Sector Snap: Payday lenders fall on Obama proposal
January 7, 2009
The statement also says Obama plans "to extend a 36 percent interest cap to all Americans" and "require lenders to provide clear and simplified information about loan fees, payments and penalties."
Written by Staff, The Associated Press
Shares of payday lending companies EZCorp Inc., Cash America International Inc. and First Cash Financial Services Inc. slid Wednesday amid growing expectations that President-elect Barack Obama will tighten regulations on the industry.
In an investor note Wednesday, Sterne Agee analyst Henry Coffey Jr. highlighted a written statement from Obama about the incoming administration's economic plans, including a pledge to "cap outlandish interest rates on payday loans and improve disclosure."
The statement also says Obama plans "to extend a 36 percent interest cap to all Americans" and "require lenders to provide clear and simplified information about loan fees, payments and penalties."
Obama also intends to encourage traditional lenders such as banks and credit unions "to provide affordable short-term and small-dollar loans and to drive unscrupulous lenders out of business."
Coffey wrote that the incoming administration's intent to regulate payday lenders "is clearly unambiguous."
Payday loans are short-term, unsecured loans offered to cash-strapped consumers that typically mature in two weeks or on the borrower's next payday. The loans are often priced at a fixed-dollar fee, but the underlying annual interest rate is usually near 400 percent or more. Obama's proposed 36 percent cap would effectively ban current industry practices.
Coffee cut his ratings on shares of EZCorp. and Cash America to "Neutral" from "Buy."
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