Get a load of this. A California bank offering a payday alternative bites the dust. It’s unfortunate because I think competition is good. I wish their model was sustainable.
What does not get enough press is that 20-30% of borrowers default on their loans. This is the primary reason payday loans are expensive. Payday lending is just like any other business. The losses need to get spread out or you lose money.
This article was in the American Banker: “California Thrift’s Woes Show Challenges Competing with Payday Lenders.” Here are the highlights:
One PacificCoast Bank in Oakland, Calif., is regrouping as it looks to battle payday lenders in the San Francisco Bay area.
The $282 million-asset thrift recently pulled the plug on its One Pac Pal loan, which it tailored to offer low-income clients short-term credit at reasonable rates and terms. The program, which began 18 months earlier, lost too much money, says Kat Taylor, One PacificCoast’s chief executive.
“We have not yet found an economically sustainable product that’s sufficient to save enough people” from payday lenders, she says.
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3 responses to “Payday Loans Are Risky………. For the Lender”
“We have not yet found an economically sustainable product that’s sufficient to save enough people from payday lenders”, Kat Taylor.
That’s because the PayDay lenders have the economically sustainable model already Kat.
It’s called charging borrowers rates which are commensurate with the risk of default and subsequent losses. It works. Most of them turn a decent profit, which I believe is the idea. The really smart lenders, like Wonga.com, are making strong profits and have default rates of 7%.
You posted the wrong URL.
http://www.americanbanker.com/issues/178_90/california-thrift-s-woes-show-challenges-competing-with-payday-lenders-1058995-1.html
is the article. You posted the comments page.
I can’t help myself here. You’d think that bankers would be a little better at MATH! The loss ratios of payday lenders are easily found in the financial statements of any publicly traded operator. I wonder if they believed that they were SMARTER than we are?
I’ve worked with bankers and Payday loan operators, and I can say that the guys in our industry are extremely sophisticated. Good payday operators KNOW and have a connection with the consumer. The banks don’t have a clue.
I always wish every success to anybody starting a new venture. I’m ashamed to say that I enjoyed this one a little bit.