EconomicImpactofPaydayLenders

							  Payday Lending’s Economic
Impact on the Omaha Metro Area
           Key Findings




                          Honey Creek Resources Inc.
          on behalf of Financial Stability Partnership TM
                                          February 2009
Questions Addressed

   Is there a net economic impact?
   Is there solely a redistribution of
    wealth?
   What is excessive? – focus solely on
    those fees for 5+ loans/year
   What is the demand for payday loans
    in the Douglas and Sarpy Counties?
Regulatory Oversight in Nebraska

   Delayed Deposit Service (DDS) businesses
    first legally recognized in 1994.
   Licensed and regulated by Nebraska
    Department of Banking & Finance.
   Permissible fee of $15 per $100 loaned
    which can equate to 460% APR.
   Loan funds are considered an advance and
    not subject to state usury law cap of 16%
 Growth in Payday Industry

                       Number of Stores
                                                           Exponential growth
25,000                                                     Over 19 million US
20,000                                                      households took
15,000                                                      payday loans -2007
                                                            Over $400 million in
10,000
                                                        
                                                            loans with over
 5,000



                                                            22,000 store fronts
    0
         1990   1995          2000        2006   2008
Demand in Omaha Metro

   Estimated 46,000 borrowers
   Loan proceeds estimated at over $121
    million and over $21.5 in loan fees
   Local demand exceeds national
    average with one store per 2,300
    households compared to 3,500.
Why are payday loans popular?

   Easy process
   Fast approvals
   Simple underwriting and no credit
    report required
   Convenient store locations
   Prefer short term
Typical Payday Borrower…

   Repays $793 on a $325 loan
   Rolls over original loan with loan from
    another payday loan (70%)
   Middle income, poor credit history,
    active checking, steady employment.
   Over ½ stores west of 72nd Street
   Female, renter, average age of 36
    with children living at home
Credit Trends of Payday
Customers
   Rely more on other types of consumer debt
    – 92% (customers) vs. 82% (general population)
   Higher debt to income ratio
    – 3 x that of adults in general
   Utilize auto loans at 1-1/2 times rate of
    general population
   Less likely to use retail cards or revolving
    credit
Repayment of Payday Loans
Source: FSP Survey 2008 and Lawrence & Ellihausen, 2008, “A Comparative Analysis of Payday Loan Customers”




                                                          Postdated check,
                                Cash, 15%                       15%




                                             Other payday
                                             lender, 70%
Annual Economic Impacts -
Omaha Area 2008


Excessive Fees     $19 million
Gross Output       $26 million
Net Output         $10.7 million
Net Labor Income   $ 3 million
Economic Sectors Most Impacted

   Not uniform – 1/3 of impacts on health care
    industry
   60% of negative impact affects 10 economic
    sectors
   Top 5 impacted industries
    –   Health care
    –   Wholesale trade
    –   Food services and drinking places
    –   Real estate
    –   Insurance carriers
Economic Impact of Financial
Institution Alternatives

   Over $1 million in annual fees
    generated
    - Assumptions – 15%, 6 month, $325 loan,
      2 loans/year
   Leakage Prevented Per Year
    - Output - $24.9 million
    - Wages - $6.2 million
Resources
Study link –
http://www.uwmidlands.org/payday-lending-economic-
   impact.html
Resource references in appendix
Financial Alternatives
Annie E. Casey –Low Cost Payday Loans: Opportunities and Obstacles

REAL Solutions – Payday Lending: The Credit Union Way

Thank You!
George Oamek, PhD
Honey Creek Resources, Inc. 545-9187