Consumer Lending

Industry Profile Report

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

Industry Overview Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Quarterly Insight, 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

                              Coronavirus Update

                              Apr 27, 2022 - Borrowing may Decrease If Federal Aid Program Renewed
                              • Expanded Supplemental Nutrition Assistance Program benefits are set to fully expire once the Biden administration declares the COVID-19 public health emergency over, which could come as soon as this summer following the latest 90-day extension starting on April 16. Experts say that millions of families would be forced to choose between keeping food on the table and meeting other essential expenses if these programs aren't renewed or if new programs aren't established to replace them. Continuation food aid could help families that have struggled financially due to the pandemic and reduce the need for payday loans.
                              • Equifax, Experian, and TransUnion -- the three biggest US credit bureaus -- will begin removing from consumer credit reports on July 1 medical debt that was paid after it was sent to collections. 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.
                              • Experts say that medical billing data is less likely to help creditors predict the likelihood of a credit applicant paying their traditional debts on time, but while new credit scoring models put less emphasis on medical bills, lenders are still using older models that don't reflect this update, hurting consumers.
                              • Industry trade associations, the Community Financial Services Association of America (CFSA), and the Online Lenders Alliance (OLA) directed consumer lending firms to provide flexibility to customers who lost their jobs or had hours cut due to the coronavirus outbreak. CFSA suggests leniency on collecting past due accounts, restructuring, or suspending loan payments. OLA suggests delaying delinquency notice and negative credit reports.
                              • The $1.9 trillion American Rescue Plan Act’s direct payments to consumers and further extensions of federal unemployment benefits in 2021 may have reduced demand for short-term payday loans. In addition to the one-time payments of $1,400 per individual, and another $1,400 for each dependent, many Americans received a tax credit that gave most families with children a monthly payment of $300 per child. Payments started in July 2021 and ended at the end of the year. The child tax credit’s expiration could create financial difficulties for families close to the poverty line.
                              • Consumer lenders, including those providing credit cards, as well as car, student, and personal loans, have fared well during the pandemic, according to The Wall Street Journal. The potential for high default rates has largely been kept at bay by direct stimulus payments to consumers and forbearance programs for student loan and mortgage payments. Low interest rates have increased lending competition on price, which has drawn more lenders into the subprime space.
                              • Billions in federal rent aid have had trouble reaching those who need it, according to The Wall Street Journal. The US Treasury Department administers the Emergency Rental Assistance (ERA) program but processing aid applications and dispersing the funds has fallen on local governments and charitable organizations, many of which have been overwhelmed by the volume of demand. Manually vetting and approving the applications is time-consuming, and some local governments and organizations had trouble hiring enough staff and drafting funds distribution rules. Treasury required local governments and other organizations that haven’t disbursed at least 65% of rent relief funds by September 30 to submit an improvement plan for expediting payments. In early December, the Treasury Department began redirecting unused rental-assistance money from some states and localities to others that had backlogs of aid requests, according to The Wall Street Journal. According to the Government Accountability Office (GOA), as of the end of November 2021, the Treasury Department had disbursed nearly $38 billion of the $46.5 billion allocated for the ERA program, according to the Government Accountability Office (GOA).
                              • Government aid programs aimed at helping Americans weather the COVID-19 pandemic cut poverty nearly in half for 2021. It reduced the proportion of people in poverty to record low levels, according to the New York Times reporting of analysis by the Urban Institute. The poverty reduction has been broad-based across ethnicities, age groups, and every US state. The US Census Bureau reported in September 2021 that the number of Americans living below the poverty line dropped from 11.8% in 2019 to 9.1% in 2020, offering further evidence that government assistance programs helped stave off poverty during the pandemic and economic downturn. The effects of government aid may have ended, however. Three key programs that helped put a dent in poverty - stimulus checks, supplementary federal unemployment benefits, and child tax credits – have run their course. As many as 4 million children may have fallen back into poverty in January after the child tax credit payments expired in December 2021, according to the Center on Poverty and Social Policy at Columbia University. Demand for pawn loans may increase with most aid programs ended and many workers’ savings exhausted.
                              • The Biden administration announced in August 2021 the largest permanent expansion of the Supplemental Nutrition Assistance Program (SNAP), or food stamps, in the program’s history. Average benefits increased 25%. Expansion of SNAP is the result of legislation passed in 2018 that required the Agriculture Department to review basic program assumptions about the nutrition required for a healthy diet. Additional food aid could help families that have struggled financially due to the pandemic and reduce the need for payday loans.
                              • Pandemic-related supply chain disruptions and strong consumer demand have driven inflation to highs not seen in 40 years. The producer price index increased 7.5% year over year in January, marking the biggest jump in prices since February 1982, according to the Bureau of Labor Statistics. January was also the eighth consecutive month when inflation was above 5%. Some of the most significant January price increases were for housing, food, and electricity. Strong wage growth has not kept pace with inflation, eating into consumers’ savings.
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