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 2,900 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.

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.

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.

Industry size & Structure

The average consumer lending company operates 5 storefronts with about 31-32 employees and has annual revenue of about $12.4 million.

    • The consumer lending industry in the US consists of about 2,900 firms with 14,700 locations, about 93,000 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

                              May 20, 2024 - Weak Sales Growth Expected
                              • Consumer lending industry sales are forecast to grow at a 1.66% compounded annual rate from 2024 to 2028, slower than the growth of the overall economy, according to Inforum and the Interindustry Economic Research Fund, Inc. Consumer lending industry employment decreased slightly during the first quarter of 2024 while average wages for nonsupervisory employees decreased slightly in February but returned to January 2024 levels in March, according to the US Bureau of Labor Statistics.
                              • Disposable personal income, an indicator of demand for consumer lending services, increased 0.5% month over month in March 2024 while consumer spending increased 0.8%, according to the US Commerce Department's Bureau of Economic Analysis (BEA). Real disposable personal income, what Americans make after adjusting for inflation and taxes, was unchanged during the period. Consumer spending growth was 2.5% annualized in Q1 2024 (down from 3.3% in Q4 2023). Most of the quarterly strength came from spending on services.
                              • So-called "earned wage access" (EWA) programs, which allow workers to take a portion of their paychecks before payday, often for a fee, have grown rapidly, according to CNBC. EWA programs, which operate either directly to the consumer or through employers, may reduce demand for payday loans. In the employer-sponsored market, $9.5 billion in wages was accessed early during 2020, triple the $3.2 billion in 2018, according to Datos Insights. The number of transactions also increased threefold over that period to 55.8 million transactions from 18.6 million. High worker demand for such programs makes them a cost-effective way for businesses to retain and recruit employees, according to consultants and academics. High fees and frequent use of EWA programs can translate to an annual interest rate of more than 330%, according to experts, regulators, and consumer advocates.
                              • Some consumer lending firms have successfully cited the pending Supreme Court decision to slow ongoing Consumer Financial Protection Bureau (CFPB) investigations or fight off the agency’s recent punishments, according to a Washington Post review of federal court filings and interviews with government and industry leaders. At least five federal investigations have been blocked since the start of 2022. In July 2022, for example, the CFPB sued Populus Financial Group, the operator of Ace Cash Express, alleging that it had deceived consumers about its borrowing practices. The company cited the industry’s lawsuit against the CFPB in September 2022, when it asked a judge to dismiss the case because “the days of the bureau’s unchecked administrative agency power … are, hopefully, over.” A judge later paused the lawsuit, issuing a stay until the Supreme Court could rule on the agency’s future.
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