Payday Lending: Fixing A Broken Market - Accaglobal
Payday lending: fixing a broken market
About ACCAACCA (the Association of Chartered CertifiedAccountants) is the global body for professionalaccountants. We aim to offer business-relevant, firstchoice qualifications to people of application, abilityand ambition around the world who seek a rewardingcareer in accountancy, finance and management.Founded in 1904, ACCA has consistently held uniquecore values: opportunity, diversity, innovation, integrityand accountability. We believe that accountants bringvalue to economies in all stages of development. Weaim to develop capacity in the profession andencourage the adoption of consistent global standards.Our values are aligned to the needs of employers in allsectors and we ensure that, through our qualifications,we prepare accountants for business. We work to openup the profession to people of all backgrounds andremove artificial barriers to entry, ensuring that ourqualifications and their delivery meet the diverse needsof trainee professionals and their employers.We support our 162,000 members and 428,000students in 173 countries, helping them to developsuccessful careers in accounting and business, with theskills needed by employers. We work through a networkof over 89 offices and centres and more than 8,500Approved Employers worldwide, who provide highstandards of employee learning and development. The Association of Chartered Certified AccountantsMay22014This report analyses online paydaylending business models andoutlines a proposed framework tobe used to determine the level forthe cap on the cost of credit, whichboth allows lenders to cover theircosts and results in affordableloans for borrowers.
Payday lending: fixing a broken marketSarah Beddows,Independent ConsultantandMick McAteer,Financial Inclusion Centre.
ACKNOWLEDGEMENTSThanks to Robin Jarvis, Special Adviser, ACCA and Professor of Accounting at Brunel University.4
Contents1. Introduction72. The structure of the UK payday lending market103. Literature review124. Data sources135. Customer Acquisition Cost156. Default257. Rollovers and refinancing408. Intensity of use469. Market failure5410. Framework for setting the Rate Cap6011. Conclusion6512. Technical appendix66References69PAYDAY LENDING: FIXING A BROKEN MARKET5
6
1. IntroductionIn 2012 over 12m short-term cashadvance or ‘payday’ loans1 werearranged in the UK. A total of 3.7bnworth of credit was extended in this wayand UK borrowers paid over 900m ininterest and charges.2 The lack ofappropriate regulation, post-crisisconstrictions in traditional forms ofunsecured lending and a largepopulation struggling with falling realincomes have combined to create anattractive market for payday loans in theUK. As we can see in Figure 1.1, growthsince 2006 has been explosive.Figure 1.1: Total UK originations (billions)4 3.709 3.0163 1.9022 1.2001 0.330 0.508 0.7800A payday loan is a small, short-termunsecured loan with both principal andinterest scheduled to be repaid on asingle date. The average payday loan iscurrently around 270 for 30 days(Office of Fair Trading 2013b). Paydayloans represent one of the highest-costforms of credit available, interestcharges range from 15 to 35 per 100borrowed for 30 days, equivalent tobetween 448% and 3,752% AnnualPercentage Rate (APR). Late paymentand transmission fees further increasethe Total Cost of Credit (TCC)associated with these small loans.Payday loans are the fastest way toobtain credit: first-time, store-basedloans take about an hour to process(BBC One 2012), first-time online loanscan take as little as 15 minutes,3 andrepeat loans are even faster to obtain.Online lenders are open 24 hours a dayseven days a week.2006200720082009201020112012Source: 2006 and 2009 figures from Burton 2010; 2011 and 2012 estimates based on lenders’ financialstatements. All other years are interpolated.41. The generic term ‘payday loan’ is usedthroughout to refer both to traditional paydayloans and short-term cash advance loans.2. Estimates based on lenders’ financialstatements and Office of Fair Trading (2011a)estimates of market shares.3. Online lenders’ own estimates from theirwebsites.4. In their Payday Lending Compliance Review Final Report, The Office of Fair Trading (2013b) appear tohave based their estimate of the size of the UK payday lending market of 2.0bn to 2.2bn on ‘initial loans’only. We include all loans in order to allow comparison between years.PAYDAY LENDING: FIXING A BROKEN MARKET7
Those in favour of payday loans typicallyadvance one of four main arguments insupport of the product. First, the highinterest rates charged simply reflect thehigh costs involved in providing smallsum, short term loans. Second, the lowabsolute cost of each loan means theyare often cheaper than alternativesources of short term credit such asunauthorised overdrafts. Third, the‘bullet’ structure (principal and interestrepaid on a single date) of payday loansmakes the product simple tounderstand and means prolongedindebtedness is less likely. And fourth,lenders have a clear incentive to lendresponsibly: they want to get theirmoney back. For its supporters, apayday loan is a useful incomesmoothing tool with clearly statedterms.On the other hand, critics assert thatthe very high interest rates charged arepredatory by definition (see, forexample, Mendick 2012). They arguethat the bullet style of repayment makespayday loans very hard to repay andmeans borrowers are often sucked intoa ‘debt spiral’: unable to pay back theirfirst loan they take another loan (called‘rolling over’, ‘extending’, ‘refinancing’or ‘renewing’), incurring more and morecharges. And they are concerned thatthe increasing numbers of borrowersreporting problems repaying suchloans5 constitutes clear evidence ofirresponsible lending.The industry’s own regulator, the Officeof Fair Trading (OFT), has found that‘The payday loans market is not workingwell for many consumers. Our reviewhas found evidence of widespreadnon-compliance with the Consumer5. For example, the number of people contactingthe Consumer Credit Counselling Service (CCCS;now called ‘StepChange’) about payday debtmore than doubled between 2010 and 2011 (Hall2012).8Credit Act and other legislation’ (Officeof Fair Trading 2013b: 2) and that‘Payday lenders are also not meetingthe standards set out in our‘Irresponsible Lending Guidance,(Office of Fair Trading 2013b: 2) Theentire industry has now been referred tothe Competition Commission and theBanking Reform Bill will confer a ‘dutyto cap interest rates’ (HM Treasury 2013)on the Financial Conduct Authority(FCA).The level and form of this new interestrate cap is yet to be determined. Thereare questions, however, as to whether acap on APR alone will be sufficient tomake the payday lending marketfunction well for borrowers. Inparticular, the potential for lenders toderive revenue from interest chargesand from default fees and interestaccrued post-default means a cap onthe TCC may well be more appropriate.The purpose of this report is to developa detailed understanding of thebusiness models driving UK paydaylending in order to inform the debateabout the level and structure of the newinterest rate cap and to examine whichother regulatory interventions may benecessary to create a small-sum lendingmarket which allows lenders to innovateand also delivers good outcomes forborrowers. This report is designed tosupport the ongoing work of theCompetition Commission (CC) and theFCA, but it may also be of interest toconsumer groups and, ultimately, toinvestors.SMALL LOANS – HIGH CHARGESThe payday lending industry’s principaldefence of the high interest ratescharged is that they simply reflect thehigh costs involved in providing smallsum, short-term loans (see, for example,Booth 2012). This implies that theirpricing policy is based on a cost pluspricing methodology.The Consumer Finance Association(CFA) currently has this Industry Briefingregarding APRs on its website: ‘thecosts of lending this way are high. Thecost of lending someone a smallamount, eg 200, is the same as lendinga larger amount, eg 5000. It entails thesame credit checks, bank verificationchecks, fraud prevention checks andregulatory requirements includinganti-money laundering, mental capacityand responsible lending checks.Underwriting 25 200 loans ( 5,000total) clearly increases the cost to thelender 25 fold.’ (Consumer FinanceAssociation 2013b)Similarly, Wonga.com’s founder andformer CEO Errol Damelin commentedthat ‘We do small, short-term things,and the cost of delivering that service ishigh’ (Shaw 2011). The CFA furtherargues ‘Set the rate (cap) too low andpayday lenders will no longer be able toafford the high operational costs .thereby putting them out of business’(Consumer Finance Association 2013b).Determining how much ‘headroom’ – inthe form of profit and costs which couldbe reduced while still providing loans –exists in prevailing business models istherefore now critically important in thedetermination of a cap that is fair bothto borrowers and lenders.
This report will examine in detail thefollowing areas.Do charges faced by borrowers reallycorrelate to the operating costsincurred by lenders? What are thecosts involved in providing onlinepayday loans?To answer these questions we constructa simple model using cost informationtaken from Cash America’s financialstatements. We argue that the level andstructure of advertising and marketingcosts exceed income on first-time loans.If this is the case then online businessmodels are reliant on repeat lending fortheir profitability.What proportion of lenders’ revenuesis absorbed by losses due to default?We examine the relative riskiness ofonline and retail payday lending inthe UK.We develop a simple methodology toestimate the numbers of loansborrowers have difficulty repaying,using the percentage of revenueslenders are willing to lose to defaults. Itis not surprising that these estimatesare broadly consistent with the OFT’sfinding that ‘.around a third of loansare repaid late or not at all.’ (Office ofFair Trading 2013b: 2)We develop an understanding of thedistribution of defaults and argue thatif, as the evidence suggests, elevatedlosses are associated with newborrowers, this increases prevailingbusiness models’ reliance on repeatlending for their profitability.We examine the extent to whichdefaults are a function of thecreditworthiness of the pool ofborrowers and the extent to which theyare the function of underwritingstandards.We explore the potential for adverseselection and product design tocontribute to high levels of defaults.How profitable are rollovers?We extend the simple model using atheoretical distribution of rolloversbased on that found in the OFT’sPayday Lending Compliance ReviewFinal Report (Office of Fair Trading2013b) and find that rollovers aredisproportionately profitable –accounting for 200% of our modelbusiness’s profits. (Rollovers are loanextensions. They are fully defined anddiscussed at the beginning of Chapter 7.)Could a new framework be devised todetermine the level of the new ratecap?We outline a proposed framework fordetermining the level of the new ratecap. We argue that the low elasticity ofdemand exhibited by existing paydayborrowers makes a ‘cost plus’ approachto pricing inappropriate for this market.Building on the work of the NationalConsumer Law Center in the US weargue that affordability should be ofprimary importance in setting the newrate cap and that the patterns ofrepayment and default experienced byexisting payday borrowers can helpinform our thinking about affordability.Has innovation in the form ofcharging interest on a daily basisactually resulted in shorter, cheaperloans for borrowers?We construct another simple modelusing revenues earned, average loansizes and average loan lengths takenfrom Wonga.com’s 2011 financialstatements in order to examine thepossible distributions of loan sizes andlengths.Why is competition not working forconsumers and which policy optionscould improve the functioning of thepayday lending market?We examine market failure and arguethat there is a risk that multiple loansallow lenders to finance each others’activities – more payday loans may leadto more payday loans.We also argue that existing regulationmay allow ‘bad’ behaviours to be moreprofitable than ‘good’ ones and thatthis can lead to the crowding out ofresponsible lenders.PAYDAY LENDING: FIXING A BROKEN MARKET9
2. The structure of the UK payday lending marketThere are two markets for paydaylending in the UK, the retail market andthe online market. These markets havedistinct characteristics and customerbases.THE RETAIL MARKETPayday lending first started in the UK inpawnbroking and cheque-cashing shops.There are currently estimated to bearound 1,800 stores providing paydayloans as part of their product offering.For some alternative financial providerspayday lending provides a significantrevenue stream, while for others it is asmall part of their overall business.The retail market is dominated by twoUS companies: Dollar Financial andAxcess Financial (both of which operateunder multiple brand names on thehigh street). Other retail lendersinclude: Cash Converters, Albemarleand Bond/Herbert Brown (whichrecently acquired a small online lender).Ramsdens and, until recently, H&T(Farrell 2013), all of their operations aredwarfed by those of the big two.It is difficult to comment in detail on thebusiness model driving retail paydaylending for two reasons:THE IMPORTANCE OF THE ONLINEBUSINESS MODELOnline payday lending is a distinctbusiness from traditional retail paydaylending. Online lending businessesface: lower operating costs higher marketing costs – inparticular the use of third party ‘leadgenerators’ – companies thatspecialise in sourcing the personaldetails of prospective borrowers higher loss rates due to greaterdifficulties in assessingcreditworthiness and preventingfraud.The online and retail business modelsare significantly different; this isevidenced by the fact that successful,experienced retail lenders have notalways been able to make the onlinebusiness model work. In the US thelargest retail lender does not underwriteonline loans, choosing instead to act asan online broker for a competitor.6 Inthe UK few retail lenders underwriteonline loans and those that do havetypically grown via the acquisition ofestablished online businesses.7Most of the retail providers are privatelyowned (rather than listed on a stockexchange) making it difficult to obtaindetailed information about theiroperations.The ‘multiline’ nature of the business.Retail payday loans are always offeredas part of a broader product offering,there are no standalone payday lendingshops in the UK. This means that whilerevenue streams can be categorised byproduct, even lenders themselves find itdifficult to accurately attribute costs todifferent products offered in the sameshop.10Similarly, the OFT, consumer advocacygroups, and lenders all report littleoverlap between the online and retailcustomer bases in the UK. Onlinelenders have reached differentdemographic groups, attracted by theanonymity and speed of online loans(and, no doubt, encouraged by highprofile advertising campaigns).The focus of this report is the onlinemarket for a number of reasons: The online market is significantlylarger than the store based marketwith around two thirds of loans noworiginated online.8 The online market is growing fasterthan the store-based market and isof increasing importance.9 Online loans carry higher chargesthan store-based loans, soprolonged use carries a greater riskof consumer detriment. Default rates among onlineborrowers are significantly higherthan among store-basedborrowers.108. Evidence from lenders’ financial statementscombined with the OFT’s analysis of overall marketsize and 2010 online market shares (Office of FairTrading 2011a).6. Cash America’s subsidiary, CashNetUSA.com(formerly Enova), offers online loans marketedthrough Advance America’s website www.advanceamerica.net7. Dollar Financial has expanded into the UKonline lending via the acquisition of various onlinelending businesses, including Month End Money(MEM). Cash America expanded into global onlinelending via the acquisition of CashNetUSA/Enova.9. Evidence from lenders’ financial statementscombined with OFT estimates of 2010 onlinemarket shares. The rapid growth of online lendingis best illustrated by considering Cash Americaand Wonga.com, both of which operate exclusivelyonline and entered the UK market in 2008. In 2012they accounted for over 1.75bn of the total 3.7bnof credit extended – that Is over 47% of thecombined retail and online markets.10. A detailed discussion of levels of default inboth retail and internet businesses is presented inChapter 6, ‘Loss rates’.
This report concentrates on the threebiggest online lenders operating in theUK: Dollar Financial, Cash America, andWonga.com. These lenders have beenselected for three main reasons: They are the largest lenders:together they account for around70% of the online payday lendingmarket in 2010 (Office of Fair Trading2011a). They are among the mostresponsible lenders operating in theUK. The purpose of this report is notto highlight areas of exceptionallypoor practice by ‘rogue’ lenders,but to further the understanding ofthe online payday lending market asa whole. It is possible to bring togethersufficient data to understand thebusiness models of each of theselenders.PAYDAY LENDING: FIXING A BROKEN MARKET11
3. Literature reviewUK RESEARCHThis is a relatively new product in theUK so there has been little priorresearch into payday lending here.None of the existing UK research dealswith the payday lending businessmodels, or with the relative profitabilityof first-time and repeat loans, focusinginstead on international regulatoryalternatives and borrowers’ reportedexperiences.INTERNATIONAL RESEARCH INTORETAIL PAYDAY LENDING BUSINESSMODELSRevenues from repeat lendingIn the US, where payday lending is wellestablished, concerns have frequentlybeen raised about the length of timeborrowers remain indebted to lendersand the proportion of revenuesgenerated by repeat loans (King andParrish 2011; King, Parrish and Tanik2006). The Center for ResponsibleLending, based in Durham, NorthCarolina, has published two reports ofparticular relevance: 12Financial Quicksand (King, Parrishand Tanik 2006) used data fromregulatory databases and found that90% of retail payday lenders’revenues come from borrowers whotake five or more loans per yearPayday Loans Inc. (King and Parrish2011), tracked 11,000 borrowers overthe two years following their firstloan and found that ‘in their firstyear of payday loan use, borrowersare indebted an average of 212 days.Over the full two-year period,borrowers are indebted a total of372 days on average;’ and that‘Payday borrowers’ loans increase insize and frequency as they continueto borrow. Those payday borrowerswho continue to take out loans overa two year period have 12 paydaytransactions in their second year ofborrowing, up from 9 transactions inthe first year. In addition, evidencesuggests that borrowers’ loan sizesincrease after their initial loan.’The profitability of repeat lendingA number of attempts have been madeto assess not just the revenuesgenerated by repeat borrowing but theprofitability of repeat borrowing.Stegman and Faris (2003) used loanlevel data from payday lending stores inNorth Carolina to conclude that repeatbusiness was a key determinant offinancial performance. Conversely,Flannery and Samolyk (2005), againusing loan level data provided by USpayday lenders, concluded that whilerepeat borrowing contributed to loanvolumes it is no more profitable thanfirst-time borrowing. Both these studiesused multivariate regression analysis todetermine the impact of repeatborrowing on revenues (Stegman andFaris 2003) and profitability (Flanneryand Samolyk 2005). While regressionanalysis is a useful tool, it has manylimitations and is by no means asubstitute for the business modelapproach this analysis takes.In 2004, Ernst & Young wascommissioned by the CanadianAssociation of Community FinancialService Providers (CACFS – the paydaylenders’ industry association whosemembers include both Dollar Financialand Cash America) to conduct anobjective, independent survey on thecosts of providing payday loans. Theresulting report, The Cost of ProvidingPayday Loans in Canada was preparedwith the cooperation of 19 paydaylenders and provides the best availableanalysis of the business models ofpayday lenders. Crucially, Ernst andYoung identified that the costsassociated with providing first-timeloans were significantly higher than thecosts associated with repeat loans. Theyconcluded that, ‘The operating costs ofservicing new customers represent over85% of the total costs across theindustry.’(Ernst & Young 2004: 34) And,‘Clearly, the long-run survival of apayday loan operator will depend onachieving a steady repeat customerbusiness’ (Ernst & Young 2004: 37)(It should be noted that when theCACFS commissioned a number offollow-up reports into the cost ofproviding payday loans in individualCanadian provinces, data on therelative costs of first-time and repeatloans do not appear to have been madeavailable again.)While providing by far the best availableinsight into the payday lending businessmodel, the scope of the Ernst andYoung report is limited to costs; itcontains no analysis of how revenuesand therefore profits are generated. Italso does not go far enough in itsanalysis of patterns of default. Lossesdue to default are assumed to be evenlydistributed across all loans when, infact, loans to new borrowers carry agreater risk of default, further increasingthe costs associated with first-timeloans. It also contains no analysis of theonline lending business model, as thevast majority of payday loans wereoriginated in store rather than online in2004.
4. Data sourcesThe principal motivation behind thisreport is the need to improvetransparency. The biggest barrier tofully informed debate about paydaylending in the UK is a lack of hard data.Payday lenders are currently under noobligation to release data into thepublic domain, where independentresearchers would be able to carry outtheir own analysis of the industry andindividual firms operating in the market.This report aims to bridge thisinformation gap as far as possible:In order to ensure the accuracy ofcalculations, only lenders’ own dataregarding costs and revenues containedin their published financial statements11are used.Also, in the case of Dollar Financial andCash America, both of which arepublicly traded, additional informationneeded to separate informationpertaining to their UK operations frominformation pertaining to theirinternational operations and to enhancethe analysis of costs and patterns ofdefault is drawn from investor relationsmaterials and earnings calls.12In the case of Wonga.com, which isprivately held, additional information isdrawn from their Written Evidence toParliament, testimony to the PublicAccounts Committee, companyapproved interviews in the press, andstatistics provided via theirOpenWonga website.High-level information on the market ingeneral is drawn from the publicationsand press releases of the CFA – thetrade body representing 70% of UKpayday lenders, including DollarFinancial and Cash America – and theOFT, and from a report by the PersonalFinance Research Centre at theUniversity of Bristol (2013).All information used is publiclyavailable.(This work has been undertaken on a‘best efforts’ basis and enormous carehas been taken to maintain a high levelof accuracy and to provide a fairrepresentation of lenders’ activities. Bynecessity some assumptions are made.These are explicitly highlighted in thetext and the basis on which they aremade is fully explained.)Table 4.1 presents a summary ofstatistics for the ‘big three’ lenders for2011. (The most recent year sufficientinformation can be found in lenders’financial statements.)11. For Wonga.com these consist primarily of theiraccounts filed at Companies House and their 2012published annual report. For Dollar Financial andCash America these consist of their statutoryfilings with the Securities and ExchangeCommission (SEC), in particular, the “Form 10k”– a detailed, audited annual filing essentially a verydetailed annual report and “Form 10q” – a lessdetailed, unaudited quarterly filing.12. An earnings call is a conference call in whichsenior management of a listed company discussthe company’s results with a panel of investmentanalysts. It is intended to provide investors andanalysts with deeper insight into the company’soperations. Cash America and Dollar Financialwebcast their earnings calls via their investorrelations websites. For this report the relevantearnings calls were accessed via the lenders’websites as they became available and weretranscribed by the authors. Interested readersmay access historical earnings calls free of chargeat earningscast.com or transcripts may bepurchased from a number of online providersPAYDAY LENDING: FIXING A BROKEN MARKET13
Table 4.1: Statistics for 2011DollarFinancial(Online only)WongaCash AmericaTotal credit extended 495ma 707me 507mhTotal revenue 122ma 184me 114mhRevenues as a % of credit extended25%26%22%Losses as a % of revenues35%Average loan size 270 c 287f 336 hAverage revenue per loan 66 75 75Average number of loans per borrower3.68Average revenue per borrower 243bd36%e3.00g 22545%i3.68 d 276Key and sourcesa Includes estimated full-year activities of Month End Money (MEM). Source: Dollar Financial 10ks and 10qs.(DFC Global Corp 2011a, b, c and 2012b) MEMaccounts filed at Companies House (MEM 2011)b Includes estimated full-year activities of Month End Money (MEM). Source: DFC Global Corp 2012ac Source: OFT2013bd Source: Consumer Finance Association 2012ae Source: Wonga.com accounts filed at Companies House (Wonga.com Limited 2012)f Source: Wonga.com accounts filed at Companies House (Wonga.com Limited 2012)g Source:.UK Government 2011h Source: Cash America 2012ai Source: Cash America 2012a14
5. Customer Acquisition CostLenders’ principal justification for theirhigh charges is that the set-up, oroperating, costs of a loan (things likecredit checks, verification of borrowers’details, setting up payments, etc) arebroadly the same regardless of theloan’s size and length. This,unavoidably, makes small-sum, shortterm loans such as payday loans veryexpensive in APR terms.The CFA currently has this IndustryBriefing regarding APRs on its website:‘the costs of lending this way are high.The cost of lending someone a smallamount, eg 200, is the same as lendinga larger amount, eg 5,000. It entailsthe same credit checks, bankverification checks, fraud preventionchecks and regulatory requirementsincluding anti-money laundering,mental capacity and responsiblelending checks. Underwriting 25 200loans ( 5,000 total) clearly increases thecost to the lender 25 fold’ (ConsumerFinance Association 2013b).Similarly, Wonga.com’s founder andformer CEO Errol Damelin commented‘We do small, short-term things, and thecost of delivering that service is high’(Shaw 2011). The CFA further argues‘Set the rate (cap) too low and paydaylenders will no longer be able to affordthe high operational costs therebyputting them out of business’(Consumer Finance Association 2013b).Determining how much ‘headroom’there is in existing business models istherefore now extremely important.However, if operating costs are theprincipal determinant of payday interestrates, firms facing the lowest costsshould charge the lowest interest rates.Why, then, do online lenders, who facesubstantially lower operating costs thanretail lenders, charge the highest APRs?Far from competing with retail paydaylending and driving prices down in bothmarkets, online payday lending chargesstarted high and have remained high.Why is this? What costs do lendersactually face? A Dollar Financialexecutive commented: ‘as we’ve saidbefore internet loans typically carryhigher loan losses but with significantlylower fixed operating costs than thecompany’s existing store basedbusinesses in those countries.’ (DFCGlobal Corp 2012a) One of CashAmerica’s executives identifies the twokey drivers of costs in his lendingbusiness as: ‘it’s a function of, obviously,loss rates, it’s a function of customeracquisition cost.’ (Cash America 2012b)Loss rates and Customer AcquisitionCost explain why online payday lenderscharge higher prices than retail paydaylenders. They also have importantimplications for the length of timeborrowers remain indebted and thenumber of borrowers experiencingrepayment difficulties.Loss rates, and the patterns of defaultthey imply, are examined in detail belowin First Customer Acquisition Cost, thetotal cost of acquiring a new borrower,is explored.PAYDAY LENDING: FIXING A BROKEN MARKETWHAT IS CUSTOMER ACQUISITIONCOST?Customer Acquisition Cost (CAC) is thecost to a business of acquiring eachnew customer. CAC is computed astotal acquisition cost, ie the sum of allexpenses related to introducing newcustomers to the company’s goods andservices, divided by the number of newcustomers. For online payday lenderstotal acquisition cost includes moneyspent (or revenue foregone) on thefollowing: lead purchase TV, radio and print advertising tonew customers internet advertising (‘pay per click’,‘pay per call’ and search engineoptimisation) to new customers sales and marketing headcountcosts attributable to new customeracquisition ‘Refer a friend’ programmes discounting of first loans additional work involved inprocessing the borrower’s initialapplication processing initial applications whichare subsequently declined.15
How significant is CAC?Advertising and marketing often seemlike optional extras that help a businessgrow but are not central to its survival.However, online businesses often needto spend si
Payday loans are the fastest way to obtain credit: first-time, store-based loans take about an hour to process (BBC One 2012), first-time online loans can take as little as 15 minutes,3 and repeat loans are even faster to obtain. Online lenders are open 24 hours a day seven days a week. 1. The generic term 'payday loan' is used
online payday loans accounted about one-third (2,066,113) of all payday loans. About 41 percent of customers (460,458) took out payday loans over the internet. In 2020, 277,130 consumers took out single payday loans, compared to 212,003 in 2019. Typically, consumers took 10 or more payday loans more than a single payday loan in the past.
likelihood of payday loan usage among different demographic groups. Though like the general population, most payday loan borrowers are white, white respondents were less likely to have used a payday loan than others. In fact, after controlling for other factors, African Americans were 103 percent more likely to use payday loans than others.
Payday loans are extremely high-interest, short-term loans offered to cash-strapped consumers. Some of the problems with payday loans can be illustrated succinctly by the experience of one payday loan customer, Leticia Ortega.' Realizing that her next payday was two weeks away, Ortega worried about how
Payday loan companies have recently come under scrutiny thanks to triple digit interest rates and strategic placement in impoverished neighborhoods.6 Payday lending businesses have been banned in eleven states,7 and as of October 1, 2007, many lenders in the United States, including payday loan businesses, may not charge more than a 36% .
Payday L ending Rule's mandatory underwriting provisions to November 19, 2020 and made technical corrections to the 2017 Payday Lending Rule. On July 7, 2020, the Bureau issued a . (NCUA 's) requirements for the Payday Alternative Loan (PAL) program set forth in 12 CFR 701.21(c)(7)(iii)are exempted from being covered loans . E ight
A typical payday loan incurs 15 interest per 100 borrowed over two weeks, implying an annual percentage rate (APR) of 391 percent, and more than 80 percent of payday loans nationwide in 2011-2012 were reborrowed within 30 days (CFPB 2016). As a result of these concerns, 18 states now e ectively ban payday lending (CFA 2019), and in 2017, the .
missouri permits single-repayment payday loans with finance charges and interest not to exceed 75 percent of the borrowed principal. The 2011 payday lending report from missouri's Division of Finance cites a fee of 52.45 for a 14-day loan of 307.56 (444.61 percent aPR).45 Payday loans are available for up to 500.
the nation combined. These payday lending facilities extend about 38.5 billion in short-term credit to 19 million American households a year. Typically, a payday lending arrangement issues the customer a loan in the amount of 100 to 600 in exchange for a personal check written out in the amount of the loan plus fees, which are
