PDF NCLC Misaligned Incentives

N C L C?

NATIONAL CONSUMER

LAW

? C E N T E R

Misaligned Incentives

WHY HIGH-RATE INSTALLMENT LENDERS WANT BORROWERS WHO WILL DEFAULT

? Copyright 2016, National Consumer Law Center, Inc.

CHARTS AND TABLES

TABLE 1: Loans Analyzed

LENDER

Hypothetical loan Hypothetical loan Hypothetical loan ACE Cash Express ACE Cash Express Advance America Advance America Cash Central (Community Choice Financial) Cash Store CashCall

CashCall

CashNetUSA (Enova) CashNetUSA (Enova) Check 'n Go Elevate (Rise) Elevate (Rise) Insikt Oportun Shoreside

Speedy Cash Speedy Cash Speedy Cash

STATE NM

LOAN*

$2,600 $2,600

$500 $200

INTEREST RATE**

96% 24% 231% 398%

CA $2,600 209%

SD

$500

CA $2,550

MO $2,000*

349% 196% 185%

TX $1,000 582%

CA $2,600* 96% + $75 fee

CA $2,600* 135% + $75

OH

$800 459%

OH $1,200 379%

CA $3,000 219%

TX

$800 350%

AL $2,250 274%

CA $2,500* 34% + $90

CA $1,600* 35% + $90

CA $2,600* 180% + $75

MO $300 430%

IL

$400 372%

MO $1,500 199%

NO. OF PAYMENTS

42 24 52 13

20

12 26 52

12 42

47

12

15

26 10 26 48 34 52

39 12 39

PAYMENT AMOUNT $216.55 monthly $137.46 monthly $45.00 biweekly $36.32 biweekly

$267.31 biweekly

$86.11 biweekly $227.95 biweekly $146.43 biweekly

$245.51 biweekly $216.55 monthly

$294.46 monthly

$164.25 biweekly

$200.57 biweekly

$294.41 biweekly $150.15 biweekly $256.21 biweekly $73.00 biweekly $64.00 biweekly $190.00 biweekly

$49.61 biweekly $71.68 biweekly $121.38 biweekly

TERM IN MONTHS

42.0 24.0 24.0 6.0

9.2

5.5 12.0 24.0

5.5 42.0

47.0

5.5

6.9

12.0 4.6 12.0 22.1 15.6 24.0

18.0 5.5 18.0

CHARTS 1?5 4 6 13

16

13, 16 11 11

17, 18 7, 8, 9

7, 9

13

16

11 16 11 12 12 11

14, 15 13 11

*Fees may reduce the amount the consumer receives or may be added to the amount financed. It is possible other lenders have fees beyond those listed.

**Rates are rounded. Rates are generally as stated by lenders and may not be accurate APRs.

?2016 National Consumer Law Center

High-Rate Installment Lenders -- Charts and Tables 1

CHART 1 Payments Toward Principal

$2,600, 96%, 42-Month Loan

$10,000 $9,000 $8,000

Payments Principal repaid

$7,796

$9,095

$7,000 $6,000 $5,000 $4,000

$3,898

$5,197

$6,497

$3,000

$2,000

$1,299

$1,000

$0

$63

6

$2,599

$162

12

$320

$571

18

24

Months

$968

30

$1,599

$2,600 Loan Amount

36

42

?2016 National Consumer Law Center

High-Rate Installment Lenders -- Charts and Tables 2

Monthly Payments

45

40

27

35

30

25

20

15

15

10

5

0 20%

CHART 2 Profit Point $2,000, 96%, 42-Month Loan

26

25

23

22

19

20

16

17

30%

40%

50%

Expenses as a Percent of Loan Amount

60%

Months to profit point

Additional months to full term

CHART 3

Default After 20 Months: Payments Made & Principal Repaid

$2,600, 96%, 42-Month Loan

$4,500

$4,331

$4,000

$3,500

$3,000 $2,500

$2,600

$2,000

$1,500

$1,000

$500

$391

$0 Original loan amount

Payments

Principal repaid

3 High-Rate Installment Lenders -- Charts and Tables

?2016 National Consumer Law Center

Months

CHART 4

Months for Payments to Equal Loan Amount

$2,600 Loan at 24% and 96%

45

Term of loan

42

40

Months to repay

loan amount

35

30

25

24

20

19

15

12

10

5

0

24%

96%

Interest rate

$9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000

$0

CHART 5 Lender's Revenue: Prepay v. Default

$2,600, 96%, 42-Month Loan

Still to collect Early payoff Payments

$4,764

$2,561

$866

Prepay after 4 Payments

$4,331

Default after 20 payments

$3,900 Profit Point

?2016 National Consumer Law Center

High-Rate Installment Lenders -- Charts and Tables 4

$1,400 $1,200 $1,000

$800 $600 $400 $200

$0

CHART 6 Payments Toward Principal $500, 231%, 2-Year Loan, $45 Biweekly Payments

Loan Payments Principal repaid

$1,170

$540 $500

$500

$10.72

After 24 weeks (12 payments)

$49.15

After 1 year (26 payments)

CHART 7

CashCall's Profitable Defaults

Months to Profit Point on 96% and 135%, $2,600 Loans

50

47 months

45

42 months

40

Months to profit point

Term of loan

35

30

25

19

20

months $9,095

15

$13,840

14 months

10

$4,114

$4,122

5

0 96% loan (2005?2009)

135% loan (2009?present)

Monthly Payments

5 High-Rate Installment Lenders -- Charts and Tables

?2016 National Consumer Law Center

CHART 8 CashCall's Cumulative Default Rates

by Interest Rate for $2,600 Loans

50%

45%

40%

39%

Cumulative Default Rate

35%

31%

30%

25%

21%

20%

15%

10%

5%

0%

59%

79%

Interest Rate

Source: Expert Report of Bruce McFarlane, De la Torre v. CashCall.

87%

44%

96%

$4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000

$500 $0

CHART 9

CashCall's Misaligned Incentives: Principal Repaid at Profit Point

$2,600 Loan at 96% (42 Months) v. 135% (47 Months)

$4,114

$4,122

Original loan amount Payments Principal repaid

$2,600

$2,600

$354

96% loan (19 payments)

$60

135% loan (14 payments)

?2016 National Consumer Law Center

High-Rate Installment Lenders -- Charts and Tables 6

CHART 10

CashCall Loan Performance

2005?2011

45+4654.7% 6.5%

43.7%

45.1%

Defaulted Repaid early Paid to full term Paid in full late

Source: De la Torre v. CashCall.

Number of Biweekly Payments

CHART 11

Profitable Defaults?

Number of Payments to Exceed 150% of Loan (Various Lenders)

60 Number of payments to exceed loan amount

50

Number of payments needed to exceed 150% of loan amount

52

52

Term of loan

40

39

30

26

26

26

20

14

10 9

16 11

17 12

19 13

21 14

21 14

0 Elev$a2te,2(5R0is,e2) 7A4L% Ch$e3c,k0'0n0G, o21AC9dAv%ance$2A,m55e0ri,ca19C6A%Spee$d1y,5C0a0s,h1M99O%Cas$h2C,0en0t0ra, l1M85O%

S$h2o,6re0s0id, e18C0A%

7 High-Rate Installment Lenders -- Charts and Tables

?2016 National Consumer Law Center

Number of Biweekly Payments

CHART 12

Lower Cost Lenders

Months for Payments to Reach 100% and 150% of Loan

60

50

40

38

34

52 48

35

Number of payments to exceed loan amount

Number of Payments needed to exceed 150% of loan amount ( represents payments beyond the term of the loan)

30

25

Term of loan

20

10

0 Oportun

$1,600, 35% + $90 fee

Insikt $2,500, 34% + $90 fee

Number of Biweekly Payments

CHART 13

Number of Payments Needed to Exceed Loan Amount on Smaller High-Rate Loans

16 Number of payments to exceed loan amount

14

Total number of payments due

13

12

12

12

12

10

8

6

6

6

6

5

4

2

0 ACE Cash Exp. NM $200, 398%

Speedy Cash IL $400, 372%

Advance America SD $500, 349%

CashNetUSA OH $800, 459%

?2016 National Consumer Law Center

High-Rate Installment Lenders -- Charts and Tables 8

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download