Cash Connection

2210 Words Dec 14th, 2012 9 Pages
Cash Connection

1. What are the dominant economic characteristics affecting the payday lending industry?
The industry for short-term cash loans (payday loans) grew in the early 1990’s because of the shift in financial services marketplace. The cost structure of the market rose due to bounced checks, overdraft protection fees, and late bill payments penalties. Second the trend of regulation of payday advance service that allowed protection for consumers. To avoid such cost, payday loans were the solution for consumers. It is estimated that there are over 22,000 payday loan locations in the United States. Those locations exceed the number of banks, which are 9,500 banks across the nation. Studies show that million middle-class
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Larger banks decided not to offer payday loans. Credit Unions have decided to take that route. They offer low not sufficient funds fees and consumers pick Credit Unions because payday loans can incur higher fees quickly. B. Threat of New Entrants
The industry offers quick profit but the entry of new companies is moderate. The barriers are the reason new companies get deterred. State and federal regulations for loans changed and make it for new companies to be successful. On the state level lenders are to disclose loan APRs and finance changes. With APR already being 520 percent or $20 for every $100 would make it difficult for people to sign up for the loans. Some states will not even allow such a business. Federal level they considered mandating interest rates. Will the low start-up cost the industry has a great outlook for new entrants but the restrictions and regulations do not paint a successful picture in the long run

C. Competition from Substitutes
Cash Connection substitute threat is strong. Banks, credit unions, and credit card companies offer features that will help customers who are in need of money fast. Overdraft protection is offered by banks. To ensure that the customer does not exceed their account balance is considered a substitute. Like loans have fees so does the overdraft protection benefit. Credit unions over loans but they are not fast and convenient so consumer tend to lean on payday lenders for their quick money.
Credit cards are a
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