Payday lenders don't exactly seem to face a rosy future.
scrutiny is rising
, and Elizabeth Warren of the Consumer Financial Protection Bureau
(CFPB) is out to thwart financial predators. But for several
reasons, payday lenders' supposed plight might not be as dire as it
For one thing, the CFPB doesn't have the power to cap interest
cause trouble by calling for more transparency, thereby educating
consumers about the true steepness of the interest rates payday
lenders demand. But those who need loans will still consider the
option, and they may well take advantage of it.
Warren might expect enlightened borrowers to balk if they learn
that the $15 they pay in interest on a two-week $100 loan equates
to a nearly 400% APR. But it's also just $15, and more attractive
than many banks'
overdraft fees and other charges
. That's not likely to kill off the entire payday lending
Revenue down… and up
Instead, it appears that the industry has winners and losers.
Overall, payday loan volume (excluding online lenders) fell from
$35 billion in 2008 to $30 billion in 2009, and some 1,700 shops
closed their doors. That sounds bad, right? Not so fast. Check out
these recent revenues at the following companies:
First Cash Financial Services
Data: Capital IQ, a division of Standard and Poor's.
While the first two show
, the rest have been doing rather well. Recent financial reforms on
more traditional lenders such as banks and
credit card issuers
may well drive even more business to payday operations. For
example, the Fed and
estimate that $80 billion in subprime credit card business might be
lost because of Dodd-Frank and other regulations. As banks tighten
their lending, people needing money will simply have to go
elsewhere -- and "elsewhere" may lead them straight into the
welcoming arms of payday lenders.