The payday loans industry evolved as a result of the crippling global economy and the consequent recessions. This is because an increasing number of US citizens were being made redundant, facing lower wages and struggling to pay their bills. In addition to this, more traditional sources of income were harder to come by as the banks were scorned by the recession and therefore less likely to lend personal loans or credit and consequently, third party lending organizations decided to capitalize upon this by offering ‘unbanked or underbanked’ payday loans to these consumers. The fact that this industry continues to grow approximately 2.5% annually illustrates that the impact of the recession continues to grow and shows no signs of slowing down.
Payday loans are short term loans for a period of between 14 and 31 days, for relatively small amount of money $100 to $400 and incurs an unusually high rate of APR, around 400% to 500%. Lenders are lenient towards poor credit ratings and often these are overlooked. The premise behind these loans is that the borrower repays the loan in full, including APR on their next payday as they will have enough funds in their bank account on this date. The industry is regulated in 37 states and in 13 states it is illegal.
Payday loans have attracted a lot of negative press because of their high rates of APR and hidden charges such as ‘admin’ or ‘rollover’ fees. They have been accused of taking advantage of vulnerable citizens that have no other borrowing option. This sort of press has led to the industry being regulated in different states with a cap on APR charged, a cap on the amount of loan charged and a cap on the amount of loan charged to certain personnel such as US servicemen.
The profile of an average payday loan consumer is unable to obtain credit from banks, has a poor credit rating, has little or no savings due to job loss or low income and needs to access cash for short periods of time. The most common reasons cited for accessing payday loans is to pay for monthly bills such as mortgage payments and car loans, and other necessities such as food and utility bills.
The US government would have you believe that the economy is stabilizing, house prices are retaining and increasing in value and that the end of the recession is nigh. Unfortunately, the payday loans industry, which is a good indicator of if people are struggling to make ends meet and are unable to make basic purchases, indicates differently. Industry revenue is worth $10.1 billion, a rise of 2.5% from 2011 and is predicted to rise another 2.5% by 2013. Whilst the number of payday stores has declined slightly in since 2007, (due to a restriction on the amount of APR lenders are permitted to charge), there are still 19,700 payday stores, and there are more payday stores than there are McDonald’s restaurants and there are two payday stores for every one Starbucks outlet. Finally, revenues earned by the top six publicly traded lenders in the US have increased every year from 2007 to 2011.
Whilst the US government would have you believe that their economy is coming out of the other side of the recession, the facts emerging from the payday loans industry indicate a different story. The number of payday loan customers continues to increase every year, as does the amount of money borrowed through this method of finance. These customers represent the sections of society who are unable to access credit and debit from banks and are struggling to finance necessities such as household bills and mortgages. Furthermore, the presence of payday lenders on the high street continues to be more frequent than popular brand names McDonalds and Starbucks, further fueling this trend. Therefore messages of economic recovery coming from the White House are perhaps, a little optimistic and more of a presidential lobbying exercise.
About The Author:
Laura Susstance is a content writer from the UK, when not writing on a freelance basis or writing guest blog posts, she regularly writes on her own blog: http://www.fastpaydayloansreview.com
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