Consumer advocacy groups paint an even more predatory picture, highlighting some statistics that the industry appears to ignore. For instance, many payday loans become revolving loans because the borrower has to take out a new one to repay the old one, while making ends meet. Americans for Fairness in Lending points out that, with 90% of revenue coming from customers who take out five or more loans per year, the typical payday customer ends up paying $793 for a $325 loan.
When examining the costs and benefits of payday lending on society as a whole, studies from regulators and academics have shown even more conflicting results.
Researchers for the New York Fed determined that states which banned or severely limited payday practices saw customers bounce checks, file complaints against lenders, and declare bankruptcy more frequently than peers in other states. On the other hand, borrowers in Hawaii benefitted from an easing of payday-loan restrictions.
Federal Deposit Insurance Corp. Chairwoman Sheila Bair has also studied the issue, and come to the opposite conclusion. She has pushed traditional lenders to offer lower-cost alternatives for the "underbanked" and said that payday lenders warrant "heightened vigilance." Her stance is supported by research from the Center for Community Capital at the University of North Carolina at Chapel Hill, which found that when payday loans were banned in its home state, "the vast majority of North Carolinians felt payday lending was a bad thing and don't miss it."Whomever is correct in their assertions -- and it's probably a mixture of the two -- given consumer advocacy groups' recent successes and the tone of discourse in Washington, the future of U.S. payday lending appears bleak. Lenders had first tried to respond by shifting services online, but state lawmakers quickly cracked down and federal regulators will likely nip the practice in the bud. Instead, lenders are now looking beyond the U.S. border for growth, particularly in Mexico, as well as Canada and Europe. While some have been hit hard by unexpected state laws, others, like World Acceptance Corp. (WRLD - Get Report) have benefited from a lucky U.S. footprint, and are actively seeking expansion opportunities abroad. And while the lending business has suffered, the pawn business has grown remarkably. For instance, while Cash America (CSH) trimmed its cash-advance operations, it hiked pawn fees 28% and expanded the business through the acquisition of Prenda Fácil in Mexico. First Cash Financial (FCFS - Get Report) recently beat earnings expectations and lifted its forecast for fiscal 2010 for similar reasons. Explaining the results, CEO Rick Wessel cited "significant opportunities for expansion into new, under-served markets in Mexico, which provides a clear pathway for continued short- and long-term expansion of our Mexico operations."