Emails, Don Baylor, Jr., senior policy analyst & director of OpportunityTexas, Center for Public Policy Priorities, Jan. 6, 2014

11:32 am

Thanks for reaching out.

 

I’m pointing you to two recent CPPP publications on payday lending in Texas:

 

·         State of Payday and Auto Title Lending In Texas 2012

 

·         2012 Payday Lending MSA Fact Sheets

 

See http://forabettertexas.org/economicopportunitywork.html

 

Here is a link to Cashnet (which does online lending in various states including Texas).  For a 14 day loan, the APR exceeds 650%.  For 8 and 9 day loans, the APR exceeds 1,000%.   http://www.cashnetusa.com/fee-schedule-texas.html

 

Since the OCCC data does not provide access to individual loan data or any sort of distribution by loan term, it is difficult to determine how many loans actually exceed 1,000% APR.  The OCCC data does include distributions on loan amount size, refinances, and CAB fees, but only provides the average loan term (e.g. 19 days for single payment payday loans).  If you have a loan for 8-10 days, that APR would effectively double for the same type of loan, approaching or exceeding 1,000% APR.

 

Since many companies have minimum loan terms of 8 days, and charge $25 per $100 borrowed, we would estimate that a fraction of single-payment payday loans exceed 1,000% APR.  For the Cashnet example, which is fairly typical for the Texas market in terms of loan cost and structure, a 8 day loan exceeds 1,140% APR, while a 9-day loan exceeds 1,014% APR (25% x 365/8; 25% x 365/9).  For these examples, I am not including the 10% simple interest charged by the third-party lender.

 

Certainly, a better data infrastructure would enable us to answer these questions with more certainty; other states (e.g. Oklahoma, Florida) with payday lending have “real-time databases” that allow for in-depth and robust data analysis on loan costs and terms.  For whatever reason, the industry has been opposed to a similar model in Texas, which would enhance data collection and enforcement, while removing doubt about simple data questions such as:  “What percentage of loans exceed 1,000% APR?”  

 

Other states also have fee limits, which effectively limits the APR.  In Texas, under state law, the allowable APR is infinity, or unlimited.   That’s the larger public policy question, whether payday lenders can charge unlimited fees for an unlimited period of time.

 

Summary: Our view is that some payday loans exceed 1,000% APR, while nearly half of single-payment payday loans exceed 500% APR.  Either way, the Texas payday loan is still the most expensive payday loan in the U.S.

 

Let me know if you have further questions.

 

Thanks Don

 

     

 

 

Don Baylor, Jr.

Senior Policy Analyst & Director of OpportunityTexas

Center for Public Policy Priorities

From: Selby, Gardner (CMG-Austin)

Sent: Monday, January 06, 2014 12:21 PM

To: Don Baylor

 

I got the impression that we do have a State of Texas indication of which loans prevail; the OCCC presentation says 80 percent of the payday loans in 2012 were single-installment. Do I read that right?

 

You wrote: “Our view is that some payday loans exceed 1,000% APR, while nearly half of single-payment payday loans exceed 500% APR. Either way, the Texas payday loan is still the most expensive payday loan in the U.S.”  How did you reach the “nearly half” conclusion? If that’s right, does it mean that in 2012, 40 percent of all payday loans exceeded 500 percent APR?

1:20 p.m.

·         Yes, for payday loans, the single installment product is still king, making up over 84% of all payday loans in 2012.   (2.4 million single payment; 421,000 installment)

·         One noticeable trend in the data since 1Q 2012 has been that these loans are becoming more expensive.  We have seen the average fee climb from just under $23/$100 to about $24/$100, with many loans charging $25/$100 or more

o   In 2012, the average 19-day loan would be about 442% APR (with a $23/$100 charge); a 18-day loan, 466% APR; a 17-day loan, 494% APR

o   In 2013, the average 19-day loan would be about 461% APR (with a $24/$100 charge); a 18 day loan, 487% APR; a 17-day loan, 515% APR

 

So, specifically relating to the claim that nearly half the single-payment payday loans are 500% APR, CPPP assumes a fairly even distribution of loan terms, so that nearly half of these loans are under 19 days (i.e. 8-18 days), while about half are 19 days or over (19-29 days).  Yes, we are assuming about 40-45% of single-payment payday loans are 17 days or shorter, given our knowledge of the product and that virtually no single payment payday loan term goes beyond 30 days.      

 

Based upon the information above, any average-priced payday loan 17 days or shorter would reach 500% APR or higher.

 

Please note that we are not including the standard third-party lender interest charge, which would add another 5- 10 basis points on top of these APR calculations, so these calculations are on the conservative side.      

 

Hope this helps, Don

 

 

Don Baylor, Jr.

Senior Policy Analyst & Director of OpportunityTexas

Center for Public Policy Priorities