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

                              Mar 9, 2023 - Challenge To Industry Regulator Advances To Supreme Court
                              • The Supreme Court has agreed to hear arguments in a case challenging the constitutionality of funding for the Consumer Financial Protection Bureau (CFPB). The decision follows a unanimous federal appeals court panel ruling that the CFPB's funding mechanism was unconstitutional. The CFPB, which was created by the Dodd-Frank Act on the heels of the 2008 global financial crisis, is funded by the Federal Reserve, not Congress. The appeals court ruling, which tossed out a CFPB regulation targeting payday lenders, calls into question every order and action issued by the consumer watchdog, the Biden administration said. A lawyer for the two payday-lending advocacy groups that are the plaintiffs in the case said that "the CFPB's self-funding mechanism lacks any contemporary or historical precedent, improperly shields the agency from congressional oversight and accountability, and unconstitutionally strips Congress of its power of the purse under the Appropriations Clause of the Constitution."
                              • Legislation under consideration in Minnesota would have the state join 18 other states and the District of Columbia in capping interest rates on payday loans at 36%. The average interest rate for a payday loan in Minnesota was 200% in 2021, according to the Center for Responsible Lending. Payday America, a Minnesota lender, said capping interest rates would eliminate access to payday loans in the state, forcing Minnesotans into the unregulated online market. A Pew Charitable Trust study found, however, that regulated states saw a large decrease in payday loans, and that borrowers do not seek online loans — they’re more likely to cut back on expenses and try alternative ways to borrow money.
                              • About 4.5% of US households (approximately 5.9 million) were “unbanked” in 2021, according to a survey by the Federal Deposit Insurance Corporation. Unbanked means that no one in the household has a checking or savings account at a bank or credit union. The unbanked rate in 2021 was the lowest since the survey began in 2009. The unbanked rate fell 3.7 percentage points between 2011 — when the unbanked rate was at its highest level since the survey began — and 2021, corresponding to an increase of approximately 5 million banked households.
                              • 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.
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