payday loan business

SOWELL: The truth about payday loans

The mindset of the left was recently displayed in a big, front-page story in the October 30th issue of the San Mateo County Times. It was an investigative reporter’s expose of the “payday loan” business and its lobbyists.

According to the reporter: “In California lenders charge up to $45 in fees on a maximum $300 loan. This amounts to an interest rate of 460 percent, trapping some borrowers into a never-ending cycle of debt.”

Let’s take this one step at a time. Whatever the merits or demerits of the rest of the argument, $45 is not going to trap anyone in a never-ending cycle of debt, even if they are making only the bare minimum wage. Personal irresponsibility in managing money can trap anyone, but that is regardless of whether or not they take out payday loans. Now to the 460 percent rate of interest. You don’t need higher math to figure out that $45 is 15 percent of $300. How did we get to 460 percent? Very simple: By distorting the actual conditions of most payday loans.

As the name might suggest, payday loans are short-term loans to tide people over until they get their next check, whether a salary check, a welfare check or whatever. Payday loans are relatively small sums of money borrowed for very short periods of time, often by low-income people who want some cash right now, for whatever reason.

The 460 percent figure comes from imagining that the borrower is not just going to borrow the money for a couple of weeks, but is going to keep on borrowing every couple of weeks all year long.

Using this kind of reasoning, you could quote the price of salmon as $15,000 a ton or say a hotel room rents for $36,000 a year, when no consumer buys a ton of salmon and few people stay in a hotel room all year.

What about the $45 that is at the heart of all this runaway rhetoric? Does that do more than cover the risk and the costs of processing the loan? Apparently our crusading investigative reporter did not find that worth investigating, even in a long article taking up another page and a half inside the newspaper.

Starting a Payday Loan Business – 4 Tips to Making Money

With the continued notoriety and media focus on payday loans it’s no surprise that we receive inquiries on a daily basis from entrepreneurs with a desire to enter this lucrative business opportunity.

The payday loan product is in huge demand by consumers not only in the United States but in the United Kingdom, Australia, the Bahamas, New Zealand, Barbados, Korea, Japan and more.

Payday Lenders Online

It’s difficult to estimate the size of the payday loan industry due to it’s fragmentation, the fact that many very profitable payday loan businesses are owned by sole-proprietors and by large, multi-store, multi-national, publicly traded companies. Additionally, we estimate millions of dollars are loaned to payday loan consumers via the Internet every month and no one knows the total volume of these payday loan transactions.

When contemplating entry into the payday loan industry, a few of the issues one must consider include the following:

The licensing model. If you plan on a “brick-n-mortar” you will need to consider the licensing and regulatory implications. Most states and provinces have specific payday loan legislation. These regulations typically address the maximum amount that can be loaned, the number of days the loan maybe outstanding, the number of “rollovers” allowed (if any), the maximum fees that maybe charged for a payday loan (typically dollars per 0), etc. Additionally, Payday loan Internet companies must decide whether they wish to employ the “choice-of-law model”, the “state model”, the “Sovereign Nation Model, the “offshore model”, the “CSO model”, the “installment loan model”… well you get the picture.

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