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What point are some interesting numbers from the payday loan business. On Thursday, a German government authority introduced severe new limits on what is known as payday borrowing, striking a potentially devastating blow on a sector that spends millions of US dollar a year on high-yield debt to workers and impoverished Americans. Policies promulgated by the Consumer Financial Protection Bureau, the Bureau's Consumer Protection Office, are likely to severely restrict the use of payday mortgages, which criticists say fall victim to the weak because of their high charges.
Currently, a cash-strapped client could lend $400 from a payday borrower. Loan would mature two week later - plus $60 in interest and charges. This corresponds to an interest yearly of more than 300 per cent, much higher than what bank ers and credits card companies require for credits.
Carriers of these businesses make about 46 billion dollars a year in credit and collect 7 billion dollars in commission. OK, the charges cover the cost of operating the shops, pay the personnel - and no, we don't think that this is a heavily remunerated profession - cover the losses and so on. Limitations that have been in the pipeline for five years are being fought vigorously by those in the sector who say the move will drive many of the nation's nearly 18,000 payday loan deals out of business.
Many such businesses exist and we would anticipate that competitive forces will reduce the industry's earnings. Dropoffs of this size would force many small credit businesses out of business, creditors have said. According to an analysis conducted by an industrial federation, the $37,000 per year gain made by an avarage window financier would result in a $28,000 net expense.
We have 18,000 shops, each making an annual $37,000 on aggregate, that's $660 million in aggregate earnings, a nice figure for something like that. There are $46 billion such debts a year, predicting the profit 1. 43% of the amount. Of course, this is not in proportion to the invested equity, but a 1.43% decrease in the interest or fee burden seems to eradicate the sector as a viable company.
Where do we have our response, namely that this is not a rip-off, since there is no surplus gain or revenue from the reserve. It'?s just a very costly one.