Recession has been kind to payday lenders
Despite banks becoming monolithic villains and stocks crashing every week, the past few years of dismal economic conditions have been good for alternative financial service providers. Payday lenders and other non-mainstream credit providers have been doing well.
Alternative services booming on markets
The past few years have been dismal economically. Though it is repeatedly insisted that the recession ended in 2009, little improvement seems to have occurred. Stock markets continually tick up only to plunge back into the abyss, and no one is hiring.
However, the alternative financial services sector is thriving. According to the Wall Street Journal, First Cash Financial has reported a 40 percent gain in stock value this year, Cash America is up 49 percent and DFC Global is up 18 percent. By contrast, the KBW Bank Index, a stock index comprising 24 banking companies’ stocks including Bank of America, Wells Fargo and JPMorgan Chase, is down 26 percent for the year.
First Cash Financial, Cash America and DFC, or Dollar Financial, all offer payday loans, pawn loans and other subprime credit products.
Credit unions moving into payday lending
Credit unions and community banks seem to be keen to start offering payday loans, or some form of short term loans for consumers. The National Credit Union Administration recorded a 52 percent uptick in demand for credit union payday-type loans during the second quarter of the year. According to the Washington Post, more than 500 credit unions that are federally insured were offering some type of small short term loan to members as of May of this year.
Other alternatives to traditional payday lending or installment loans from banks have emerged as well. Peer-to-peer lending outfits such as Prosper.com and LendingClub have become heavyweights in crowd-sourced finance. Prosper, according to Daily Finance, has funded $262 million in loans since launching in 2006.
PayPal, the online payment system of eBay, has also backed a service called BillFloat.com. BillFloat offers small loans with a 30-day term at 36 percent interest and launched a couple years ago.
The payday lending industry has long been a target of consumer advocacy groups contending the loans are predatory. Payday loan interest rates can reach 500 percent APR, though the industry contends that an annualized percentage rate is not a fair criteria to judge loans with a term of two weeks.
It has been said that payday lenders and similar financial service providers would be the first targets of the Consumer Financial Protection Bureau. The CFPB is yet to get off the ground. A director has not been appointed for the fledgling agency. According to the Los Angeles Times, former Ohio Attorney General Richard Cordray has been nominated for the post. However, according to the Wall Street Journal, Senate Republicans are refusing to confirm anyone until the CFPB is stripped of much of its regulatory purview.