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Business Are Not Booming For Payday Lenders

Thursday, 25 November, 2008

Payday lenders expecting a Christmas boom this year are instead finding little holiday spirit among their customers. Several chains of stores operating in the Montgomery area say the annual spike in the final five or six weeks of the year didn't happen this year, reflecting a the results found in a survey conducted by Borrow Smart Alabama, an industry trade association.

"Bottom line, our business is down year-over-year, and it seems to be getting worse in December," the association said of industry trends. Other lenders reported much the same thing. Charles Hunter, owner of The Money Store, and Bill Cross, of 1 Stop Cash, both said the holiday season has been flat at their locations. "We didn't get the spike," he said. "We are off a little bit."

Hunter said his lending was about equal to 2007 and is a little better than the two previous months. "November had everybody scared," he said. "Everybody was so cautious." Smith said his customers are looking for ways to cut expenses, and Christmas gifts are one of the first places they start. "They still want to buy for their kids," he said. "But maybe not for aunts, uncles and everybody else."

Payday loans, sometimes called cash advance loans, are short-term loans that charge high annual rates. Lenders insist that because the loans are of such short terms, it is unfair to compare their rates to traditional lenders. In a typical transaction, the borrower writes a check to the lender, and the lender advances money on the check, which is to be deposited at a later date. When the loan matures, the borrower has the option of paying back the loan or allowing the lender to cash the check. A typical fee is $17.50 per $100, meaning a maximum $500 loan would cost $87.50 in lending fees.

People usually cut back on spending on the heels of Christmas, and then people start receiving tax refunds, reducing the need for short-term loans. While demand is down, the lenders said late payments and defaults are up. Lenders normally ask a borrower for his or her address, phone number, work location and checking information. Lenders verify as much as they can, but Cross said it is important to keep the transaction simple.

Borrow Smart's survey found the same reasons for the overall decline in lending. More than 92 percent of lenders who reported a decline blamed it at least partly on the economy. Interestingly, of the minority of lenders who were doing more business, 85 percent said it was because of the economy. "Some may feel a greater need to borrow due to the economy and they come in," the group said. "Some may feel the need to borrow, but they stay away because they are uncertain of their ability to repay."

Source: telegram.com