Did you know that most of the payday loan companies on the internet (or those that you can find doing searches) are not direct lenders? Based upon the information I found, the majority of the direct lenders in this industry count on brokers. We will talk a little more about pay day loan brokers in articles to come.
The payday loan industry is a big business. The rates are high and the returns are plentiful. When a direct lender receives a lead from a potential prospect it’s in their interest to qualify and approve the client as fast as possible. You will find dozens of websites around the internet advertising they can approve an applicant within minutes. This has some validity. The majority of people will apply with more than one company, and it’s the company that approves the client first that has the best chance of securing the business.
There are different models when it comes to investments. A direct lender may receive their money through angel funding, banks, private investors or in some cases the principles may be the primary funding source. While most people believe that an investor will make money on every investment it’s just not true. Lenders are lending to individuals with less than good credit so it’s not uncommon for a loan to default. I have seen averages between 20% -40%+ of all loans will end up in default. Take this number with a grain of salt because these numbers are based upon the lenders.
As you can imagine, the payday loan industry is highly regulated. The majority of states have regulatory boards that oversee the industry in their respected states. If a payday lender decides to do business within a state, they must abide to the laws of the land. There are close to 20 states that prohibit high cost payday lending. Georgia is one state which prohibits direct lenders from doing business. According to CFA, a direct lender that is caught doing business in Georgia will be in violation of racketeering laws. In other states there are criminal usury laws in place which prohibits a lender from charging over a certain rate annually. There are other states that have no laws in place; hence there are no caps on what a direct lender can charge.
While I’m finding information on the Internet that makes suggestions that a company will do business in all 50 states, it’s highly unlikely the transaction is taking place in that state. A company that is a direct lending source must abide by state laws and if they don’t, legal problems are certainly to follow.
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