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A Breakdown of the Payday Loan Industry and What Happens Next
Here’s What We See Happening With Direct Payday Lenders This Year
Companies all throughout the world have been loans for centuries. Whether it was a neighborhood loan shark or a friend offering you a loan at a high interest rate, these types of short-term loans haven’t really changed over the years. What has changed is the public’s perception of these types of loans and the ways you can apply online.
In the early 1990’s we began to see the first variation being offered of what we now call a payday loan. Check cashing companies started to offer short-term loans to consumers secured by that consumer’s next pay date. Many of these same check cashing companies are still operating throughout the country as direct payday lenders. While they still cash checks they undoubtedly make more money from cash advance and installment loans. Most of us know these are short term loans. But there are many names or variations introduced over the past few years. Much like the mortgage industry, Companies who provide same day loans are always looking to diversify their lending portfolio
As these finance companies became larger we began to see more changes in state legislation that changed what payday lenders could charge a client. For example in the mid-90’s we saw many of the large financing companies influence the laws which regulate this new industry. This led to a huge increase in the number of local offices offering same day loans. In addition to the rapid growth of many direct payday lenders, we also saw the large banks providing different types of financing during the 90’s. The banks termed their loans as direct deposit advances but they were really no different from short term loans. Our sate by state listing of regulations is updated at least once a week. Please use this resource as a tool to compare different regulations and restrictions in each state.
As we moved into the early 2000’s we began to see many of the mid to large direct payday lenders migrate to an online business model. Most firms used the online loan process as a way to better facilitate the lending process. Additionally the online loans were also a way for unscrupulous direct payday lenders to disregard individual state lending regulations.
The short term financing industry has ebbed and flowed ever since online lending began. There will always be changes to the financial system.
Much like when the Federal Government decided to issue payments through electronic payments versus paper checks. We will undoubtedly see further innovation take place in the online lending industry. Over the past 10 years we’ve seen many companies come and go, but the same direct lenders are still offering many different types of loans online. Recently we’ve seen some cash advance companies introduce a new type of loan called an installment loan. With this type of loan the consumer will borrow a larger amount of money and pay off the loan over time with set monthly payments. In light of pressure from the Federal Government we expect more and more companies that operate as direct payday loan lenders will eventually migrate to installment loans. We’re also seeing some online lenders offering flex loans that are just another variation of direct lender payday loans. This type of loan is new lending product that promises to offer high amount loans for consumers that would never qualify for a traditional bank loan. Rest assured there will always be changes in the short-term lending industry. Keep checking back with us as we’ll have a follow up post covering the industry this summer.