Business not booming for payday lenders II

"They still want to buy for their kids," he said. "But maybe not for aunts, uncles and everybody else."
Payday loans, sometimes called cash advance loans, are short-term loans that charge high annual rates. Lenders insist that because the loans are of such short terms, it is unfair to compare their rates to traditional lenders.
In a typical transaction, the borrower writes a check to the lender, and the lender advances money on the check, which is to be deposited at a later date.
When the loan matures, the borrower has the option of paying back the loan or allowing the lender to cash the check.
A typical fee is $17.50 per $100, meaning a maximum $500 loan would cost $87.50 in lending fees.
Smith, who has been in the business for six years, said he did not expect a downturn in lending, even though traditional lenders have reported less borrowing for months.
"This is my first downturn in the industry," he said. "We just haven't seen it happen."
That is bad news for the lenders, who say they are much like retailers in depending on the holiday season.
The first few months of a year are traditionally slow, Hunter said.
People usually cut back on spending on the heels of Christmas, and then people start receiving tax refunds, reducing the need for short-term loans.
While demand is down, the lenders said late payments and defaults are up.
Lenders normally ask a borrower for his or her address, phone number, work location and checking information. Lenders verify as much as they can, but Cross said it is important to keep the transaction simple.
That means taking people's word for much of the information.
"We will call and verify they still work there," he said. "As far as the banking information, you have the most recent 30-day statement, and you hope it is still open."
That doesn't always work, Smith said.
"We are seeing a higher default rate," he said. "That has been happening since about the beginning of 2008."
All three lenders blamed the rising default rates on the economic downturn. People want to repay the loans, but job losses and other cuts to income make it impossible.
Borrow Smart's survey found the same reasons for the overall decline in lending. More than 92 percent of lenders who reported a decline blamed it at least partly on the economy.
Interestingly, of the minority of lenders who were doing more business, 85 percent said it was because of the economy.
"Some may feel a greater need to borrow due to the economy and they come in," the group said. "Some may feel the need to borrow, but they stay away because they are uncertain of their ability to repay."

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Business not booming for payday lenders I