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Payday Lender Problems

Payday loan chains are the latest layer of the subprime lending industry to come under the eye of federal and state regulators, following in the footsteps of pawnshops and rent-to-own businesses. The trend follows a familiar pattern: As these businesses grow in popularity, regulators, politicians and consumer advocates point out unfair or abusive practices and seek to curtail them. The worst abusers go under, and the more legitimate operators adapt and keep going.

The regulatory crackdown on these loans is good for consumers, but bad for payday lenders such as Advance America Cash Advance Centers (
AEA), Cash America International (CSH), Ace Cash Express (AACE), Dollar Financial (DLLR), EZCorp (EZPW), Compucredit (CCRT) and First Cash Financial Services (FCFS). These stocks tumbled by an average of 35% immediately after the FDIC announced its revised rules in March. Shares have recovered little since.

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