Mayday for Payday Lenders

According to the Washington Post, the credit crisis isn’t only pounding homeowners. Payday lenders, who extend short-term, high-interest loans, are being hit hard as well. I think there is more than just an economic downturn are play.

In recent weeks, heightened regulatory scrutiny, such as we have seen in Ohio, and lawsuits charging illegal lending practices, such as those brought by the FDIC and New York State Attorney General, have helped undermine the prospects of these firms.

CompuCredit, which provides subprime credit cards, has seen its stock down 82 percent in the past year. Two other national fiorms, Advance America and First Cash Financial, have seen their stocks decline 71 percent and 36 percent, respectively. I doubt the prospects of these firms will turn around anytime soon unless they revise their business model. Perhaps that will be a good thing. I beleive in the power of credit, but it has to be delivered in terms that are good, fair, and understandable. There’s been pretty good evidence that this has not been the case.