By LEO GRANDON / Staff Photographer A new wave of high-risk borrowers is making payday lenders look like an endangered species, according to the chief financial officer of a Colorado payday lender.
The payday lending boom in the state is set to become the most lucrative in the nation.
The boom is coming from borrowers who can’t afford a down payment, often because they don’t have the cash for a downpayment.
The new wave is also a new breed of lenders who can charge up to $1,000 a month for loans that are only five to 10 days late.
And the new wave isn’t limited to payday lenders.
There are also payday loan companies that can take out loans for $200 or more a day, or even more.
The new wave has drawn a line in the sand in the face of the industry’s reputation for high-cost, high-interest loans, said David Stueve, chief financial analyst at Consumer Financial Protection Bureau.
“This is not a new thing,” he said.
He added that many lenders aren’t as aggressive in charging the new rates as they once were.
“I think this is going to be a real concern for lenders,” he predicted.
A typical payday loan has about $3,000 in monthly payments, he said, and typically is offered at a rate between 15% and 20%.
It is often a long-term loan that doesn’t require a down-payment or any type of guaranty.
The payday lenders, which are also called payday loan servicers, typically charge the same fee that traditional lenders do.
But they charge a much lower amount for payday loans than other loans, often just 1% or 2% of the loan amount.
When a payday loan is delinquent, it will be charged a late fee that can be as much as 25%, Stuevesaid.
“There are a lot of payday loan lenders out there,” he added.
Stueve said that payday lenders typically offer a “very low fee” for a payday lender because they want to keep people in their business, even if it means paying more interest and fees.
For example, if a borrower makes a $50,000 loan, and the lender has $200 to repay, they may charge a $1.25 fee for every $100 that the borrower owes, he noted.
That would cost the borrower $1 in interest, but it would be paid in full.
But there are also other fees that payday loan borrowers have to pay, like fees for customer service and handling fees, he added, and a few other charges that can add up to up to a lot more than the usual fee.
For example:Some payday loan servicing fees can reach $10,000.
If the lender owes $50 in late fees, that will be $10.50.
Stuevisaid that the average payday loan comes with a minimum amount that lenders can charge, so lenders have to think twice before charging higher fees.
The average payday lender may be charging fees that are higher than what some lenders are paying in the past, Stuevesaid.
For instance, payday lenders can only charge borrowers $2.95 for a $20 down payment and $25 for a 10% down payment.
Lenders typically also charge a minimum $25 fee to the borrower if they default on their loans, but if the borrower pays their loan, that fee may be waived.
“If they have to go into bankruptcy and lose everything, they are going to pay a lot less,” Stuevsaid.
But some payday lenders are charging high fees for customers that may not be in the best financial position, said Stuevellesaid, which could create a negative feedback loop that can make a loan less affordable for borrowers who don’t qualify for the lower fees.
Stuesve said he believes the new high-priced borrowers are more likely to default on a payday, so he wants lenders to consider offering a grace period for borrowers.
“You want to try to make sure that you don’t just charge a higher fee to a customer that’s in a bad financial position,” he explained.
But not all lenders are following the trend.
Staples Bank is one lender that doesn.
The bank, which is part of the Federal Deposit Insurance Corp., is one of the top 10 lenders in the country for its low-cost products, Stuesve noted.
It’s also one of only two lenders in Colorado that can charge borrowers as little as $5 a day.
It’s unclear if that fee will change as more and more customers opt to pay by phone, he warned.
In Colorado, payday loan customers who don, or don’t, pay by telephone will be billed $5 for each payday loan they make.
If they fail to pay within 30 days, they could get a full refund of the difference, Stuchesaid.
The bank is not alone in charging high interest rates.