New, high-interest loan products bringing in cash for payday lenders

Inside Subprime: June 6, 2018

By Jacob Rogers

Payday lending stocks continue to rise, but according to an article in Bloomberg, that’s because these kind of short-term lenders have started offering a new kind of product, one that could spell disaster for cash-strapped consumers. 

The stock of Enova International Inc. doubled this year and competitor Curo Group Holdings Corp. has seen stocks rise 64 percent.

Those who follow Inside Subprime will see a familiar trope playing out here: payday lenders getting around regulations by offering new financial products with the same old high interest rates as payday loans. These new products are paid back via installments, instead of a single lump sum like payday loans. Payday lending companies made this change in order to get around new regulations on the industry, which are slated to go into effect next summer.

As Bloomberg reports, “From 2012 to 2016, revenue from payday lending contracted from $9.2 billion to $6 billion, according to data from the Center for Financial Services Innovation. In that time, short-term installment lending revenue jumped from $4.3 billion to $6.5 billion.”

Enova used to receive 99 percent of its revenue from payday loans back in 2008, but that figure has dropped to 22 percent. They are now reporting that the large majority of their revenue comes from these new short-term installment loans.

Of course, anyone advocating for fair lending practices recognizes this for what it is: a wolf in sheep’s clothing.

Diane Standaert, director of state policy at the Center for Responsible Lending told Bloomberg, “It’s the same predatory lending schemes in a different package. What has remained unchanged for all these years is that the debt trap remains the core of the business model.”

Enova’s APRs range from 100 to 450 percent across all of their installment and payday products. 

The Consumer Financial Protection Bureau was in the process of making rules for major installment lenders like Enova, but, like many actions intended to protect consumers, the regulations have been table indefinitely by acting director Mick Mulvaney. While the CFPB has said no decisions have been made about the merits of the rules, the next permanent director will make the final decision. But since no one has been put forward to be a permanent director, don’t hold your breath for any decision.

To learn more about payday lending in the U.S., check out these related pages and articles from OppLoans: