Consumer Lending

Industry Profile Report

Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters

Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 3,000 consumer lending companies in the US, also known as “payday lenders”, provide unsecured short-term loans to consumers experiencing cash flow shortfalls. About 3% of all adult Americans have used a payday loan. Companies may also provide student loans and loans secured by real estate or automobiles. Some firms also provide other personal financial services, such as check cashing, money orders, and wire transfers.

Increasing Regulation

The controversy over payday loans has led to new regulations and restrictions in some states and ongoing scrutiny by federal and state regulators.

Negative Public Perception

With annual interest rates of almost 400% and a customer base consisting primarily of low-income borrowers, many consumer advocates view payday loans as predatory lending that takes advantage of the working poor.

Industry size & Structure

The average consumer lending company operates 5 storefronts with about 31-32 employees and has annual revenue of $12 million.

    • The consumer lending industry in the US consists of about 3,000 firms with 14,700 locations, about 94,000 employees, generating about $36 billion in annual revenue.
    • About 12 million American adults use payday loans annually. On average, a borrower takes out eight loans of $375 each per year and spends $520 on interest.
    • About three-fourths of consumers obtain payday loans exclusively through storefront locations, while just over 15% use online lenders exclusively.
    • The industry is highly concentrated, with the 20 largest firms representing 75% of industry revenue.
    • Many large companies also operate pawn shops.
    • They may also operate check cashing and other personal financial services in states where regulations make payday lending unattractive.
    • Major companies include Ace Cash Express, Advance America, Cash America, Check N Go, Money Mart and QC Holdings.
                              Industry Forecast
                              Consumer Lending Industry Growth
                              Source: Vertical IQ and Inforum

                              Recent Developments

                              Nov 10, 2022 - Inflation Slows But Remains High
                              • Inflation, as measured by the US Bureau of Labor Statics' Consumer Price Index (CPI), increased 0.4% month over month in October, the smallest increase since July, and 7.7% year over year. The CPI measures what consumers pay for goods and services. Demand for consumer loans may decrease if consumers cut back on discretionary purchases. Consumer spending, the economy’s main engine, grew more slowly in the third quarter than in the second, after adjusting for inflation and seasonality. The year-over-year inflation increase was the smallest since January. June’s 9.1% year-over-year inflation rate was the highest in four decades. “A strong labor market and strong job growth supports strong demand, which allows inflationary pressures to stay elevated,” said Blerina Uruci, US economist at T. Rowe Price. “You’ve got more demand chasing goods and services, the supply of which is being impaired at the moment.”
                              • Equifax, one of the three major credit scoring agencies, said it misreported consumers' credit scores between March 17 and April 6, 2022. The error reduced the credit scores of millions of Americans, reportedly leading to negative responses for mortgages, auto loans, credit cards, and other credit applications. Over 300,000 Equifax accounts were affected by the credit-reporting errors, with some credit scores falling by 25 points or more. The errors may affect credit availability across a broad range of institutions. A recent report from LendingTree found that 42% of Americans were denied a credit product due to their credit score in the past year, with credit-scoring errors like the Equifax flub playing an “impactful” role.
                              • Payday lenders face new competition in the form of small loans offered by an increasing number of banks and credit unions. Seven large banks offer or plan to offer small-dollar borrowing options with low annual percentage rates, according to Alex Horowitz, senior research officer with Pew Charitable Trusts. Firms including Bank of America BAC, Wells Fargo, and Truist make such loans available to their existing customers nationwide, regardless of state interest rate limits. Banks rely primarily on customers’ banking history instead of their credit scores to determine whether they qualify for a small loan. The loans — which start as low as $100 — are usually repaid in monthly installments at APRs no higher than 36%, the maximum rate an affordable loan can have, according to consumer advocates. “The fact that banks are starting to offer small loans could upend the entire payday loan marketplace,” Horowitz says.
                              • Equifax, Experian, and TransUnion, the three biggest US credit bureaus, are removing medical debt that was paid after it was sent to collections from consumer credit reports. These debts typically remain on a credit report for up to seven years, even if they have been paid off. Starting in 2023, new medical debt will be added to credit reports only after one year has passed since it was sent to collections. It is currently reported after six months. The bureaus also plan to remove debts of less than $500 from reports starting in 2023. Debt of less than $500 is the majority of bill balances, according to the Consumer Financial Protection Bureau.
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