Payday Lending's Not Dead Yet

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Payday lenders don't exactly seem to face a rosy future. Congressional scrutiny is rising, and Elizabeth Warren of the Consumer Financial Protection Bureau (CFPB) is out to thwart financial predators. But for several reasons, payday lenders' supposed plight might not be as dire as it looks.

For one thing, the CFPB doesn't have the power to cap interest rates. It could cause trouble by calling for more transparency, thereby educating consumers about the true steepness of the interest rates payday lenders demand. But those who need loans will still consider the option, and they may well take advantage of it.

Warren might expect enlightened borrowers to balk if they learn that the $15 they pay in interest on a two-week $100 loan equates to a nearly 400% APR. But it's also just $15, and more attractive than many banks' overdraft fees and other charges. That's not likely to kill off the entire payday lending industry.

Revenue down… and up
Instead, it appears that the industry has winners and losers. Overall, payday loan volume (excluding online lenders) fell from $35 billion in 2008 to $30 billion in 2009, and some 1,700 shops closed their doors. That sounds bad, right? Not so fast. Check out these recent revenues at the following companies:


Fiscal 2008

Fiscal 2009


Advance America  (NYSE: AEA  )   $676 million $648 million $613 million
QC Holdings  (Nasdaq: QCCO  ) $223 million $221 million $203 million
Dollar Financial  (Nasdaq: DLLR  ) $572 million $528 million $640 million
EZCORP (Nasdaq: EZPW  ) $457 million $597 million $767 million
First Cash Financial Services  (Nasdaq: FCFS  ) $321 million $366 million $415 million
Cash America (NYSE: CSH  ) $1.03 billion $1.12 billion $1.25 billion

Data: Capital IQ, a division of Standard and Poor's.

While the first two show flagging revenue, the rest have been doing rather well. Recent financial reforms on more traditional lenders such as banks and credit card issuers may well drive even more business to payday operations. For example, the Fed and Goldman Sachs estimate that $80 billion in subprime credit card business might be lost because of Dodd-Frank and other regulations. As banks tighten their lending, people needing money will simply have to go elsewhere -- and "elsewhere" may lead them straight into the welcoming arms of payday lenders.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.

Read/Post Comments (6) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 24, 2011, at 10:50 AM, motleylorezno wrote:

    This is about as lightweight an article as you can find. No detail. No analysis.


  • Report this Comment On January 24, 2011, at 11:27 AM, Brent2223 wrote:

    The sucess of this industry seems to be counterproductive to the recovery of the US economy. We're talking about lowering debt and saving for the future, but catering to a group of people who can't manage cash flow for 2 weeks? Payday loans are not sustainable, we should be directing these people to credit management services not giving them more money! We're just giving them a cheaper, more convenient way to live in poverty.

  • Report this Comment On January 24, 2011, at 4:59 PM, freemark wrote:

    The CFPB should be dedicated to educating consumers, not deciding for them. If I choose to take a payday loan, that's my choice to make, not the Feds.

  • Report this Comment On January 27, 2011, at 8:20 PM, Btags1 wrote:

    I’m glad someone is taking the right steps towards regulation and not throwing the baby out with the bathwater. Customers deserve to have options, even if they don’t have perfect credit. You take away payday loans and you take away a customer’s right to access credit for a large portion of the population.

  • Report this Comment On February 01, 2011, at 10:21 AM, belingrif wrote:

    I work for a payday lender. We want customers to use payday advances wisely and we want the service to be a solution for those who need low-dollar, short-term credit. A payday loan may not be the best choice in every situation. I guess that charging a fee of $15 per $100 borrowed may seem like a lot to some, but you have to remember that the companies have to cover the risk of lending to customers with subprime credit. If you ask me, I think these loans are necessary because traditional banks offer few, if any, types of loans to people with poor credit.

  • Report this Comment On May 28, 2013, at 6:16 AM, Lana8 wrote:

    Yes, there are still lots of people who use payday loans. We live in tough economic times and there are many people who would like to get short-term financial assistance quickly and with no hassle. But payday lending shouldn’t be taken as just a way for getting easy cash. Consumers who understand that despite this fact that a payday loan can be taken easily it’s worth to understand that this service is expensive and intended for emergency occasions. Many customers apply for loans till payday but can’t pay them back because of high interest rate and get into the debt circle. Lana from

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