Payday Lending and Florida Students...• Online lenders – used by 25% • Online sources •...

Payday Lending and Florida Students

FASFAA Session Wednesday, May 20, 2015

http://www.fldoe.org/

Agenda • What is payday lending? • Who is paying attention to this

industry? • How can we curb predatory lending?

Definition

• Payday Lending is a type of predatory lending: o Unfair credit practice that harms the

borrower and eventually affects the credit or ownership interest of the borrower

• Payday lending growth

Presenter

Presentation Notes

Source: Webster’s dictionary Source: NPA’s Predator’s Creditors 20 years ago, we rarely heard about payday lending. Many of us heard about check cashing stores with the occasional payday loan but today, there are more than 22,000 payday loans stores in our country. As a matter of fact, there are more pdl stores than there are McDonald’s…

National Statistics • # McDonald’s compared to # payday lenders

oFlorida ranks #14 • (728 McDonald’s/1,164 payday lenders)

oCalifornia ranks #1 • (1,165 McDonald’s/2,451 payday lenders)

• These states currently prohibit payday lenders oCT, GA, MD, MA, NJ, NY, NC, VT

Presenter

Presentation Notes

Would you be shocked to know that there are more payday lenders than McDonald’s restaurants in the U.S.? http://www.csun.edu/~sg4002/research/mcdonalds_by_state.htm

The Lender • Business model DEPENDS on repeat loans • Not focused on applicant’s ability to repay • Providing a “valuable” service oValuable or lucrative?

• Follow the money: oTies to Wall Street oFunded by banks that were bailed out in

2008

Presenter

Presentation Notes

Source: Predator’s Creditors – How the Biggest Banks are Bankrolling the Payday Loan Industry (National People’s Action in partnership with the Public Accountability Initiative)

The Borrower

Presenter

Presentation Notes

Source: Pew Charitable Trusts: Senate Committee on Banking, Housing, and Urban Affairs (September 18, 2014) Source: Consumer Financial Protection Bureau 12 million = number of Americans who take out payday loans each year $375 = average loan amount 80% = % of people taking out payday loans are not able to pay them back in 14 days

The Borrower

Presenter

Presentation Notes

Source: Pew Charitable Trusts: Senate Committee on Banking, Housing, and Urban Affairs (September 18, 2014) 69% = % of borrowers using the loans for recurring bills not one time emergencies as PDLs advertise 7 = average number of loans taken out per year by 2/3 of the borrowers 4.2B = annual fees paid by borrowers

Recognize any of these?

Presenter

Presentation Notes

In addition to traditional pay day loans, there are other similar avenues such as refund anticipation loans for tax preparers such as Jackson Hewitt and Liberty Tax Service. Rent to Own stores are similar predatory lenders.

Locations • Lower-income neighborhoods • Storefront lenders – used by 75% • Online lenders – used by 25% • Online sources

• Payday Loans: 28,400,000 results in .3 seconds

• TV Commercials

Presenter

Presentation Notes

Source: www.avoidpaydayloans.com (featuring Pew Charitable Trust research)

Presenter

Presentation Notes

This is a google map of Tallahassee and the payday lenders in our city. Have your checked for payday loans in your city lately? What about their proximity to campus?

The Prey • Female (25-44 years of age) or

• Separated/divorced or

• Renter not homeowner or

• No 4 year degree (yet) or

• Earning less than $40K/year

Presenter

Presentation Notes

From the Financial Literacy Summit in Chicago (viewed via live feed) a panelist said: Pay Day Lenders, Check Cashing stores, Rent To Own, and Pawn Shops are experts at TARGET MARKETING. They are marketing to a target audience based on their ignorance, financial illiteracy, and credit scores of 500. Think about your students: How many fit into these categories?? Source: Pew Charitable Trust 2012 – Payday Lending in America: Who Borrows, Where They Borrow, and Why Typical user is white female between ages of 25-44 Other groups identified include: Renter vs. homeowner (low income homeowners are less likely to borrow than renters) Separated or divorced No 4 year degree Earning less than $40K annually

How It Works

Presenter

Presentation Notes

Usually mid-month (two weeks before next payday) customer will need cash to pay for an upcoming bill or expense. The maximum loan amount for FL residents if $500. Visit made to a storefront or online site. Present two forms of ID, bank statement, SSN, and proof of “income” (designed for working poor or gov’t benefit recipients). Give lender a post dated check for $555 or access to checking account ($500 + $55 fee). Cash obtained via in person or directly deposited into bank account.

About that fee… Simple formula for Annual Percentage Rate:

(cost of loan/amount of loan) divided by length of loan x 365 days

In this scenario: ($55/$500) divided by 14 days x 365 =

286.79%

Back to our scenario:

Presenter

Presentation Notes

When it’s time to pay back the loan plus the fee, the customer most likely will NOT be able to pay back this lump sum in 14 days and will need to request another loan to pay back the original loan. When the next payment date arrives 14 days later, now the customer owes the amount borrowed plus the fees for TWO loans because 2nd amount borrowed included fees for 1st loan. The amount grows with each cycle and becomes a debt trap.

Here’s what REALLY happens:

Presenter

Presentation Notes

Source: New York Times 3/27/15 article Payday Loan Rules Proposed by Consumer Financial Protection Agency http://www.nytimes.com/2015/03/27/business/dealbook/consumer-protection-agency-proposes-rules-on-payday-loans.html?_r=0 2/3 of borrowers average 7 payday loans per year

What about Florida students? How do they fit into this scenario?

Presenter

Presentation Notes

Read slide testimonial.

Fine print: APR: Fine print: APR: APRs range from 200% and 138200

“Nothing…will be a greater, comfortable and luxurious life than a college life.”

Fine Print: APR ranges from 200% to 1386%.

Presenter

Presentation Notes

“Scammers deliberately use terrible spelling and implausible stories because it weeks out “false positive” according to research from Microsoft.” (The Guardian: Students – payday loans are not your only option; Wednesday, January 7, 2015) False positives are people who will figure out it’s a scam. That leaves people who are incredibly desperate or young and optimistic.

We’re Not Alone: United Kingdom • 2% of undergrads used payday loans in

2014 • 2% = 46,000 students • Ads run on sandwich wrappers in cafés

near university campuses and colleges • Encourages a casual attitude about

loans

Who is paying attention? • National People’s Action Research:

• Profiting from Poverty: How Pay Day Lenders Strip Wealth from the Working Poor for Record Profits

• Consumer Financial Protection Bureau (CFPB) • Pew Charitable Trust surveys • Chicago’s Financial Literacy Summit • President’s Advisory Council on Financial Capability

of Young Americans

Presenter

Presentation Notes

The following groups/sources were used in preparing this presentation: NPA Profiting from Poverty – January 2012 CFPB Data Point: Payday Lending – March 2014 Journal of Business & Economics Research – Cost of Fast Cash for Students – August 2008 Pew Charitable Trusts: Travis Plunkett Senate Hearing Speech – September 2014 The Wild West of Payday Loans for Joe College – April 2013 Debt.org article by Al Krulick: Payday Lenders New York Times article: Payday Loan Rules Proposed by Consumer Protection Agency – March 2015

Presenter

Presentation Notes

Sources: Last Week Tonight with John Oliver – Payday Loans segment PBS Need To Know series NPR’s Planet Money podcast

What’s being done? • CFPB proposed regulations to rein in payday

lenders oPros

• More aggressive – targeting 400% rates and above • Requires lenders to ensure borrowers have means to repay • Limits on rollovers: only allows 2 rollovers in a 12 month

period • Ceiling rate of 28% for credit more than 45 days • Monthly payments cannot go beyond 5% of pretax income

oCons • Payday lenders can use federal regulations to overrule tougher

state regulations • Loopholes that might be exploited by payday lenders

Loophole: Tribal connections do not have to follow state or local laws.

At bottom of webpage: Red Rock Tribal Lending, LLC DBA Castle Payday; a tribal enterprise wholly owned and operated by the Lac Vieux Desert Band of Lake Superior Chippewa Indians, a federally recognized American Indian Tribe and sovereign government.

NEW: Payroll Debit Cards – Another Loophole?

• Some allow borrowers to borrow for days worked in between pay periods

• How do the providers of payroll debit cards make money?

• Follow the money…

Presenter

Presentation Notes

Even without a loan, payroll debit cards cost the employee because they can never make a full withdrawal at the ATM (no cents – always dollars) and must pay ATM fees each time it is used to retrieve money they’ve earned. Employees should not have to pay money to get their own money but many are forced to do just that.

Providers of Payroll Debit Cards • Around the country most payroll cards are issued

by eight big banks: • JP Morgan • Bank of America • Wells Fargo • Citibank • U.S. Bank • PNC • Comerica • BB&T

Presenter

Presentation Notes

Source: Forbes.com article “Are Hourly Workers Being Shortchanged? The Truth About Payroll Debit Cards” Are we seeing a trend here? Flex Wage Solutions was created by a gentleman who was a previous VP of JP Morgan.

What can WE do?

Educate our Students

“An informed consumer is less likely to be taken advantage of.” Warren Buffet

Ideas to Consider

• Teach our students about ALTERNATIVES to payday lending • Incorporate money management into

campus financial literacy initiative or college success classes

• Start a mentoring group of students helping high school students with money management

Presenter

Presentation Notes

Educate our students on alternatives to PDL such as: Reduce expenses Selling items Asking family/friends to help Credit card advances are a less costly option Incorporate a unit on payday lending and other debt traps: Title Store vs. Pawn Shop Refund Anticipation Loan vs. Volunteer Income Tax Assistance (VITA) programs Rent-to-Own vs. Traditional Store Work with Business majors to start a mentoring grou. Train the trainers…

Khan’s Academy

Lesson Plans • St. Louis Federal Reserve

ohttps://www.stlouisfed.org/education_resources/assets/lesson_plans/paycheck/IYP_lesson8.pdf

• Federal Trade Commission (www.ftc.gov) ohttp://www.consumer.ftc.gov/features/feature-0022-

financial-educators

https://www.stlouisfed.org/education_resources/assets/lesson_plans/paycheck/IYP_lesson8.pdf

http://www.consumer.ftc.gov/features/feature-0022-financial-educators

Community Resources • Bank On Florida oDesigned for unbanked/underbanked

people • Florida Prosperity Partnership oVITA oPromoting awareness with local task

forces

Advocacy Opportunities • Write legislators – empower students to

have a voice in this matter • Join forces with other community-based

organizations or faith-based groups to promote awareness

Contact Information

Lori Auxier Director of Outreach Services

Lori.Auxier@fldoe.org 561-357-6340

Jan Smith

Manager of Outreach Services Jan.Smith@fldoe.org

850-245-1822

mailto:Lori.Auxier@fldoe.org

mailto:Jan.Smith@fldoe.org

Hyatt Regency, Coconut Point Resort & Spa Bonita Springs, FL

SAVE THE DATE! FASFAA 2016

May 24-27, 2016

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Payday Lending and Florida Students...• Online lenders – used by 25% • Online sources •...

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