A Payday Loan Software Blog

It is no secret that the payday lending industry can be very profitable.

It is also no secret that the payday lending industry faces a very uncertain future, due mostly to proposed changes in regulatory legislation overseeing short-term lending.

Currently, Payday Loans are regulated state-by-state meaning that every state implements it’s own set of regulations to oversee “Payday” or “Cash Advance ” lending. At this very moment the laws regarding Payday Lending range greatly from state to state. For example, in North Carolina Payday Lending is prohibited whereas in Utah Payday Loans are virtually un-regulated.

Of course the type of regulation in a particular state has a direct effect on the number of lenders because tight regulations can reduce profitability and in some cases, make short-term lending “un-profitable”. The most common example being the regulatory legislation many states currently face which attempts to cap Payday Loans at a maximum of 36% APR which meaning a lender could only charge $1.38 for a two-week $100 loan! You don’t need a degree in Business to see where a 36% APR cap would make Payday Lending completely unprofitable.

Oregon has implemented a 36% APR cap, but allows a $10 fee per $100 loaned, up to $30 in fees, making Payday Lending still profitable enough for some lenders to survive.

Another tactic some Cash Advance Businesses are going with, is the “CSO” model, or “Credit Services Organization” model. In this model there are 2 separate business entities operating together in part to fund a loan. One entity is the credit service organization, which offers a wide range of credit counseling services and more. It is here where the borrower would fill out and application and the credit service would find an appropriate lender to fund the loan and the “un-affiliated” CSO can charge whatever they want for the service!! This approach is very popular in Texas, where it was originated.

The Payday Lending Industry has seemingly stayed one step ahead of state legislation, and has stood strong in the face of slanderous opposition and strong lobbying against our industry, funded mainly by big bank lobbyists who see our industry as a threat to their 38 billion dollar a year (2009) NSF?Overdraft charge market.

Since we offer a short-term credit option for hard-working Americans who choose to pay a $15-$30 charge rather than face multiple overdrafts, and utility disconnect charges our services will find a way to survive the wake of our changing legislation.