Payday lenders are placing voluntary restrictions on their industry in a bid to fend off looming legislation. Payday lenders offer short-term loans that are payable on the day the borrower is paid. A borrower who takes out a two-week payday loan will pay about $15 on every $100, a 390% annual interest rate. The lenders say such rates are required to cover costs and protect them from defaults, but critics call them exorbitant and say the system is set up to trap low-income borrowers in a cycle of fees. The industry accounts for about $40 billion in loans annually, and demand is soaring. Payday lending has been barred from 13 states and over 50 bills have been introduced this year in state legislatures to cap interest rates on these loans. The Community Financial Services Association of America, the industry's trade group, has announced several actions designed to head off excessive regulation. The industry will prohibit advertising loans for purposes like gambling, and will offer extended payment plans [EPPs] to customers who cannot pay on time. An EPP can be used once a year and will give the borrower an extra two to four months to pay without incurring additional interest or fees.
Source: Wall Street Journal
Commentary: Barron's Stocks for a Wealthy America • Tom Brown's Financial Services Picks • I Love Payday Lenders (The Motley Fool)
Stocks to watch: Advance America, Cash Advance Centers (NYSE:AEA), QC Holdings Inc. (NASDAQ:QCCO), First Cash Financial Services (NASDAQ:FCFS), Cash America (NYSE:CSH), CompuCredit Corp. (CCRT).
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