An Overview of Online Payday Lending Industry Customers
There is hardly any category of the finance industry that has not carved out a niche for itself on the Internet. This especially holds true for the payday lending industry, which has come a long way from being an add-on service at check-cashing establishments and has continued to perform well during the recent recession.
In the United States, over 33 percent of payday loans issued in the last six years have been issued from online lenders. These lenders include those who operate completely online and storefront payday lenders who have services that are accessible online. The borrowers who tend to use online payday lenders generally have more income and education and are younger than the borrowers who typically frequent storefront payday lenders. These borrowers are able to access the lenders’ individual websites or use online providers of lender matching services, such as the Personal Money Store.
While the economy continues on its road to recovery, the demand for payday lending services will likely be impacted, especially with the possibility of more stringent regulations. Existing state regulations appear to affect storefront lenders by reducing their profit margins and the growth of revenue in the payday industry, but do these regulations affect how borrowers use online payday lending services?
How States Regulate and Restrict the Services of the Payday Lending Industry
While there is not yet a set of nationwide regulations for the payday loan industry, states are able to institute their own regulations for the providers of payday loans. The precise rules that have been put into place vary from state to state, which has resulted in some states having more restrictive regulations than others. Some of these regulations include:
• Caps on annual percentage rates
• Laws making post-dated checks unauthorized
• A limit on how many times a borrower can roll over an existing loan balance
• A policy dictating a longer repayment period
• Providing a fixed loan limit amount
• Limits on the maximum number of loans a single borrower can receive each year
• Limiting the maximum loan amount to a percentage of the borrower’s yearly income
Storefront payday lenders have no physical presence in 14 states and the District of Columbia. This is a result of the more restrictive state regulations that have either prohibited storefront payday lending providers or regulated them out of business by capping the annual percentage rates and fees to amounts that are too low to earn a profit.
Borrowing Habits and Online Payday Lending in Strictly Regulated States
According to a study conducted by the PEW Research Center, only 5 percent of potential borrowers in states with no storefront lenders would try to obtain an online payday loan or search for a payday loan from another source. This is this case even while some online payday loan lenders are still able to offer their services by using their business license from another state or by partnering with a tribal nation to claim sovereign immunity from state law. The reticence of potential online borrowers is often attributed to:
• The fear of the disclosure of sensitive information and identity theft
• The inability to bring concerns to a person
However, it is worth noting that even this 5 percent rate of borrowers in states that have no storefront payday lenders is similar to the rate of borrowers who use online payday lenders in states where lenders are able to maintain a physical presence. This is a strong indication that if the need is there, borrowers will seek out payday lending services despite the restrictions that states place on the industry.
Borrowers Will Use Online Payday Lending Services Despite Strict Regulations
Online payday lending, a topic discussed online at finance blogs like the one hosted by PersonalMoneyStore.com, is a sector of payday lending that appears capable of remaining constant. While restrictive state regulation of the payday lending industry adversely affects storefront lenders, those who offer their services online appear to experience very little change in how often their services are being used.