Trapped by Desi gn: Trapped by Desi gn:

Payday Lendi ng by the Numbers Payday Lendi ng by the Numbers

A report f rom t he Ohi o Coali t i on f or Responsi bl e Lendi ng A report f rom t he Ohi o Coali t i on f or Responsi bl e Lendi ng
Sept ember 19, 2007 Sept ember 19, 2007

Page 2 of 10
Executive Summary

Recent annual financial reports from four of Ohio's leading payday lenders confirm that
over 300,000 Ohioans are trapped in a long-term payday lending cycle.

The payday lending industry's lobbying message is clear, Payday advances should be
used for short-term financial needs only, not as a long-term financial solution. But their
goal, in fact their very survival, requires that they pull their occasional customers into a
cycle of repeated loans over the long term. Never mind that the customers original intent
was only to borrow a reasonable sum and only until their next payday.

The reports from publicly owned payday lenders reveal the dimensions of Ohio's payday
lending industry and the extent to which customers become ensnared in repetitious loan
transactions. These repeat payday borrowers drive the payday loan business model and
finance the alarming expansion of payday storefronts across the state.

In this report we find that:

Ohio payday borrowers pay over $318 million in payday loan fees annually
The average payday loan is $328 with an average APR of 391%
The average Ohio payday borrower takes out 12.6 loans per year;
Over 300,000 Ohio payday borrowers are ensnared in a payday debt trap
1

The payday lending industry actively encourages repeat borrowing and is
dependent upon its ability to lure most of its customers into this devastating debt
trap.

The payday lending industry's survival requires that it lead most of its customers into a
wave of successive t wo- week loans. This is a particularly oppressive form of high-
interest lending, and damages all of Ohios residents.

Ohios usury laws were amended in 1995 to specifically enable payday lending to Ohio's
citizens at triple-digit interest rates. A decade later, it is clear that the exemption for
payday lenders was a mistake.























Page 3 of 10

Introduction

Payday loans are marketed as short-term cash advances obtained by submitting a
postdated check or electronic checking account information as collateral for the loan.
These loans are available to anyone with a checking account and proof of income.
Customers pay about $15 in fees every t wo weeks
2
for each $100 borrowed and are
required to pay the principal and fees in full when the loan is due, generally on the next
payday.
3
If unable to repay the original loan amount, Ohio borrowers can then re-borrow
the same amount the very next day, again incurring the same fees, or simply go to
another payday lender to borrow the funds to pay off the first payday lender. Either way,
the fees and interest on the loans amount to an annual percentage rate (APR) of 391%.

For this report, we analyzed the "10-K" filings of four of Ohios largest payday lenders.
Publicly owned corporations must file these reports annually with the Security and
Exchange Commission (SEC) and, by law, they must contain extensive and detailed
financial information about the company for the previous year, as well as narrative
discussions about the companys lines of business and performance over the fiscal year.

By analyzing the recent SEC filings
4
of these large Ohio lenders, this study sketches out
the dimensions of the statewide payday lending industry and the extent to which
customers become ensnared in repetitious loan transactions, recycling a limited
borrowed sum for ever-increasing fee loads that quickly exceed the amount borrowed.


































Page 4 of 10
Summary of Ohio Payday Lenders

This study examined the most recent Security and Exchange Commission filings for
Advance America
5
, CashAmerica
6
, ACE Cash Express
7
, and QC Holdings
8
. These
particular lenders were selected because they are publicly owned payday lenders
operating in Ohio; they comprise four of the top ten payday lenders in the state; the
companies operate within similar business and financial constraints; and all four lenders
generally adhere to the conventional payday lending business model. A summary of their
reported information is found in Table 1.

Table 1
Advance
America
Cash
America
(Cashland)
ACE
Cash
Express
QC
Holdings
(Quick
Cash)
National
Averages &
Totals
Total Stores in US
(Avg. 2006)
2,729 715 708 556 4708

Total Number of Loans
US
11,588,000 3,090,123 1,681,00
0
2,894,615 19,253,738

Loans per Storefront 4,246 4,322 2,374 5,206 4,159

Average Advance $353.00 $300.90 $308.00 $310.42 $328.84

Average Fee $55.00 $53.10 $45.30 $53.00 $49.33*
Average Loan plus Fee $408.00 $354.00 $353.30 $363.42 $378.17
Loans per Borrower 7.8 N/A N/A 7 7.4
Totals (Ohio)
Total Stores in Ohio 244 144 51 44 483
Percent of Ohio
Storefronts
15.7% 9.27% 3.28% 2.83% 31.08%
Percent of SEC Sample 50.52% 29.81% 10.56% 9.11% 100%


Source: Company SEC filings *The aggregate finding was slightly
higher than the 391% APR permitted in
Ohio, so we used the maximum
permissible Ohio rate instead

This sample is representative of the industry as a whole and serves as a credible proxy
for the scale and conduct of the payday industry across Ohio. For example:

Loans per Storefront
The lender sample produces a weighted average of 4,159 loans per storefront. This
number falls bet ween estimates (3,657 and 4,347) from t wo other sources.
9


Average Loan Figures
This sample had an average of $328.84 in loan principal with a combined Ohio mandated
interest and fee charge (per loan) of $49.33. These numbers closely mirror the 2005
national averages of $325 and $52 reported by the Center for Responsible Lending (CRL)
using regulator data collected from 18 states.

Loans per Borrower
Our finding, 7.4 loans annually per borrower per store, compares as somewhat lower
than an eight-state survey of regulator data compiled by CRL that found a national
average of 8.7 loans per borrower.
10



Page 5 of 10
A more extensive discussion of the methodology used to compile this table and to
extrapolate Ohio-specific information is available in the Appendix.


Ohios Repeat Borrowing

Most calculations concerning repeat payday borrowing are only based on data from
individual lenders. In Ohio, as appears in Table 1, the average payday borrower uses 7.4
loans per year, per single lender. However, both anecdotal evidence and the available
empirical evidence tell us that many payday borrowers visit more than one payday lender
in a year. Company-specific figures on loans per borrower don't capture these "multi-
shop" customers, therefore undercounting repeat borrowing. Because each lender
counts only its own borrowers, a customer who goes to multiple lenders is counted
multiple times as a new borrower. As a result, there is a smaller number of unique
borrowers than what the raw "single lender" data suggest. Corollary to this finding is that
while there are actually fewer payday borrowers, those customers are borrowing much
more often than the single lender data suggest.

A 2001 industry-commissioned study
11
found that the average payday customer borrows
from 1.7 payday companies annually. (In the past six years the number of storefronts
has more than doubled in Ohio, making the 1.7 figure a conservative current-day
estimate.) To get a count of Ohios average annual repeat borrowing rate, we must
multiply the single lender data by 1.7 (1.7 x 7.4 = 12.6, see Appendix). This provides a
more accurate estimate of the average number of loans an Ohio payday borrower takes
out each year. Using this formula, Ohios actual repeat borrowing level is 12.6 loans, per
borrower, per year, from al l lenders.

The Payday Debt Trap

Consider payday customers as typically depicted by the payday trade association:
borrowers who need an infusion of cash until their next payday for an emergency
expense, such as a car repair. For families that genuinely need small cash loans, a t wo-
week balloon payment loan is not the answer. These families just wont have enough to
pay back the loan, the 391% in interest and fees, and keep up with the ordinary, ongoing
household expenses such as utilities, food and other essentials.

We use the average Ohio loan amount ($328) and fees ($49) derived in Table 1 to
illustrate how payday borrowing leads to a debt trap for most customers. In Ohio, when
borrowers are unable to pay the full amount due, they can do one of t wo things:
1) Go to a different payday lender and take out another loan---for $378---to pay
back the principal and fees on the first loan to tide them over until their next pay
day; or
2) Pay off the original loan with the first lender and then re-borrow the $328 the next
day from the same lender
In either event, the next paycheck (in addition to the newly written postdated check) acts
as collateral for the new loan. For this second loan another $49 will be due in addition to
the re-borrowed $328 when their pay period ends.

If this process continues for another t wo weeks and another loan must be taken out, the
cumulative fees for the three loans will exceed $147. By the seventh loan transaction,
the fees alone ($343) exceed the original---successively re-borrowed---loan amount.

In Ohio this pattern will repeat 12 to 13 times a year (12.6) for the average payday
borrower. After about six months of this borrowing cycle, the original, t wo- week, $328
loan and the 12 successive $328 loans will come to cost the borrower $637 in fees.
Figure 1 illustrates how quickly and significantly the cumulative fees grow on successive
payday loans.
Page 6 of 10

Figure 1






The Costs of Predatory Payday Lending to Ohio

Repeated borrowing ensnares payday customers in a spiral of expensive, short-term
loans we call the "payday debt trap." According to the Center for Responsible Lending,
12

over 62% of all payday borrowers nationally
13
are caught in the debt trap. In Ohio, over
300,000 Ohioans are trapped by the payday lending industry each year, costing Ohioans
$318 million in excessive fees, money that could be spent on essential family expenses
such as food, clothing, rent and utilities. See Table 2 for the summary of our Ohio findings
and the Appendix for a more detailed explanation and sources.


Table 2
The Stark Costs of the Ohios Payday Lending Industry

1,554 Total Ohio Payday Storefronts
4,158.55 Loans per Storefront
$328.84 Average Loan Principal
$49.33 Average Loan Fee
$2,125,078,543 Total Ohio Loan Volume
$318,789,600 Total Ohio Fee Volume
7.4 Loans Per Borrower ("Single Shop" Assumption)
6,462,388 Total Ohio Payday Originations
873,296 Total Ohio Borrowers ("Single Shop" Assumption)
12.6 Loans Per Borrower (Accounting for Multi-Shop Borrowing)
513,703 Total Ohio Borrowers (Accounting for Multi-Shop Borrowing)
318,496 Ohioans Caught in the Payday Debt Trap
Source: Authors Calculations

Page 7 of 10
Payday Lenders Encourage & Depend Upon Repeat Borrowing


And the theory in the business is youve got to get that customer in,
work to turn him into a repetitive customer, long-term customer,
because thats real ly where the profitabil ity is.

Dan Feehan, CEO of Cash America, remarks made at the Jefferies
Financial Services Conference (6.20.07)

The debt trap of repeat borrowing is not an incidental aspect of the payday lending
business; it is the key to the payday lending industry's viability. While Ohio doesn't have
the regulatory scheme to track payday lending down to the loan level, many other states
do collect and annually publish detailed payday loan data. In their report, Financial
Quicksand, CRL reviewed the annual loan data from five states and found that on
average, 91% of all the payday loans in those states went to customers with five or
more transactions per year and, on average, 64% of the loans went to customers
borrowing 12 or more times a year.
14



Table 3






State
Loans to
borrowers with 5
or more
transactions per
year
Loans to
borrowers
with 12 or
more
transactions
per year
Colorado N/A 65%
Florida 89% 58%
Michigan* 94% 77%
Oklahoma 91% 64%
Washington State 90% 58%
Average 91% 64%
*MI data is for a 13 month reporting period
Source: Center for Responsible Lending

We feel comfortable using these states as proxies for Ohio because their repeat rates
are consistent among themselves, and available states single lender repeat rates are
consistent with or slightly higher than our finding for Ohio.

In the sample above, Michigan is the state most similar to Ohio, both demographically and
economically. Therefore, we believe the following payday data are likely similar for Ohio
as well. Using a recently released Michigan report
15
the following figure offers a look at
recent Michigan payday loan numbers and helps illustrate the true dynamics of repeat
borrowing and the extraordinary effect it has on payday revenues.










Page 8 of 10


Figure 2



Figure 2 is a graphic presentation of information summarized in a repeat loan table
contained in the Michigan report. The bottom axis, running from 1 to 29, is the number of
loans taken out by customers during the 13 months covered by the report. The blue bars
measure how many payday customers engaged in repeat borrowing for each "repeat
group" on the bottom axis. For example, 38,810 customers borrowed once, 20,969
customers borrowed t wice, 16,035 customers borrowed three times, etc. out to 29 loans
in the 13-month period. Finally, the green bars represent the total number of loans each
group of customers transacted.

This graph illustrates that the vast majority of Michigan's payday loans were made to
customers who borrowed 5 times or more during the 13-month study period. These
borrowers--- who we consider to be stuck in the payday debt trap---generated 94% of
the Michigan payday industry's loan business during the study period. This graph does
not include the loan numbers for the 8% of customers who borrowed 30 or more times
during the 13-month period. Michigan borrowers who took out 30 loans or more were
only 8% of the borrowers, but they generated 27% of the industry's total loans for the
13-month period. Finally, we contend that the repeat borrower/revenue relationship
portrayed in the Michigan graph is typical of the payday lending industry nationwide and
in Ohio. (See the Appendix for more information on the Michigan study and other states'
data concerning the debt trap.)













Page 9 of 10

CONCLUSION AND POLICY RECOMMENDATIONS

Ohioans are paying over $318 million per year in fees for abusive payday loans that trap
borrowers in long-term debt. Over 300,000 Ohioans are caught in a cycle of five or more
payday loans per years, and the average Ohio payday borrower takes out 12.6 loans per
yearmore than one every month.

These averages are some of the highest in the nation, demonstrating beyond a doubt that
Ohios 1995 policy decision to allow payday lenders to operate out of bounds of our
usury law was a mistake. Since that time the industry's presence has increased 15-fold
across the state.

Ohios lawmakers should move immediately to correct the mistake, capping interest rates
for all consumer loans, including payday loans, at 36 % annually. The only states that
have stopped payday loan flipping are those that have enforced a similar t wo-digit usury
cap. Congress has now legislated a 36 percent rate cap for payday loans for military
personnel. Moreover, the regulator of Ohios state-chartered banks, the FDIC, is actively
encouraging their members to offer installment loans as an alternative to payday lending
at 36 percent or less.

Provisions enacted in some states to "reform" payday lending and so called industry
best practices, have not worked and allow the debt trap business model to continue for
the payday industry. In fact many of the states that provide data on repeat borrowing -
those states used in our report - also adopted a myriad of Industry's supported
borrowers protections, like payment plans, renewal restrictions and databases.

We believe that Ohio must take a simple, consistent, and comprehensive approach to
address the problems in payday lending. This approach must include the following
components:

36% Rate Cap We believe an interest rate cap should be imposed on payday and
small loan lending in Ohio. This policy approach would level the playing field and
bring payday lending under the comprehensive umbrella of a modified and expanded
Small Loan Act. Our approach would lead to increasing the maximum interest and
fees charged under the Small Loan Act, but would also make the protections and
product lines for small installment loans consistent across the state.

No Post-Dated Checks We believe that the use of post-dated checks as security
for payday loans is redundant and creates an abusive environment for borrowers
who are forced to put their established banking relationships at risk if they fail to
make good on the balloon payment payday obligation. The use of post-dated checks
puts payday lenders in the first position to have access to the consumers bank
account. Further, the post-dated checks are too often used by payday lenders to
threaten borrowers, who find they cannot support the fees on the repeated
borrowing that sustains the payday industry.

Small Loan Alternatives We believe that part of the solution to the payday
problem in Ohio will be to encourage affordable small loan products for Ohios
consumers. Key to making these loans work for customers is assuring that they be
installment loans, affordable for the customer to pay back in reasonable amounts
over time. The APR should not exceed 36% for these small loans. The balloon
payments model that is the norm for payday, is not acceptable for Ohio.



Page 10 of 10
NOTES

1
For the purposes of this report, we consider a payday customer to be trapped in a cycle of
debt when they borrow money from a payday lender five or more times per year. This
benchmark is derived from a recent report prepared by the Center for Responsible Lending,
King, U., Parrish, L., & Tanik, O. (2006, November). Financial quicksand: Payday lending
sinks borrowers in debt with $4.2 billion in predatory fees every year. Durham, N.C.: Center
for Responsible Lending. Available at:
http://www.responsiblelending.org/issues/payday/reports/page.jsp?itemID=31101660. The
Ohio Responsible Lending Coalition relies very heavily upon CRL's Quicksand methodology
and national level payday lending data to build and verify this report.
2
Payday loans tend to track employer pay periods and are most commonly written for 13 to 16
days.
3
Rothstein, D., Dillman, J.D. (2007, February). Trapped in payday debt: The growth of
payday lending in Ohio. Ohio: Policy Matters Ohio & Housing Research and Advocacy
Center.
4
The sources for the payday lender companies are the most recent annual "10-K" filings
mandated by federal laws governing publicly owned corporations. Three of the companies
reported on calendar year 2006, while one lender, ACE Cash Express, reported through June
30, 2006.
5
Advance America, Cash Advance Centers, Inc., Form 10-K for the period ending
12/31/2006. Retrieved from: http://www.investors.advanceamerica.net/sec.cfm. Advance
America is the largest Ohio payday lender with 244 storefronts, 15.7% of the Ohio market.
6
Cash America International, Inc., Form 10-K, for the period ending 12/31/2006. Retrieved
from: http://www.cashamerica.com/invest_annuals.html and
http://www.cashamerica.com/invest_10k.html Cash America Annual Report. (2005).
Retrieved from: http://www.cashamerica.com/pdf/CashAmerica
2006AnnualReport.pdf. Cash America is the second largest Ohio payday lender with 144
storefronts and 9.27% of the Ohio market.
7
ACE Cash Express, Inc., Form 10-K, for the period ending 6/30/2006. Retrieved from:
http://sec.gov/cgi-bin/browse-
edgar?company=ACE+Cash+Express&CIK=&filenum=&State=&SIC=&owner
=include&action=getcompany. ACE Cash Express is the seventh largest Ohio payday lender
with 51 storefronts and 3.28% of the Ohio market.
8
QC Holdings, Inc., Form 10-K for period ending 12/31/2006. Retrieved from:
http://www.qcholdings.com/investor.aspx?id=1. QC Holdings (Quick Cash) is the eighth
largest Ohio payday lender with 44 storefronts and 2.83% of the Ohio market.
9
The CRL Quicksand report, using very conservative techniques, analyzed industry numbers
from 18 different states for 2005 and arrived at a weighted average figure of 3,657 loans per
storefront. Stephens Inc., an investment bank that regularly monitors and reports on the
payday lending industry, estimated 4,347 loans per storefront in 2006.
10
Our figure of 7.4 loans per year, per borrower, is drawn from two of the companies reports.
QC Holdings states that their customer repeat loan rate is 7 per year. Advance America doesnt
directly report a repeat loan number, but does report total loans and customers for 2006 and our
derived figure is 7.8.
11
Elliehausen G. & Lawrence, E.C. (2001). Payday advance credit in America: An analysis of
consumer demand (Monograph No. 35). Washington D.C.: Georgetown University,
McDonough School of Business, Credit Research Center. Retrieved from:
http://www.cfsa.net/analysis_customer_demand.html).
12
King, U., Parrish, L., & Tanik, O. (2006, November). Financial quicksand: Payday
lending sinks borrowers in debt with $4.2 billion in predatory fees every year. Durham, N.C.:
Center for Responsible Lending.
13
This rate is based upon a multi-shop calculation of repeat payday borrowing as appears more
fully in the Appendix.
Page 11 of 11

14
This figure was amended upwards based upon information obtained from a July 2007 report
from Michigan's payday lending regulator. Report on the business of providing deferred
presentment service transactions in Michigan, Office of Financial and Insurance Services, July
31, 2007. Available at:
http://www.michigan.gov/documents/cis/OFIS_DPST_REPORT_204749_7.pdf.
15
Office of Financial and Insurance Services (2007, July 31). Report on the business of
providing deferred presentment service transactions in Michigan. Lansing, MI: Department
of Labor & Economic Growth.
APPENDIX

Methodology

The Debt Trap Concept & Benchmark

For the purposes of this report we are using the baseline of five loans or more in a year to measure abusive
payday lending. In their report for the Center for Responsible Lending, King, Parrish, and Tanik (2006,
November) explained using that number of repeat loans as follows:

If we assume borrowers need a minimum of 90 days to straighten out their finances and pay back an
emergency loan, then that borrower should receive no more than four legitimate emergency loans
Per year, one every 90 days. For purposes of analysis, we therefore assume that the fees paid on the
first four loans that a borrower receives in a year are legitimate and not abusive (p. 9).
1


Table 1

We use the information in Table 1 to define the scope
2
of the payday lending industry in Ohio at the end of
calendar year 2006.
3
The information
4
in the upper half of the table is taken from the four companies' SEC filings
and has been distilled to establish the companies' national payday lending benchmarks.

Total Stores US (Avg. '06) Each company 10-K report listed the number of company storefronts, usually
broken out by state, and sometimes by store type (pawnshop, franchisee, rent-a-bank lender, etc.). We made
every effort to focus on the store type used in Ohio to distill out the averages for this report. The last column
totals the number of storefronts for the four companies nationally.

Total Number of Loans US Captures the number of "Ohio type" payday loans each company made annually.
In one instance, the number of loan transactions wasn't reported in the company's financials
5
so we used the
total loan dollar amount for the year and the average loan amount per year (which were reported) to derive the
number of transactions (Total Loan Amount/Average loan amount = Total Annual Loan Transactions). The last
column totals the four companies' transactions nationally.

Loans per Storefront Is crucial to the conclusions drawn in this report as it allows us to predict the number of
borrowers and loans made in Ohio as a function of the number storefronts operating in the state. The number of
loans per storefront is calculated by taking the annual number of loans and dividing by the average transaction
size. While in practice storefronts vary widely in the number of loans made annually,
6
we have captured the
average for each company in its 2006 fiscal year. We note that the per storefront loan production for ACE
Express Cash is markedly lower than for the other three companies and attribute this difference to ACE's
business focus on check cashing services which provides the lion's share of their annual revenue.
7
In the last
column we used a weighted (by storefronts) average of the Loans per Storefront for the four companies
combined to arrive at 4,159 per location.

Average Advance, Average Fee, and Average Loan plus Fee Are reported directly in the reports of three
companies and derived for the fourth company (see note 5). As with the Loans per Storefront, these figures
are calculated as a weighted average in the last column. It should be noted that for some companies it was not
clear whether the reported average numbers were for the principal amount of the loan, only, or the principal plus
fee. In those instances we used the more conservative method of treating the single reported figure as the sum
of both principal and fee.

Loans per Borrower Captures the number of loans each company made to individual borrowers in 2006. This
number was only reported directly by one lender (QC Holdings) at 7 per year.
8
For Advance America it was
possible to calculate the repeat borrowing by customer because they reported their total number of customers for
the year along with their annual transaction volume. Here we used the loan volume figure for the company's
payday loans
9
to produce a lower (more conservative) customer repetition rate.
10


Total Stores in Ohio, Percent of Ohio Storefronts, and Percent of SEC Sample Summarize the Ohio specific
numbers for the four companies and show that together they comprise over 30% of the Ohio market as
measured in storefronts. The most reliable source for tracking storefronts is the licensing process required by the
Ohio payday statute. Because we often found a conflict between the number of outlets reported in a company's
10-K and the figure from the Ohio Department of Commerce, we relied upon the regulators number for our
report. Advance America, the largest Ohio operator (and the largest nationally), and Cash America, the second
largest, dominate the benchmarks in the lender sample comprising 80% of the Ohio storefronts in the group.

Ohio's Repeat, Multi-Shop Borrowing

The calculation leading to the multi-shop borrower factor of 1.7 is as follows:

Lenders
Used
Percent Number of
Respondent/
Borrowers
Weighted
Average
1 53.0% 226.3 226.3
2 30.0% 128.1 256.2
3 11.1% 47.4 142.2
4 5.9% 25.2 100.8
100% 427 725
Multi-shop
Multiplier
1.699

This table shows the findings of the survey of payday customers
11
conducted by Elliehausen and Lawrence for
their study in 2001. They reported the percentage breakdown for multi-user responses and the Percent column
and Number of Respondent/Borrowers column translate that percentage into a borrower total for each repeater
group that equals number of survey respondents, 427. The final column, Weighted Average, factors each
borrower group by the number of lenders they reportedly used. The Multi-shop Multiplier then takes the sum of
that weighted average (725) and divides by the number of borrowers in the survey (427) to produce the multiplier
of 1.699, or as used in our report, 1.7.

The Costs of Predatory Payday Lending to Ohio

The key calculation for determining how many Ohio payday customers are trapped in payday loans (62%) was
adopted from the report by King, Parrish, and Tanik (2006, November)
12
. In their report, payday lenders in the
state of Washington were asked to provide detailed, loan-level, repeat transaction information for their borrowers
in 2005. Lender-respondents from the survey represented 63% of the state's payday market. (The survey
disclosed that the average annual single lender repeat rate in Washington was 7.38 loans per customer---a
figure remarkably consistent with the rate we calculated for Ohio of 7.4).

Using the detailed, loan-level Washington numbers, King, Parrish, and Tanik (2006, November) employed a very
conservative multi-shop modifier and extrapolated the data to determine that in Washington in 2005 62.8%
percent of all payday customers borrowed five or more times annually. Rounding down and using our five-or-
more-loans-per-year benchmark, we multiplied the total number of payday borrowers in Ohio (513,703) by 62%
to arrive at our calculation of 318,496 payday trapped Ohioans.













Michigan Deferred Presentment Data
June 1 2006 through June 30, 2007

Number of
DPSTs in
Period
Percent of
Total
Consumers
Percent of
Total DPSTs
246,692
Consumers
Total
2,517,807
Loans
Total
1 13.3% 1.1% 32,810 27,696
2 8.5% 1.4% 20,969 35,249
3 6.5% 1.6% 16,035 40,285
4 5.6% 1.9% 13,815 47,838
5 4.7% 2.0% 11,595 50,356
6 4.3% 2.2% 10,608 55,392
7 3.8% 2.2% 9,374 55,392
8 3.8% 2.5% 9,374 62,945
9 3.3% 2.5% 8,141 62,945
10 3.2% 2.6% 7,894 65,463
11 3.0% 2.8% 7,401 70,499
12 2.9% 2.9% 7,154 73,016
13 3.5% 3.8% 8,634 95,677
14 2.6% 3.0% 6,414 75,534
15 2.2% 2.7% 5,427 67,981
16 2.0% 2.6% 4,934 65,463
17 1.9% 2.7% 4,687 67,981
18 1.8% 2.7% 4,440 67,981
19 1.6% 2.6% 3,947 65,463
20 1.6% 2.7% 3,947 67,981
21 1.5% 2.6% 3,700 65,463
22 1.5% 2.7% 3,700 67,981
23 1.3% 2.6% 3,207 65,463
24 1.4% 2.7% 3,454 67,981
25 1.3% 2.7% 3,207 67,981
26 1.5% 3.1% 3,700 78,052
27 1.3% 2.8% 3,207 70,499
28 1.4% 3.1% 3,454 78,052
29 1.0% 2.5% 2,467 62,945
30 or more 7.9% 26.8% 19,489 674,772

Repeat Borrowing and Payday Revenues

The report released by Michigans Office of Financial and Insurance Services (2007)
13
contains a table of the
percentages of borrowers and "DPSTs" (Deferred Presentment Service Transactions) in each repeat borrower
group. We modified the table by taking the total number of unique Michigan customers in the state's database at
the end of the period (246,692) and
the total number of payday loans
made over the period (2,517,907) and
multiplied those figures by the
percentages for each borrower group
(shaded area).

Figure 2 in the report plots the
resulting numbers from our modified
table on a simple bar graph.
Unfortunately, the figures for 30 or
more loans (DPSTs) are aggregated
and we cannot plot those numbers on
the graph so as to be consistent with
the rest of the information the table
conveys. Aside from being
aggregated and therefore incapable
of showing a structural correlation
between borrower groups and
transaction volumes, we don't know
how far out to take the repeating
cycle, as the original table in the
report only states "or more."

The Office of Financial and Insurance
Services (2007, July) report captures
the early stages of a newly regulated
payday system in the state. In 2005,
Michigan elected to set up a real time
database to help track payday usage.
The report covers the start up period
for that tracking effort. Over the
approximately year long study period,
the Michigan industry was expanding
very rapidly adding 214 new deferred
presentment locations to the original
567 located in the state, a 45%
growth rate. Likewise, the customer
base for the industry grew
significantly from approximately
110,000 registered customers in June
of 2006 to nearly 250,000 customers
by July of 2007.

Interestingly, the report documents the usage rate of a putative debt trap reform program, allowing customers
who have borrowed eight or more times in a year to opt out of the payday balloon payment into an installment
loan of three equal payments. The report documents that while the number of customers who qualified for this
program was quite significant (55% of all the state's payday transactions qualified, over 1.3 million loans), the
actual use of the program was negligible (33,570), less than 2.5% of the qualified transactions. Unfortunately, he
report does not address why the program was not being used by more of Michigan's trapped borrowers.

The Michigan repeat-loan/revenue dynamics are typical of the industry as a whole. By way of comparison,
Washington state has conducted two voluntary surveys from payday providers (in 2004 and 2005) and in both
instances the results were very similar.
14
As usage rates increased, the number of customers decreased but the
volume of transactions (and therefore revenues) from those customers increased significantly. A recent report
from Colorado
15
also confirms this inverse-proportional relationship:

Colorado State Payday Lending Data
Total # of all Loans
# of Loans, # of All Transacted During the
Prior 12 Months Borrowers Previous Twelve Months
1 5 loans 15,105 40,059
6 10 loans 8,804 69,312
11 15 loans 6,771 86,218
16 20 loans 3,530 63,156
21 25 loans 2,766 63,493
26 + loans 1,233 36,413

In Colorado, the experience has been that 89% of payday loans go to customers who borrowed six or more
times annually. Moreover, the Colorado data indicate that there is a direct correlation between the number of
times a customer borrows and the loan amount. That is, the average loan amounts increase as customers
borrow more and more on a repeat basis.
16





































Notes to Appendix


1
King, U., Parrish, L., & Tanik. O. (2006, November). Financial quicksand: Payday lending sinks borrowers in debt with
$4.2 billion in predatory fees every year. Durham, NC: Center for Responsible Lending.
2
For a sense of just how fast growing the industry is across Ohio, see Rothstein, D., Dillman, J.D. (2007, February).
Trapped in payday debt: The growth of payday lending in Ohio. Ohio: Policy Matters Ohio & Housing Research and
Advocacy Center.
Stacked Line Graph, Sample Companies' National Growth
in Storefronts
2,000
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
2004 2005 2006
Source: 2006 10-K Reports
QC Holdings
ACE Cash Express
Franchise
ACE Cash Express
Co. Owned
Cash America
Advance America

The companies sampled here are typical of the industry's phenomenal national growth.
3
The 10-K filing for ACE Cash Express was for fiscal year ended June of 2006, the most recent filing available for the
company.
4
The matrix below sets out the numbers that were used from each company's 10-K to construct the table. The SEC does not
require a consistent reporting format, so there will always be some variation between reports on what numbers are reported
and how the financials are presented. We took precautions to carefully filter the reports to capture only the payday lending
product lines for the multi-line companies, and to focus on the Ohio product types whenever a company used more than one
structure for payday lending. For example, the "rent a bank charter" lending model is not used in Ohio and we took pains to
filter out the rent-a-bank lending data contained in the ACE Cash Express financials.



Total Loan
Amts. $
Average
Loan Amts. $
Number of
Loans
Number of
Customers
Number of
Stores
Advance America X X X X
Cash America X X X X
ACE Cash Express X X X X
QC Holdings X X X* X
*Reported average annual borrower repeat transactions (7)
5
QC Holdings
6
Newer storefronts usually take two to four years to begin producing at profitable levels. Our technique averages the
production for all the companies' storefronts, old and new, across the country. QC Holding provides an illuminating table
that illustrates this storefront aging process:


7
"Our primary business is cashing checks for a fee." ACE's 2006 10-K, pg. 9. Check cashing provided $148 million in
revenues for ACE in fiscal 2006, while payday loans only produced $109 million for the same period.
8
See note 16. "In 2006 our customers averaged approximately seven two-week payday loans (out of a possible 26 two-
week loans)." QC Holdings 2006 10-K pg. 3.
9
Advance America has two other short term lending products (lines of credit and installment loans) which are not prevalent
in Ohio so we did not include them in the transaction total for the repeated borrowing calculation.
10
CompuCredit, another major payday lender, responded to a questionnaire conducted by the University of Massachusetts
Isenberg School of Management that their average payday customer uses their product seven times a year.
11
Elliehausen G. & Lawrence, E.C. (2001). Payday advance credit in America: An analysis of consumer demand
(Monograph No. 35). Washington D.C.: Georgetown University, McDonough School of Business, Credit Research Center.
Retrieved from: http://www.cfsa.net/analysis_customer_demand.html).
12
King, U., Parrish, L., & Tanik. O. (2006, November). Financial quicksand: Payday lending sinks borrowers in debt with
$4.2 billion in predatory fees every year. Durham, NC: Center for Responsible Lending.
13
Office of Financial and Insurance Services. (2007, July 31). Report on the business of providing deferred
presentment service transactions in Michigan. Lansing, MI: Department of Labor and Economic Growth.
14
Washington State Department of Financial Institutions. (2005) Payday lending report. Washington: Author. Retrieved
from: http://www.dfi.wa.gov/cs/pdf/2005_payday_report.pdf. We are contending that the Washington State survey data are
an acceptable proxy for the Ohio payday industry. Washington does not have any restrictions on repeat borrowing while
Ohio has a day-delay and no rollover rule, but the average annual customer repeat rate is comparable to Ohio and the repeat
borrower/loan volume correlation is actually lower than in other states where loan level data is available.
15
Administrator of the Colorado Uniform Consumer Credit Code. (2007, March). Payday lending demographic and
statistical information: July 2000 through December 2006. Denver, CO: Author. Retrieved from:
http://www.ago.state.co.us/UCCC/PDF/ddlasummary2006.pdf.
16
. Administrator of the Colorado Uniform Consumer Credit Code. (2007, March). Payday lending demographic and
statistical information: July 2000 through December 2006. Denver, CO: Author. Retrieved from:
http://www.ago.state.co.us/UCCC/PDF/ddlasummary2006.pdf.