Taking on the “profits” canard
August 14, 2008 | Center for Responsible Lending, Florida, alternatives, industry, industry critics, media coverage, positive media coverage, regulation | Comments (0)The media is constantly talking about the payday lending industry’s ”huge profits.” In an oped today, D. Lynn DeVault, President of CFSA, takes the “huge profits” lie head on:
When compared to traditional banks, payday lenders’ profits are measly. The average profit margin of the top 10 banking holding companies in the United States is 18.5 percent. Traditional banks earn far higher profit margins on late charges, bounced checks fees, ATM fees, over-draft protection, and credit card balances than what payday lenders earn on their regular fees. The bank profits come from charges most people don’t think twice about paying nearly every day. But again, no one is accusing the traditional banks with overcharging Americans.
Something else that may surprise people is that the Self Help Credit Union, which is affiliated with The Center for Responsible Lending and meant to be an alternative to payday lenders, makes 20 percent profits on revenue. That is double what most publicly traded payday lending companies earn as profits. That’s right, an enterprise affiliated and endorsed by the biggest critic of the payday lending industry earns twice the profit from their short-term loans as payday lenders do. No wonder the center wants to put payday lenders out of business.
To help us better see what is right in front of our noses, consider this: payday lenders only make, on average, around $1.28 on the $15 fee they charge for a $100 two week loan. This is less than a 10 percent profit from their incomes. That means more than 90 percent of the fees people pay to payday lenders are used for overhead costs such as rent, payroll, and health insurance and benefits for the employees.
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