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Supplemental Findings on Payday, Payday Installment, and Vehicle Title Loans, and Deposit Advance Products

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Supplemental Findings on Payday, Payday Installment, and Vehicle Title Loans, and Deposit Advance Products June 2016 Supplemental findings on payday, payday installment, and vehicle title loans, and deposit advance products June 2016 Organization of this report This report provides a variety of analyses on payday loans, payday installment loans, vehicle title loans, and deposit advance products. Single-payment payday loans are high cost, short-term loans offered by non-depository lenders, typically with limited underwriting. The single payment of the amount borrowed plus fees is timed to coincide with the borrower’s payday or receipt of government benefits, generally in two weeks or one month. A consumer provides access to her bank account, typically by providing a post-dated check or authorization to electronically debit her account for the loan amount plus fees. Fees are generally expressed in dollars per $100 borrowed. In addition to single-payment payday loans, some non-depository lenders offer payday installment loans. Like traditional payday loans, payday installment loans are high cost, repayment is typically tied to the borrower’s payday or receipt of income, and borrowers generally provide the lender with access to their bank accounts. Payday installment loan terms vary from slightly longer than a single-payment payday loan to several years. Both single- payment and installment payday installment loans are originated in storefronts and online. Vehicle title loans are a type of credit product in which the lender takes a security interest in the borrower’s vehicle. The value of the vehicle is the primary consideration for the amount that can be borrowed. The borrower retains possession of the vehicle while the loan is outstanding; however, the lender has the option of repossessing and selling the vehicle to satisfy the amount owed if the borrower is unable to repay the loan. Vehicle title loans can be structured as single- payment loans repayable in about 30 days or longer-term installment loans. Like payday loans, vehicle title loans are made by non-depository lenders and the cost is typically expressed in dollars per $100 borrowed. A deposit advance product (DAP) is a line of credit offered by depository institutions as a feature of an existing deposit account. They are offered to checking accountholders who receive 1 SUPPLEMENTAL FINDINGS ON PAYDAY, PAYDAY INSTALLMENT, AND VEHICLE TITLE LOANS, AND DEPOSIT ADVANCE PRODUCTS June 2016 recurring electronic deposits and who maintain accounts in good standing. A DAP is repaid automatically from the consumer’s next qualifying deposit. If an outstanding advance is not fully repaid by an incoming electronic deposit within about 35 days, the consumer’s account is debited for the amount due, which could result in a negative balance on the account. As with payday loans, fees are expressed in dollars per $20 or $100 borrowed. The Bureau found that the amounts borrowed and the fees, when expressed as an annual percentage rate, are similar to those characteristic of payday loans. As noted in Chapter 2, this product is generally no longer offered by depository institutions following the issuance of guidance by the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. Each chapter of this report offers a discrete analysis of one or more of these products, as outlined below. Chapter 1 reports consumer usage and default patterns for vehicle title installment loans and payday installment loans. Chapter 2 considers the substitutability among DAP, bank overdraft services, and payday loans by analyzing whether consumers who used DAP overdrew their accounts or took out payday loans more frequently after banks stopped offering the DAP product. Chapter 3 examines the impact of certain state laws on storefront payday lending. First, we examine the impact of a required disclosure in Texas that provides information on the length of time a borrower is likely to remain in payday loan debt and the total cost of that indebtedness. Our second analysis looks at the extent to which law changes in Colorado, Washington, and Virginia affected consumers’ physical access to payday loan storefront locations. Chapter 4 compares the share of payday loans that are reborrowed across states with varying limits on renewals and requirements for cooling-off periods between loans. Chapter 5 provides findings on borrowing and default patterns for storefront payday loans for three alternative definitions of the concept of a loan sequence — an initial loan and any subsequent loan made (1) within 14 days, (2) within 30 days, and (3) within 60 days of a previous loan being repaid. Finally, Chapter 6 describes a series of simulations that estimate the effects of certain lending and collection restrictions on the payday, payday installment, and vehicle title loan markets. The first simulations estimate the impact of two types of lending requirements on the storefront 2 SUPPLEMENTAL FINDINGS ON PAYDAY, PAYDAY INSTALLMENT, AND VEHICLE TITLE LOANS, AND DEPOSIT ADVANCE PRODUCTS June 2016 payday and vehicle title loan markets. A final simulation estimates the impact of a limit on the number of times a lender could attempt to collect payment to the online payday and payday installment loan market and, accordingly, to online payday and payday installment loan borrowers’ bank accounts. 3 SUPPLEMENTAL FINDINGS ON PAYDAY, PAYDAY INSTALLMENT, AND VEHICLE TITLE LOANS, AND DEPOSIT ADVANCE PRODUCTS June 2016 Table of contents Organization of this report ......................................................................................... 1 Table of contents ......................................................................................................... 4 1. Usage patterns and outcomes for certain high-cost installment loans ...................................................................................................................... 6 1.1 Introduction .............................................................................................. 6 1.2 Data…. ..................................................................................................... 10 1.3 Usage patterns and default ..................................................................... 13 2. Consumer account activity before and after the discontinuation of deposit advance products ............................................................................. 35 2.1 Introduction ............................................................................................ 36 2.2 Data and methodology ............................................................................ 40 2.3 Differences between DAP-users and non-users before discontinuation43 2.4 Consumer outcomes after DAP discontinuation .................................... 46 2.5 Chapter 2 Appendix: data collection spreadsheet .................................. 61 3. The impact of certain state laws on the payday lending market .................... 62 Part A: The impact of payday lending information disclosures in Texas ....... 63 3.1 Data…. ..................................................................................................... 67 3.2 Impact of Texas Disclosure Law ............................................................. 70 4 SUPPLEMENTAL FINDINGS ON PAYDAY, PAYDAY INSTALLMENT, AND VEHICLE TITLE LOANS, AND DEPOSIT ADVANCE PRODUCTS June 2016 Part B: The effect of law changes in Colorado, Virginia, and Washington on consumers’ ability to access payday loan storefronts ............................ 79 3.3 State law changes and methods .............................................................. 80 3.4 Impacts on state law changes on storefront revenues and proximity ... 82 3.5 Chapter 3 Appendix ................................................................................ 98 4. The impact of state restrictions on payday loan reborrowing ...................... 100 4.1 Introduction .......................................................................................... 100 4.2 Data…………………………………………………………………………………………..102 4.3 Reborrowing rates by state ................................................................... 102 4.4 Chapter 4 Appendix .............................................................................. 106 5. Payday loan usage patterns with varying definitions of loan sequences ......................................................................................................... 109 5.1 Introduction .......................................................................................... 109 5.2 Data and methods .................................................................................. 112 5.3 Payday loan usage patterns ................................................................... 114 6. Estimated impacts of certain requirements on the payday, payday installment, and vehicle title loan markets ....................................... 137 6.1 Introduction ........................................................................................... 137 6.2 Data and limitations .............................................................................. 141 6.3 Estimated impact of lending requirements on the storefront payday and vehicle title loan markets ...................................................................... 145 6.4 Estimated impact of the limitation on payment collection attempts on the online payday loan market ............................................................. 149 5 SUPPLEMENTAL FINDINGS ON PAYDAY, PAYDAY INSTALLMENT, AND VEHICLE TITLE LOANS, AND DEPOSIT ADVANCE PRODUCTS
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