wealth -Stripping The nation's major banks provide the primary funding for no fewer than 11 of the 15 major payday lenders which in total comprise more than 40% of the payday lending industry.28 The payday lenders funded by the major banks collect approximately more than $1.5 Billion in loan fees annually. Charging interest rates that average 390% APR, the big bank -funded segment of the industry generates $1.28 Billion in fees in excess of the amount that would be charged under a 36% interest rate cap scenario. This nearly $1.3 Billion represents a direct amount of income transferred from payday loan borrowers into the revenue columns of the money lenders, who admit they are the only option for these needy borrowers. Big Bank Funded Payday Lenders Major Payday Lender Major Bank Funders Number of Payday Stores Ace Cash Express Wells Fargo General Electric Capital 1,200 Advance America Cash Advance Bank of America Wells Fargo US Bank 2,313 American Payday Loans 21 Cash America International Wells Fargo JPMorgan Chase US Bank 655 Check Into Cash Wells Fargo 1,100 Check N' Go (Great Lakes Specialty Finance) Wells Fargo 1,000 Dollar Financial Group Inc. / Money Mart Wells Fargo 312 EZCorp Inc Wells Fargo US Bank 450 First Cash Financial Services (Cash & Go) JP Morgan Chase Wells Fargo 226 MoneyTree Bank of America 70 QC Holdings Inc. US Bancorp 523 Total Stores All Major Payday Lenders: 7,849 28 Estimated by share of total U.S. store locations. National People's Action - January 2.012 16 The Future of Payday Lending: Mainstream Banks and Online Lenders It is likely that payday lending will face continued regulatory pressures. The usurious and too often predatory practices of the payday loan industry are increasingly questioned by state legislatures and their voters. Missouri, a state with one of the highest concentrations of payday lenders, will put the future of payday lending before voters with a 2012 ballot initiative seeking a 36% rate cap. The payday loan industry in turn will seek regulatory loopholes and may evolve away from a predominately storefront model.29 Online payday lending will likely increase its market share and will take away more business from the storefront lenders.30 Perhaps the most important development has been the entry of mainstream bank lenders into the payday loan market, with major banks including US Bank, Wells Fargo, and Fifth Third Bank offering comparable triple digit interest rate cash advance loans to their account holders. As this practice takes hold, banks that offer payday loans have the potential to reach millions of new borrowers regardless of any state regulations that limit storefront payday lenders. A 36% Interest Rate Cap Would Mean a More Responsible Approach to Small Dollar Lending When a 36% interest rate cap is imposed, as it has been in 17 states and the District of Columbia31, the payday lending industry is dramatically altered. The current payday lending business model is dependent on high-cost, high-volume, repeat borrowing. Payday lenders typically cease operations in the state when significant interest rate limits on small loans become the law of the land. This report acknowledges that current payday loan volumes would not continue under a 36% interest rate cap scenario. A real need for small dollar credit exists - although not at the inflated level that current payday loan volumes would suggest32. As consumer advocates have argued and recent experience in states such as North Carolina have demonstrated, only when the usurious and predatory practices of payday lending are contained can more consumer -friendly small dollar loans alternatives be developed. 29 Therefore the number of payday stores may become a less important indicator of the size and scope of the payday loan industry. 30 Stephens, Inc. st The seventeen states with small -dollar loan rate caps range from a 17% annual interest rate maximum in Arkansas to a 60% annual interest rate limit in Georgia. 32 Center for Responsible Lending, "Phantom Demand", 2009. A reduction in the demand for payday loans would likely occur as analysis has shown that approximately 76% of all payday loans are issued solely for the purpose of paying a previous payday loan. Observers of the industry have Tong pointed to practices that create demand by up -selling and encouraging repeat borrowing. National People's Action - January 2012 17 V. Policy Recommendations Consumers, voters and state legislatures are in agreement that the current practices of the payday loan industry must be reined in. The real need for responsible small -dollar credit cannot be adequately addressed as long as usurious and predatory products continue to dominate the marketplace. The success of state laws in driving out predatory lenders and reducing the cost of small -dollar credit is an encouraging sign. However, the emergence of nationally chartered bank institutions entering the market of high-cost payday loans demonstrates the need for both strong state and federal efforts. National People's Action calls for: 1. States and localities to enact strict interest rate caps of 36% or less and to close licensing and other loopholes that allow payday predators to evade the law; 2. Banking regulators, chiefly the Office of the Comptroller of the Currency and the Federal Reserve Board, to clearly identify payday lending and other high cost short-term lending as fundamentally unsafe and unsound practices given the reputational risk to banks and their harm to the communities. Regulators should bar banks from investing and participating in these schemes outright; 3. The Consumer Financial Protection Bureau (CFPB) to use its research and reporting mandate to shed light on the entire small dollar loan industry's practices by implementing, collecting, and making public loan level data from all consumer credit transactions; and, 4. The CFPB to exercise its authority to regulate the industry by restricting the most abusive practices, including: o Place restrictions on fees and penalties that are implemented to evade state -level interest rate laws; o Disallow the use of Disability, Social Security or unemployment insurance checks as loan collateral; o Tightly restrict the number of loans allowed per household in a period of time to end loan 'churning'; o Lengthen the minimum loan terms (60 days or more) and require equal loan payments with no balloon payments, and; o Require ability -to -pay and underwriting standards to all loans All of the above measures will have a positive impact on families and communities, preserving wealth and incomes in areas hardest hit by hard economic times. However, it is clear that there is a need for a comprehensive solution that a 36% interest rate cap on all credit transactions can bring. Congress must stand up in the face of Wall Street lobbying and bring back the usury laws that served our country well in the past. National People's Action - January 2012 18 VI. Report Data and Methodology The table below contains the data used for payday loan volume and fees estimates in this report. Payday Loan Stores, Annual Loan Volumes, Estimated Fee Income, and Loan Average Rates Charged by States Colum li Worm t Cot.rn Slate Number of Licenced Payday Lenders (2011) Annual Payday Loan Volume Annual Fees from Payday Loans Estimated Wealth- S1rlpping from Fees Fee per $100 as % Avg Loan Amount Avg FeeAPR Charged per Avg Loan Charged (Avg orMax) Reporting Year of Data Loan Volume DalaSource Alaska 32 $33,091,124 $6,618,225 $6,154,949 20.0% $429 505.73 520% 2010 Stale Regulator Alabama 1,067 $1,360,585,555 $238,102,472 $219,054,274 17.5% 5350 552.13 455% 2007 COL California 2,123 $3,125,299,157 $468,794,874 $425,040,685 15.0% 5258 $33.65 414% 2010 Stam Regulator Delaware 144 $130,043,610 $20,806,978 $18,986,367 16.0% 9350 556.00 417% 2008 CAL Florida 1,450 $2,530,000,000 $270,963,000 $235,543,000 10.7% 9366 $41.26 281% 2009.2010 State Regulator/Veritec lowa 220 $321,642,690 $40,966,843 $36,463,845 12.7% 5348 541.76 301% 2010 State Regulator Hawall 35 $19,100,000 $3,400,000 $3,132,600 17.7% 5350 $61.78 460'/. 2011 I)4eo Search Idaho 226 $185,300,000 $37,060,000 $34,465,800 20.0% 5350 570.00 443% 2010 State Reguator Illinois 564 $116,343,559 $17,935,836 $16,307,026 15.4% $370 557.02 328% 2008 State Regulator Indiana 414 $470,017,105 $61,102,224 554,521,984 13.0% 5315 $36.24 39114 2008 CRL Kansas 311 $422,000,000 563,300,000 $57,392,000 15.0% 5367 547.82 391% 2009 StateReguaIor Kentucky 579 $661,759,300 $108,897,100 $99,632,470 76.5% $314 551.61 45914 2010 State 1[9491er Loulslana 942 $1,435,000,000 5287,000,000 $266,910,000 20.0% 5350 558.33 560'/ 2006 tmushy rsrreIe Michigan 651 $935,800,000 $131,794,558 $118,693,358 13.3% $402 $53.36 417% 2007 State Regutator Missouri 975 $747,370,800 3127,453,500 $116,990,309 17.1% 5308 $52.45 445% 2010 StateRegututor Minnesota 100 $94,444,444 $14,166,667 $12,844,444 15.0% $331 549.65 19614 2008 CPL Mississippi 938 $1,213,678,373 $267,009,242 3250,017,745 22.0% 5350 577.00 574% 2008 CRL North Dakota 69 $37,196,696 $7,365,784 $6,845,031 19.6% 5305 559.91 502% 2009 State Regulator Nebraska 111 $183,342,856 $35,928,682 $33,361,882 17.7% 9350 $52.50 460'/ 2009 State Reguulor Nevada 430 3548,405,797 $109,681,159 $102,003,478 20.0% 9350 570.00 52194 2008 CRL New Mexico 215 529,800,000 $4,493,921 $4,076,721 15.1% $373 556.12 346% 2010 SuteReguhator Oklahoma 356 3383,467,502 551,645,580 846,277,035 13.514 5389 552.09 35814 2010 StaleRegulator/ veritec Rhode Island 25 316,600,000 $1,660,000 31,427,600 10.0% $350 $35.00 268% 2008 Cm South Carolina 418' 8417,600,000 $62,640,000 356,793,600 15.0% $241 531.43 390% 2008 CFL South Dakota 156 $198,833,898 $17,058,601 $14,274,927 15.0% $300 539.13 427% 2006 588. Tennessee 1,205 $1,054,118,820 $186,051,972 $171,294,308 5202 $35.65 300% 2009 Slate Regulator/e Vernet Texas 2,540 $2,796,345,940 $446,265,300 $407,088,457 15.041. 5533 $85.00 417% 2010 Other ConsumerAdvocate/CAL Utah 270' $450,000,000 $76,315,769 570,015,789 17.0% $342 $58.00 443% 2008 crag Virginia 276 5170,450,000 320,444,811 818,058,511 12.014 9371 544.50 29014 2009 Stale Regulator/ Verhec Washington 244 $434,111,743 $65,116,761 $59,039,197 15.05S $396 551.65 390% 2010 Bata Regoutor Wisconsin 436 $484,000,000 $96,800,000 $90,024,000 20.0% $416 569.33 574% 2010 State Regulator Wyoming 90 596,889,320 $19,377,864 $18,021,414 20.0% 5350 558.33 52114 2010 State Reguator US Towala 17,630 $21,104,638,290 $3,366,217,743 $3,070,752,807 Report methodology: Column A reports the number of active or current licensed payday loan stores in each state as reported by the respective state financial regulatory department between November 2011 and January 2012. Overall, this report counted and/or estimated 17,630 payday loan stores nationwide, which may represent an undercounting of store locations by some 11% compared to an industry estimate of 19,700 store location at year end 2010. Every effort was made to identify only business offering payday loan companies as opposed to other businesses such as check cashers and auto title lenders. Also, every effort was made to report the total number of store locations, including Internet payday lenders which were reported as one store per licensee in this report. However, due to the discrepancies of payday loan licensing from state to state, in some cases the number of payday loan stores reported here can be considered a best -available and conservative figure. For the state of Texas, the total number of payday loan stores is an estimate based on National People's Action - January 2012 19 75% of the total number of Credit Service Organizations (CSOs). Texas Secretary of State reported 3,386 CSOs as of Dec. 2012 and the consumer advocate organization Stop Payday Abuse estimates 75% of all CSOs in Texas are involved in payday lending. The number of businesses engaged in payday lending in Virginia is likely considerably higher than reported here as many businesses now operate as open-end lenders and are not readily disclosed. For the states of Hawaii and Rhode Island, the number of payday lenders was estimated by an online internet search. Column B reports the total payday loan volume ($US) as either reported by the state regulatory agency or estimated based on the number of payday store locations. The annual loan volume or similar loan data, such as the annual number of payday loans and average loan size, was made available by the state regulator for 20 states and was included in this report. For 12 such states, this information was not readily available and this analysis instead relied on estimates of annual loan volume conducted by the Center for Responsible Lending (CRL) from 2008-2010 as reported online at: htt0://www. responsiblelend ing.oro/mortgage-) ending/tools-resources/f acts heets/ This analysis adjusted CRL's annual reported payday loan volume according to the observed percentage change in the number payday loan stores in a state. For example, if the number of payday loans stores reported in this report was 10% less than the number of stores reported previously by CRL (updated in 2010) then the annual loan volume was decreased by 10% and included in this report. For the state of Louisiana, this analysis relies on a 2008 annual estimate of $4.1 million payday loans issued, provided by a payday loan company executive. Column C reports the estimated annual dollar amount of fees paid for payday loans in a state. In all cases when this figure was disclosed by a regulator or other sources it was reported and used in this analysis. In cases where this figure was not available, the amount of payday loan fees was estimated by multiplying the annual loan volume by the loan fee per $100 expressed a percent (Column B x Column E) Column D is an entirely calculated column that includes the estimated amount charged by a hypothetical 36% APR limit on payday loans. This is derived by subtracting the estimated annual dollar amount of fees paid (Column C) by the amount obtained from multiplying the total annual payday loan volume (Column b) by 1.4%. This report calculates that a 36% APR $100 payday loan with an assumed 14 day loan term, would charge only approximately $1.40 in loans fees—hence a 1.4% fee per $100 borrowed. Column E is the fee per $100 charged on a payday loan, expressed as a percent. This figure is reported or derived from state regulator data when available. In cases where regulator data was not readily available, this analysis relied both on the reported information made available by the Center for Responsible Lending (see link above) and by the National Consumer Federation (NCF), available online at: http://www.paydavloaninfo.ora/state-information Column F is the average payday loan size including fees as reported by the state regulator. In cases where such information was not available, an average loan size of $350 was used in this analysis (denoted by blue italics). Column G is the average payday loan fee charged per loan, based on the average loan size. In cases where such information was reported by a state regulator, it was included in this analysis. In all other cases it was either derived using the average loan APR and the average loan size (Columns F and H). Figures from the CRL and NCF were used extensively here (see websites above). Column H is the average interest rate (APR) charge on a typical payday loan in the state. In cases where the average payday loan APR was reported by a state regulator, it was included in this analysis. In all other cases it was either derived using the average loan amount and finance fees per $100, or using the average or the National People's Action - January 2012 20 maximum APR as reporting by CRL and NCF (see websites above). In some cases, the APR reported used here may not be the average payday loan rate but instead the maximum interest rate allowed. However, as the maximum payday loan interest rate is capped in many states, there is often little difference between the maximum APR and the average APR and such differences are not accounted for in this analysis. Column I is the year of reporting data used for each state. In all cases, this analysis used the most recent data readily available with the 2010 data used for 12 states, and 2009 used for 5 states. Column J is the source of loan volume and interest rate data. State regulator data was used whenever it was available. National People's Action - January 2012 21 CFSA > About the Payday Advance Industry > Myth vs Reality Page 1 of 2 Home About the Payday Advance Industry Myth vs Reality Myth vs. Reality CFSA helps separate fact from fiction with a straightforward and honest examination of a payday advance and the short-term lending industry. Myth: Payday loans are extremely expensive and have exorbitant interest rates. Myth: Payday loans trap borrowers in a never-ending "cycle of debt." Reality: Numerous studies corroborate a public policy analysis from Clemson University that concludes, "There is no statistical evidence to support the 'cycle of debt' argument often used in passing legislation against payday lending." A 2010 survey by the American Payroll Association found that 71.6 percent of American employees are living paycheck to paycheck, a situation in which a family may be unable to absorb unexpected expenses without short-term loans. The vast majority of Americans, undeniably, use payday advances responsibly and, as intended, for short-term use. State regulator reports and public company filings confirms that more than 90 percent of payday advances are repaid when due and more than 95 percent are ultimately collected. States' law and CFSA Best Practices limit the number of times a customer can be in a loan. In most of the 32 states that allow payday lending, rollovers or loan extensions are either limited or prohibited. In states without limits, CFSA members limit the number of rollovers to four. Should a customer of a CFSA member company have difficulty paying back a loan when due, for whatever reason, he or she may enter into an Extended Payment Plan, a provision of the CFSA's Best Practices, that allows the loan to be repaid over a period of additional weeks. This option is provided to customers for any reason and at no additional cost to the borrower. Myth: Payday lenders target poor people and minorities. Myth: Payday lenders do not want to be regulated. Myth: Payday lenders' high fees help the industry make billions in profits. Myth: Payday lenders loan money to people who cannot afford to pay it back. Myth: Payday lenders use coercive collection practices. Myth: Payday lending has grown dramatically because of aggressive marketing. Myth: Payday lenders hide fees and mislead consumers. Myth: Anti -payday lending activists have consumers' best interest in mind. http://cfsaa.com/about-the-payday-advance-industry/myth-vs-reality. aspx 01/02/2014 CFSA > About the Payday Advance Industry > Myth vs Reality Page 2 of 2 Myth: Consumers benefit if payday lenders are regulated out of business. Myth: People use payday loans frivolously and end up in a cycle of debt. Myth: Payday loans reduce the "welfare" of customers. Myth: Payday loans impact the larger economy and were partly responsible for the financial crisis. Myth: Banks and credit unions can offer small dollar, short-term loans cheaper. http://cfsaa.com/about-the-payday-advance-industry/myth-vs-reality.aspx 01/02/2014 CFSA > About the Payday Advance Industry > Myth vs Reality Page 1 of 2 Home About the Payday Advance Industry Myth vs Reality Myth vs. Reality CFSA helps separate fact from fiction with a straightforward and honest examination of a payday advance and the short-term lending industry. Myth: Payday loans are extremely expensive and have exorbitant interest rates. Myth: Payday loans trap borrowers in a never-ending "cycle of debt." Myth: Payday lenders target poor people and minorities. Reality: While critics of the industry assign labels to payday advance customers in an attempt to further their political agenda, the fact is that CFSA members provide services to a broad cross section of Americans because there is widespread demand. Just like Home Depot and Costco, payday advance stores are located in population centers that are convenient for where customers live, work, and shop. Increasingly, banks and credit unions are not serving the financial needs of communities. In an effort to identify and quantify the extent to which insured banks outreach, serve, and meet the banking needs of unbanked and underbanked households, a 2009 FDIC survey looked at the basic banking and other financial services currently offered. The survey found that while banks are aware of significant unbanked and underbanked populations in their market areas, the efforts to serve those customers have been minimal. According to the survey, "73 percent of banks are aware that significant unbanked and/or underbanked populations are in their market areas, but less than 18 percent of banks identify expanding services to unbanked and/or underbanked individuals as a priority in their business strategy.[1]" Payday advance customers are typical hardworking adults who may not have savings or disposable income to use as a safety net when unexpected expenses occur. Importantly, an analysis of consumers' use of payday loans found that 88 percent of customers were satisfied with their last advance. Here are the facts: 41 percent of payday loan customers earn between $25,000 and $50,000 annually; 39 percent report incomes of $40,000 or more; 53 percent are under 45 years of age; 63 percent have children at home; only 9 percent are 65 or older; 90 percent have a high school diploma or better, with 54 percent having some college or a degree; 85 percent use other forms of credit; 54 percent have major credit cards; 100 percent have steady incomes and active checking accounts, both of which are required to receive a payday loan or advance.[2] http://cfsaa.com/about-the-payday-advance-industry/myth-vs-reality.aspx 01/02/2014 CFSA > About the Payday Advance Industry > Myth vs Reality Page 2 of 2 [1]FDIC Survey of Banks' Efforts to Serve the Unbanked and Underbanked: Executive Summary of Survey Findings and Recommendations, February, 2009 - PDF [2] George Washington University School of Business, Gregory Elliehausen. An Analysis of Consumers' Use of Payday Loans; January 2009. Myth: Payday lenders do not want to be regulated. Myth: Payday lenders' high fees help the industry make billions in profits. Myth: Payday lenders loan money to people who cannot afford to pay it back. Myth: Payday lenders use coercive collection practices. Myth: Payday lending has grown dramatically because of aggressive marketing. Myth: Payday lenders hide fees and mislead consumers. Myth: Anti -payday lending activists have consumers' best interest in mind. Myth: Consumers benefit if payday lenders are regulated out of business. Myth: People use payday loans frivolously and end up in a cycle of debt. Myth: Payday loans reduce the "welfare" of customers. Myth: Payday loans impact the larger economy and were partly responsible for the financial crisis. Myth: Banks and credit unions can offer small dollar, short-term loans cheaper. http://cfsaa.com/about-the-payday-advance-industry/myth-vs-reality.aspx 01/02/2014 CFSA > About the Payday Advance Industry > Myth vs Reality Page 1 of 2 Home About the Payday Advance Industry Myth vs Reality Myth vs. Reality CFSA helps separate fact from fiction with a straightforward and honest examination of a payday advance and the short-term lending industry. Myth: Payday loans are extremely expensive and have exorbitant interest rates. Myth: Payday loans trap borrowers in a never-ending "cycle of debt." Myth: Payday lenders target poor people and minorities. Myth: Payday lenders do not want to be regulated. Myth: Payday lenders' high fees help the industry make billions in profits. Reality: Small dollar, short-term loans are expensive to originate and maintain, which is one reason most banks no longer offer the product. A 1999 Federal Reserve Report found that, regardless the size of a loan, it cost banks $174 to originate a loan application. An article published in the Fordham Journal of Corporate & Financia! Law concludes that payday lending fees do not deliver high profits to lenders and supports the position that payday advance fees are in line with the high costs of operating a payday loan business. In fact, on average, the nation's five publicly traded payday lending companies earn a 6.6 percent profit on their income. A September 2009 independent analysis by Ernst & Young, LLP found that "on a pre-tax and pre - interest basis, multi -line payday advance lenders earn an average profit of $1.37 per $100 of loan principal issued — that represents a modest margin of 9.1 percent, before taxes. Industry critics fail to recognize that, in addition to the cost of administering the loan, payday lenders incur the normal overhead costs of running a business. The fact is that the pricing structure of for-profit payday lending is reasonable and justified based on the costs to deliver the service. A proof point of this is that Goodwill, a nonprofit, tax-exempt charity offers payday loans, charges customers $9.90 per $100 borrowed (252 percent APR) for their "Good Money" payday loan. And this is only to break even. For-profit payday lenders typically charge an average of $15 per $100 borrowed while also paying taxes, employee salaries and health care, rent, and overhead costs. Myth: Payday lenders loan money to people who cannot afford to pay it back. Myth: Payday lenders use coercive collection practices. Myth: Payday lending has grown dramatically because of aggressive marketing. Myth: Payday lenders hide fees and mislead consumers. http://cfsaa.com/about-the-payday-advance-industry/myth-vs-reality.aspx 01/02/2014 CFSA > About the Payday Advance Industry > Myth vs Reality Page 2 of 2 Myth: Anti -payday lending activists have consumers' best interest in mind. Myth: Consumers benefit if payday lenders are regulated out of business. Myth: People use payday loans frivolously and end up in a cycle of debt. Myth: Payday loans reduce the "welfare" of customers. Myth: Payday loans impact the larger economy and were partly responsible for the financial crisis. Myth: Banks and credit unions can offer small dollar, short-term loans cheaper. http://cfsaa.com/about-the-payday-advance-industry/myth-vs-reality.aspx 01/02/2014 CFSA > About the Payday Advance Industry > Myth vs Reality Page 1 of 2 Home About the Payday Advance Industry Myth vs Reality Myth vs. Reality CFSA helps separate fact from fiction with a straightforward and honest examination of a payday advance and the short-term lending industry. Myth: Payday loans are extremely expensive and have exorbitant interest rates. Myth: Payday loans trap borrowers in a never-ending "cycle of debt." Myth: Payday lenders target poor people and minorities. Myth: Payday lenders do not want to be regulated. Myth: Payday lenders' high fees help the industry make billions in profits. Myth: Payday lenders loan money to people who cannot afford to pay it back. Reality: All reputable payday lenders have underwriting criteria, in addition to the requirements of a steady income and checking account. Ninety-five percent of payday loans are repaid when due, a fact confirmed by numerous state regulatory reports. It simply would not make good business sense to loan money to people who can't pay it back. Under CFSA's Best Practices, a customer who cannot pay back a loan when due has the option of entering into an Extended Payment Plan, allowing the loan to be repaid over a period of additional weeks. This option is provided to customers for any reason and at no additional cost to the borrower. Myth: Payday lenders use coercive collection practices. Myth: Payday lending has grown dramatically because of aggressive marketing. Myth: Payday lenders hide fees and mislead consumers. Myth: Anti -payday lending activists have consumers' best interest in mind. Myth: Consumers benefit if payday lenders are regulated out of business. Myth: People use payday loans frivolously and end up in a cycle of debt. Myth: Payday loans reduce the "welfare" of customers. Myth: Payday loans impact the larger economy and were partly responsible for the financial crisis. http://cfsaa.com/about-the-payday-advance-industry/myth-vs-reality.aspx 01/02/2014 CFSA > About the Payday Advance Industry > Myth vs Reality Page 2 of 2 Myth: Banks and credit unions can offer small dollar, short-term loans cheaper. http://cfsaa.com/about-the-payday-advance-industry/myth-vs-reality.aspx 01/02/2014 CFSA > About the Payday Advance Industry > Myth vs Reality Page 1 of 2 Horne About the Payday Advance Industry Myth vs Reality Myth vs. Reality CFSA helps separate fact from fiction with a straightforward and honest examination of a payday advance and the short-term lending industry. Myth: Payday loans are extremely expensive and have exorbitant interest rates. Reality: Payday advances are two-week loans—not annual loans. Industry critics often cite payday advances as having a "391 percent annual percentage rate" which is misleading. The typical fee charged by payday lenders is $15 per $100 borrowed, or a simple 15 percent for a two- week duration. The only way to reach the triple digit APR is to roll the two-week loan over 26 times (a full year). State laws and industry best practices simply do not allow this to happen. Many states do not even allow one rollover. In states that do permit rollovers, CFSA members limit rollovers to four or the state limit—whichever is Tess. Even if APR were an accurate representation of the fees associated with a payday advance, the figure pales in comparison to the realistic alternatives considered by consumers. $100 payday advance with a $15 fee = 391% APR $100 bounced check with $56 Non -Sufficient Funds & merchant fees = 1,449% APR $100 credit card balance with a $37 late fee = 965% APR $100 utility bill with $46 late/reconnect fees = 1,203% APR Myth: Payday loans trap borrowers in a never-ending "cycle of debt." Myth: Payday lenders target poor people and minorities. Myth: Payday lenders do not want to be regulated. Myth: Payday lenders' high fees help the industry make billions in profits. Myth: Payday lenders loan money to people who cannot afford to pay it back. Myth: Payday lenders use coercive collection practices. Myth: Payday lending has grown dramatically because of aggressive marketing. Myth: Payday lenders hide fees and mislead consumers. Myth: Anti -payday lending activists have consumers' best interest in mind. http://cfsaa.com/about-the-payday-advance-industry/myth-vs-reality.aspx 01/02/2014 CFSA > About the Payday Advance Industry > Myth vs Reality Page 2 of 2 Myth: Consumers benefit if payday lenders are regulated out of business. Myth: People use payday loans frivolously and end up in a cycle of debt. Myth: Payday loans reduce the "welfare" of customers. Myth: Payday loans impact the larger economy and were partly responsible for the financial crisis. Myth: Banks and credit unions can offer small dollar, short-term loans cheaper. http://cfsaa.com/about-the-payday-advance-industry/myth-vs-reality.aspx 01/02/2014 # Page l of 1 ,t.;lya fnterecliue er PFS cu"slT"ear TRUSTS State Payday Loan Regulation and Usage Rates 'e Small -Dollar Loans Research Project 1 January 14, 2014 GD — Shai Peels Safe Small -Dollar Loans Research Project classified states into three categories—Permissive, Hybrid, and Restrictive—based on their payday loan regulations. Nationally, the average usage Sigr rale for payday loans is 5.5 percent, but usage by slate varies from 1 percent to 13 percent. Usage rates also vary by law type and are 6.6 percent in Permissive states, 6.3 percent in Hybrid states, SS and 2.9 percent in Restrictive slates. The rale of online and other non -storefront borrowing does not vary significantly by state law type, but storefront borrowing is far lower in Restrictive states than in DO 1 Permissive or Hybrid states. Roll over the map to see each state's usage rate, and click individual states to read a summary of their payday lending laws. To learn more, visit our collection of Payday Lending in America resources. THE PEW CHARITABLE TRUSTS INTERACTIVE State Payday Loan Regulation and Usage Rates As federal policy makers work toward a national payday lending policy, here is a summary of state payday lending laws, including loan usage rates. Note That these summaries should be used for general informational purposes only. Allow single -repayment loans with APRs of 391 percent or higher. Have payday loan storefronts, but maintain more exacting requirements, such as lower limits on fees or loan usage, or longer repayment periods. Have no payday loan storefronts. Embod 1a: Iowa Payday loan usage rate 5% Pew Classification Permissive Statutory Citation 5330.1 el seq. PERMISSIVE Maximum Loan Amount A licensee shall not hold from any one maker a check or checks in an aggregate face amount o1 more Than $500 at any one time. All data on stale laws compiled by the Nathnal Conference of Stale Legislatures (NCSL) as 011114/2014, unless marked with a caret 1"). An asterisk (') Indicates results are not reported because fewer Than 300 Interviews e,ere conducted in this state. Payday loan usage rate Is based on 33,576 survey lelervre vs conduced by Pew end includes storefront, online, and other payday bedewing. Soma Restrictive states have additional laws governIng payday lending, which are not Included because lenders are not opera -ng there carder state taw. Download the complete list of state payday loan regulation and usage rales. Dale: January 14, 2014 Project: Safe Small -Dollar Loans Research Project Issues: Credit & Lending Sources: Pew Safe Small -Dotter Loans Research Project 2012: Naticeal Conference of Stele Legislatures, Sept. 12, 2013. http://www.pewstates.org/research/data-visuali zations/state-payday-loan-regulation-and-us... 2/27/2014 An infographic frorn THE 1-)11:\V CHARITABLE TRUSTS I Oct 2013 Pew's Fix Payday tions to Loan Payday loans are packaged as short-term loans due on a borrower's next payday, but in reality, borrowers are indebted far longer and pay far more than advertised. The average loan requires one-third of a borrower's biweekly paycheck, exceeding what most can afford without having to borrow again. Policymakers should act now to fix the problems with payday lending in the 35 states where it currently exists. 5 regulations that will minimize harm to consumers and make small -dollar loans more affordable: 30 ._.. 17 24 31 " 25 30 D *Ii Q Limit payments to an affordable percentage of a borrower's income Monthly payments above 5 percent of monthly pretax income are unaffordable fbr most borrowers. Loans requiring more should be prohibited unless rigorous underwriting shows that the borrower can pay the loan while meeting other financial obligations. O Spread costs evenly over the life of the loan Front -loading of fees and interest should be prohibited. Any fees should be paid evenly over the life of the loan, and loans should have substantially equal payments that amortize smoothly to a zero balance. O Guard against harmful repayment or collections practices Policymakers should prevent or limit the use of postdated checks and automatic withdrawals from borrowers' bank accounts. They should also make it easier to cancel automatic electronic withdrawals and protect against excessively long loan terms. O Require concise disclosures of periodic and total costs Loan offers should clearly disclose, with equal weighting: the periodic payment schedule, the total repayment amount, the total finance charge, and the effective annual percentage rate (APR) inclusive of all fees. O Continue to set maximum allowable charges Almost every state sets maximum allowable rates on some small -dollar loans because these markets serving those with poor credit histories are not price competitive. Policymakers may limit rates to 36 percent or less if they do not want payday lenders to operate, or somewhat higher if they do. For more information, please visit: pewtrusts.org/small-loans Contact: Andrea Risotto, communications officer, The Pew Charitable Busts Email: ar sottoCpewtrusts.org Phone: 202-540-6510 The Pew Charitable Trusts is driven by the power of knowledge to solve today's most challenging problems. Pew applies a rigorous, analytical approach to improve public policy, inform the public, and stimulate civic l2e. Payday Lending in America Series summary Payday loans are controversial. They typically offer about two weeks of credit, due in full on the borrower's next payday, at annual interest rates of around 400 percent. While borrowers find fast relief, they are often left indebted for months, struggling to repay a loan that was marketed as a short-term solution. Proponents argue that payday loans are a useful form of credit for consumers who lack access to more conventional banking services, but opponents claim they overburden people who are already struggling to make ends meet. The Pew Charitable Trusts' Payday Lending in America series details fundamental problems with payday loans and suggests solutions for promoting a safer and more transparent marketplace for small -dollar loans. Selected findings • 12 million Americans take out payday loans each year, spending approximately $7.4 billion annually. The average loan is $375. • A payday loan is characterized as a short-term solution for unexpected expenses, but the reality is different. • The average borrower is in debt for five months during the year, spending $520 in interest to repeatedly reborrow the loan. • 69 percent of first-time borrowers use the loan for recurring bills (including rent or utilities), while just 16 percent deal with an unexpected expense such as a car repair. • Payday loans are unaffordable. • Only 1 in 7 borrowers can afford the more than $400 needed, on average, to pay off the full amount of these lump -sum repayment loans by their next payday. • Survey and market data show that most borrowers can afford to put no more than 5 percent of their paycheck toward loan payment and still be able to cover basic expenses. In the 35 states that allow lump - sum payday loans, repayment requires about one-third of an average borrower's paycheck. • Most payday loan borrowers have trouble meeting monthly expenses at least half of the time. • 41 percent of borrowers have needed a cash infusion, such as a tax refund or help from family or friends, to pay off a payday loan. • Payday loans do not eliminate overdraft risk. Most borrowers also overdraw their bank accounts. • A majority of borrowers say payday loans take advantage of them. A majority also say they provide relief. • Borrowers want changes to payday loans. • By almost a 3-1 ratio, borrowers favor more regulation of the loans. • 8 in 10 borrowers favor a requirement that payments take up only a small amount of each paycheck. • 9 in 10 favor allowing borrowers to pay back the loans in installments. Safeguards are needed to ensure affordability and protect consumers from the risk of lender -driven refinancing, noncompetitive pricing, excessive loan durations, and abusive repayment or collection practices. • Such safeguards can be applied in a way that works for lenders. Payday lenders continue to operate after a recent law change in Colorado, but borrowers spend less, and payments are far more affordable. • In states that enact strong legal protections, the result is a large net decrease in payday loan usage. Rates of online borrowing are similar in states with payday loan storefronts and those with none. Poli - ers should fix the problems with payday lending in the 35 states where it exists. The Consumer Financial Protection Bureau and other state and federal policymakers should act now: • Limit payments to an affordable percentage of a borrower's periodic income. (Research indicates that monthly payments above 5 percent of gross monthly income are unaffordable.) • Spread costs evenly over the life of the loan. • Guard against harmful repayment or collection practices. • Require concise disclosures that reveal both periodic and total costs. • States should continue to set maximum allowable charges on loans for those with poor credit. Payday Lending in America reports Who Borrows, Where They Borrow, and Why (2012) How Borrowers Choose and Repay Payday Loans (2013) Policy Solutions (2013) Other resources available from Pew Payday Loans Explained (video) How Payday Loans Work (infographic) Payday Loan Affordability Fast Facts (infographic) Payday Borrowers Want Reform (infographic) Pew's Policy Recommendations to Fix Payday Loan Problems (infographic) For more information, please visit: pewtrusts.crg, Small -loans Contact: Andrea Risotto, communications officer, The Pew Charitable Trusts Email: arisotto@pewtrusts.org Phone: 202-540-6510 The Pew Charitable Trusts is driven by the power of knowledge to solve today's most challenging problems Pew applies a rigorous, analytical approach to improve public policy, inform the public, and stimulate civic life. Payd ol Locafions 500, 1,000 and 2,500 rit. * Store Locations 1 500 Ft Buffer 1,000 Ft Buffer 2,500 =t Buffer Hempstead High School Medical Associates Fier ro 0 0 Kennedy Mall Tf n Kaufmann Ave Asbury Roan Pennsylvania Ave. Dodge Street Bunker Hill Golf Course Plaza 20 L�St cJt. oG �vd. 4oCye Commisky Park Loras College At 500 and 1,000 feet, only two of the eight PDLs would be made legally -non -conforming. At 2,500 feet, six of the eight would be made legally non -conforming. Store_Name I Address Advance America 2600 Dodge Street Allied Paw n/ Payday Partners 2013 Central Avenue Check into Cash 3500 Dodge Street Check -N -Go 0806 Wacker Drive E7 Money 3301 Pennsylvania Avenue Hometown Cash Advance 3416 Pennsylvania Avenue Hometown Cash Advance 0605 West Locust Street Payday Partners 3305 Asbury Road Payday Loan Locations * Store Locations Residential Zoned Areas 1200 Ft Zoning Buffer Areas Eligible for Payday Loan Stores City Limits /I Asbury Plaza Chaplain Schmitt Island Former Pack Site Historic Millwork District Port of Dubuque South Port P b Old Highway Road West - WallMart Area Westside Court/Menards Using a 1,200 foot buffer from a residentially zoned district would make seven of the eight existing PDLs non -conforming and significaly reduce the area new stores could locate. Store_Name Address Advance America 2600 Dodge Street Allied Paw n/ Payday Partners 2013 Central Avenue Check into Cash 3500 Dodge Street Check -N -Go 0806 Wacker Drive EZ Money 3301 Pennsylvania Avenue Hometown Cash Advance 3416 Pennsylvania Avenue Hometow n Cash Advance 0605 West Locust Street Payday Partners 3305 Asbury Road Pay Day Loan Locations 0 Store Locations • Schools • Carry Out I..ocations L_ 1 2500 Ft Store Buffer Residential Zoned Areas rn 1200 Ft Zoning Buffer tta Areas Eligible for Pay Day Loan Stores City limits Store Name Address Advance Ameria 2600 Dodge Street Allied Pawn/ Payday Partners 2013 Central Avenue Check into -Cash 3500 Dodge Street Check N -Go 0806 Wacker Drive Q Money 3301 Pennsylvania Avenue hlometow n Cash Advance 3416 Pennsylvania Avenue Horretow n Cash Advance 0605 West locust Street Payday Partners 3305 Asbury Road Pay Day Loan Locations 0 Store Locations CDBG Eligible Districts 2500 Ft Store Buffer Residential Zoned Areas 1200 Ft Zoning Buffer Areas Eligible for Pay Day Loan Stores _ — City limits Store_Name Advance America Abed Paw nf Payday Partners Check into Cash Check NGo EZ Money _ Fhxr�efown Cash Advance Hometown lash Advance Payday Partners Address 2600 Dodge Street 1 2013 Central Avenue 3500 Dodge Street 0806 Wacker Dive 3301 Pennsylvania Avenue 3416 Pennsylvania Avenue 0505 West Locust Street 3305 Asbury Road Bridget's Statement to DBQ City Council on 3/17/14 Hi, my name is Bridget Fagan and I'm a community organizer with Iowa Citizens for Community Improvement. Thanks for letting me speak briefly to the council around the possible payday lending ordinance for Dubuque. I've read the report and gone over the research the city staff has done. While I appreciate the time that has spent on the issue, the research and possible ordinance does not go far enough; and the purpose of the ordinance for Dubuque seems misunderstood. I started working on a payday ordinance with concerned Dubuque citizens almost one year ago. Folks were concerned with how individuals get trapped in a cycle of debt that is almost impossible to escape, wanted more alternative banking and were concerned with neighborhood and new business vitality. We know that we need legislation to cap interest rates so individuals will not be trapped in an endless cycle of debt, but that is moot until legislators see enough cities enacting ordinances so that they realize importance of the issue and move forward on it. Many of your sister cities have already enacted effective ordinances. We need an ordinance for Dubuque that will encourage new businesses to come here and for our neighborhoods to continue to grow. It's unlikely new businesses would want to be next to a payday lender because of the perceived neighborhood blight. We at Iowa CCI have been working on legislation for about 10 years. And we'll continue to work on legislation until it passes but we do not know how long that might be. Without passing a meaningful ordinance, new payday lenders will continue to pop up in Dubuque. I encourage the city council to request city staff to do more research and put together a more comprehensive ordinance than what has been presented thus far. None of the 7 cities in Iowa that have passed ordinances havelooped-seldy-at.payday1 •enders in----- --relation to other -lenders and residential zones. Other factors were taken into consideration (schools, liquor stores, adult stores, etc) when these communities discussed their ordinance proposals. City staff needs to conduct more research -and -bring back an ordinance that meets the unique -needs ofDubuque and its residents. That is the only reasonable - on at this time. Doing nothing or passing the ordinance as currently written are unacceptable options to the residents of Dubuque. I also want to turn in around 100 petition signatures that Sr. Ruth Fagan, Dubuque Franciscan, got from other sisters at Mt. St. Francis. They're also concerned about this issue and are wanting the city council to pass a meaningful ordinance. Thank you for your consideration of this issue, and your concern for Dubuque's continued growth and quality of life. Bridget Fagan o Community Organizer c 0 in 515.255.0$00 (office) m. bridget@iowacci.org cr-a U, www.iowacci.org - (T1 D = c_-)