Who uses these loans in Texas?
Due to the lack of regulation in this state, there is very little definitive data about who uses payday and auto title loans. However, a survey of 5,000 low and moderate income Texans from 2008 showed the following –
- The majority of survey respondents who needed short-term credit used it, not for isolated, one time emergencies, but to pay for recurring basic expenses such as utilities, food and housing.
- Only 13% of those surveyed use payday loans for short-term credit needs.
- Nearly one in 10 payday borrowers use payday loans monthly.
- Over half (58%) of the payday borrowers roll over or extend their loans at least once before they can pay them off—and nearly one in four payday borrowers surveyed roll over loans multiple times. As a result, the cost to borrow money frequently exceeds the original loan principal.
- A majority of payday borrowers are in their 20s and 30s.
- 59% of borrowers are women, many of them single women and single mothers.
- Although payday borrowers include all major ethnic groups, a disproportionately high percentage is African American.
A 2008 study found that Texas payday borrowers are much more likely to file for Chapter 13 bankruptcy, because the loans often create a deeper financial crisis for borrowers already in desperate straits.
In Texas, the average payday borrower pays $840 for a $300 loan.
On the national level the Center for Responsible Lending has found that –
- The typical borrower is stuck in the payday debt trap for nine pay periods, and ultimately pays $822.50 in principal and interest for a $350 loan.
- Over 80% of payday borrowers take out more than one loan a year.
- 87% of new loans to these repeat borrowers occur within two weeks of the previous loan
- The most common period of time between payday loans is one day or less. .
- The “churning” of existing borrowers’ loans every two weeks accounts for 76% of all payday loan borrowing.
- Nearly 59 million loans totaling more than $20 billion are a product of churning.
- Churned loans result in $3.5 billion in fees each year.
- 90% of business is generated by borrowers with at least five loans a year.
- Over 60% of revenues are generated by borrowers with 12 or more loans a year.
Many states more tightly regulate payday and auto title lending and have reporting requirements including information about borrowers.
Oklahoma – According to data published in March of 2009, payday borrowers used 9.3 loans on average and over 77% of payday lender business came from borrowers using 9 or more loans every year. The borrowers with the highest number of loans used more than 40 in a one-year period.
Colorado – 70% of all loans went to borrowers who had 11 or more loans in the past 12 months.
Florida – The average payday loan customer took out 8 loans in a 12 month period.
The payday and auto title industry is a huge industry in the United States. It is estimated that there are over 22,000 locations that generate an estimated $27 billion in loans a year.
Payday and auto title lending is big business in Texas. It is estimated that Texans borrow $3 billion annually. Many of the country’s biggest payday and auto title lending companies have their headquarters in this state.
Ace Cash Express, Irving
Cash America International, Ft. Worth
The Cash Store, Irving
Cottonwood Financial, Irving
EZ Corp, Austin
First Cash Financial Services, Austin
First Cash/Cash & Go, Arlington
For fiscal year 2008 Cash America International reported $1 Billion in revenue. For the fourth quarter of 2009 alone, in the midst of the recession, Cash America’s profits more than doubled to $33.7 million. According to Daniel Feehan, CEO “The moons don’t often align for all business units on a diversified portfolio like ours, but everything did come together.”
Austin’s EZ Corp was recently named the #87 fastest growing company in America by Fortune Magazine. The payday lender posted revenues of $673.9 million over the past four quarters representing a 3 year annual growth rate of 25%.