Meeting the Need: Affordable, Responsible Short Term Credit

1. Short Term Credit Landscape Meeting the Need: Affordable, Responsible Short Term Credit The Problem: Lack of Affordable, Responsible Short Term Credit Woodstock Institute www.woodstockinst.org

2. Short Term Credit Landscape WOODSTOCK INSTITUTE PROGRAMS

3. Short Term Credit Products THE CONSUMER CREDIT LANDSCAPE EasyDifficult

4. Short Term Credit Products PAYDAY LOANS ARE JUST ONE OPTION Payday lenders in the Chicago market area Customers have easy access to high cost debt Minority and lower-income communities see a slightly higher concentration LMI Tract Payday Loan Store

5. Short Term Credit Landscape Payday lenders in the Chicago market are located in minority and LMI tracts 2.0 1.6 1.6 1.2 1.2 Locations per 10,000 0.8 0.8 0.5 0.4 Minority MUI White LMI Minority LMI White MUI Income and Minority Tract Composition

6. Short Term Credit Landscape Of 444 debt collection suits filed… • 573 percent APR • Average loan was $331 • Average finance charge $144 • Average attorney’s fee $303 • 98 percent resulted in garnishment Source: Greed: An In-depth Study of the Debt Collection Practices, Interest Rates, and Customer Base of a Major Illinois Payday Lender. 2004 Monsignor John Egan Campaign

7. Short Term Credit Landscape MAKING CREDIT SAFER IN ILLINOIS Five Key Consumer Protections • Loan fee limited to $15.50 per $100 • Principal indexed to income • 7 day recovery period • Fee-free repayment plan • Limit of two loans not to exceed 45 days Source: Payday Lending Under the Illinois Payday Loan Reform Act. 2005 Woodstock Institute

8. Short Term Credit Products THE CONSUMER CREDIT LANDSCAPE EasyDifficult

9. Short Term Credit Products PAYDAY LOANS ARE JUST ONE OPTION Small Banks and CUs Small banks and CDCUs are payday loan alternative innovators Limited scale and accessibility Austin Bank Northside FCU Southside FCU

10. Short Term Credit Products PAYDAY LOANS ARE JUST ONE OPTION Large banks and mainstream CUs Large banks and mainstream credit unions offer many of the services of banks Geographic FOMs allow them to serve entire regions Mainstream CUs Austin Bank Northside FCU Southside FCU

11. Short Term Credit Products THE CONSUMER CREDIT LANDSCAPE EasyDifficult

12. Short Term Credit Landscape CREDIT CARDS Blindfolded into Debt • 75 percent of Americans qualify • Misleading terms and fees • “Universal Default” • Only the rate range is advertised • Convenience checks have different rates Source: Blindfolded into Debt: A Comparison of Credit Card Costs and Conditions of Banks and Credit Unions. 2005 Woodstock Institute

13. Short Term Credit Products THE CONSUMER CREDIT LANDSCAPE EasyDifficult

14. Short Term Credit Landscape HIGH-COST “BOUNCE PROTECTION” Banking on Bounced Checks • $25 to $35 per overdraft plus daily fee • Overdraft privilege included in balance • Multiple fees for multiple bounced checks • Cost for a $200 14 day loan • Average Fee $29 • Average total fees for 5 debits: $186 • Effective APR 2,424 percent Source: Banking on Bounced Checks: Federal Proposal on Bounce Protection Still Exposes Consumers to Hidden Fees. 2004 Woodstock Institute

15. Short Term Credit Landscape GOING FORWARD • Enforcement of Illinois Payday Loan Reform • Act • Extending protections to other short term • credit options, such as title loans • Monitor the impact of credit cards, bounce • protection on lower-income households • Promote short term credit options at larger • regulated financial institutions • Improve access to these products for lower- • income households