The report concludes, “High profits for payday lenders may be more myth than reality.” Most negative industry reports have come from advocacy groups that seek to abolish payday lending. Yet this report from an independent source clearly states, “That it is not the customers of payday lenders who take issue with high interest rates”.

• States should refrain from acting in haste before enacting payday legislation
• Legislators should carefully consider and study the industry’s explanations of its operating costs and profitability
• Payday firms do not always make extraordinary profits, and may in fact fall far short of other well-known lending institutions in terms of profitability
• Payday lending customers themselves are not the ones voicing outrage over high interest rates
• Much data about borrowers comes from two sources, each with advocacy positions for or against
• States that outlaw payday lending leave borrowers alternatives that are scarce and possibly illegal
• Rise in payday loans could be resulting from reported widespread decrease in personal savings, thus eliminating payday lending is not a viable solution
• Industry’s fees may be justified by high store expenses and high loan losses
• Payday profit margins are less than half that of their mainstream lending counterparts
• Average industry profit margin is 7.63%, indicating that excessive profits arguments are unfounded

Read the full report here.

Study by Aaron Huckstep, Senior Staff Attorney, Moss Adams LLP, Albuquerque, NM
Copyright Fordham Journal of Corporate & Financial Law 2007