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I'm not sure what this has to do with my question. I'm not asking why the customer doesn't just go to a bank instead. I'm asking what's stopping you or me fro

I'm not sure what this has to do with my question. I'm not asking why the customer doesn't just go to a bank instead. I'm asking what's stopping you or me from opening a competing payday loan service that charges "only" $110 instead of $121. It seems to me that this should be a highly competitive industry, the only barriers to entry being some capital, a storefront in a cheap part of town, and a little physical security? What am I missing?

geoduck14 6y ago
Oh! Sorry, I totally missed that. Background: I work at a bank, we specialize in Credit Cards - but I'm in the car finance division. Some of what I have here is an educated guess. Pay day lenders IS highly competitive. In certain geographies, there are LOTS of lenders. There are some very real barriers to entry: You have to be credited with certain financial regulators (CFPB and OCC are the 2 I know of) to lend money - and these regulators come with various stipulations (e.g., keep $ in reserve, don't be racist, lend to people who can pay you back, etc) Many "real" banks avoid this market because the regulators "punish" us - our Credit Card division would be held to a higher standard because we also had pay day loans. Fun fact: during the Obama administration, we also had Mortgages, because regulators "went easy" on the rest of the company. When Trump became president, regulators stopped caring and we sold our mortgages. All of this being said, if you, right NOW had a lemonade stand lending money to people, you could probably get away with it. On that note, there is a really interesting shift in the market: Financial Services As A Service. Imagine: Bank of Small-Town-Maine is a legitimate bank. They know how to stay solvent, they are registered with the right regulators, etc. I approach them and say "let me use your Certifications, I'll use my money, my marketing, I'll buy Identification Services and Credit services - I'll lend money to people and we split the profit". ACE Cash Express is doing something like this RIGHT NOW - and there are MANY other people doing it, too.

geoduck14 6y ago

Oh! Sorry, I totally missed that. Background: I work at a bank, we specialize in Credit Cards - but I'm in the car finance division. Some of what I have here is an educated guess. Pay day lenders IS highly competitive. In certain geographies, there are LOTS of lenders. There are some very real barriers to entry: You have to be credited with certain financial regulators (CFPB and OCC are the 2 I know of) to lend money - and these regulators come with various stipulations (e.g., keep $ in reserve, don't be racist, lend to people who can pay you back, etc) Many "real" banks avoid this market because the regulators "punish" us - our Credit Card division would be held to a higher standard because we also had pay day loans. Fun fact: during the Obama administration, we also had Mortgages, because regulators "went easy" on the rest of the company. When Trump became president, regulators stopped caring and we sold our mortgages. All of this being said, if you, right NOW had a lemonade stand lending money to people, you could probably get away with it. On that note, there is a really interesting shift in the market: Financial Services As A Service. Imagine: Bank of Small-Town-Maine is a legitimate bank. They know how to stay solvent, they are registered with the right regulators, etc. I approach them and say "let me use your Certifications, I'll use my money, my marketing, I'll buy Identification Services and Credit services - I'll lend money to people and we split the profit". ACE Cash Express is doing something like this RIGHT NOW - and there are MANY other people doing it, too.