How private equity firms make money on loans to cash-strapped Americans

Source: Peter Whoriskey, Washington Post (Paid Registration)

Over the past decade or so, private equity firms, which pool money from investment funds and wealthy individuals to buy up and manage companies for eventual resale, have taken stakes in companies that offer loans to people who lack access to banks and traditional credit cards. Some private equity firms have bought up payday lenders. Other private equity firms have taken stakes in “consumer installment” lenders, which offer slightly larger loans—from about $1,000 to more than $25,000—for longer periods of time.

These lending companies have undergone significant growth in recent years. To raise more money to lend, they have sold bonds on Wall Street.

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