paydayloanindustryblog.com

Everyone wants to know what’s going on in the payday loan industry. What are the latest trends? What’s the newest strategy? How do my defaults compare with every one else and how do I improve? Heck, for that matter how does everyone else even measure or define defaults?

One method of gaining additional insight that we’ve always recommended is to listen in on the earnings calls of the publicly traded companies. By listening in or reading the transcripts, you gain valuable insight into trends, profits or losses, and strategies to enable you to run your business better and manage your investments.

A great example of what you can learn was recently provided by the 4th Quarter earnings report by EZCORP, Inc. Joe Rotunda, President & CEO, reported, “This quarter marks our twenty-fifth consecutive quarter of compounded growth in earnings. It’s also the eighth consecutive fiscal year of earnings growth. I believe this amplifies the strong dynamics within our business. When one component is adversely impacted by an external factor primarily associated with economic conditions, another strengthens and vice versa. This is true both between and within the business segments”.

If you read the transcript, Joe is referring to the ability of EZCORP Inc. to benefit from offering multiple products and services in their stores. Now all their products are focused on sub-prime financial services; pawn, payday loans, auto title loans, gold buying , etc. But the beauty of offering multiple products rather than taking the mono-line approach is that as the economy changes and evolves you always have a spectrum of products that make sense for consumers.

Joe goes on, “For our fourth quarter, we are reporting net income of $16 million. That’s an increase of 44% over last year. Diluted earnings per share were $0.37 compares favorably to $0.26 last year. If you adjust for two unusual elements, which you will be hearing about, the drag of Hurricane Ike …”

Looks like the industry, based on EZCORP Inc., is experiencing record income and phenomenal growth.

Later in the call Joe says, “From a bad debt perspective, we’ve done an excellent job of managing initial defaults through balanced underwriting and an intense focus on getting the customer into the store on the day their loan is due. For this quarter, and as for the year our initial defaults show improvements to last year. However, our net bad debt still increased at a faster rate than fees and we ended the period at 36% of fees versus 31% last year. Without Hurricane Ike, bad debt would have been within three points of a year ago. The increase, I believe, reflects the difficulty in the current economic environment to collect debt once it’s incurred. It shows what the consumer behaves once they default and it shows in the capital markets that buy bad debt as well. So, regardless, we are committed to continue to address process to improve both”.

So, just as we have been harping on, defaults and collections are becoming more of an issue and demand close attention. That’s a trend you need to be aware of. No surprise here but HOW DO YOU DO IT?

Next, Joe discusses some new products EZCORP Inc. has introduced. “Moving from new stores to new products, we have expanded our installment loan to 90 stores in Texas. We’ve been cautious with the product because of the size of the loans, from $1525 to $3000, and the length of the term, which is at five months. We believe we have a pretty good handle on the customer, bad debt management, and we plan to expand the installment loan to several additional states beyond Texas during the New Year.

We also recently began offering another new product, auto title loans. We introduced this product last month in all 11 stores in Missouri. We believe this product offers us an incredible opportunity to leverage our store base and drive incremental returns. It also affords us the opportunity to expand our customer base and to diversify our product assortment beyond solely the payday loan product. Our plans are to move judiciously and expand the auto title loan product to additional three to five states and approximately 100 additional stores by the end of the year”.

And finally, “We are doing installment loans today in Texas and we are doing them under the CSO statutes. We’ve developed the loans so it’s a five-month period, which is as far out as we want to go and the pricing to the customer is approximately 10% of the principal of the loan paid every – twice a month as they go through the period. The rate, if you calculate an APR on it, the APR is somewhat lower for an installment loan than it is for a typical or a traditional payday loan.

Now, rather than go on-and-on dissecting this conference call, we suggest you head over to:

EZCORP 4th Quarter Conference call at SeekingAlpha.com and read it.

And don’t stop there! Get access to those companies you want to follow and listen in on the calls or read the transcripts. Typically, you can do a search, click on Investor Relations and receive an email when a call is scheduled.

There’s some great stuff buried in there you just have to harvest it.

Comments? Suggestions? Let’s hear it!

All industries have a few knuckle heads in their midst. No surprise, this includes the payday loan industry. There are some very basic requirements we in the industry must adhere to. Disclosure of loan terms, the APR (Annual Percentage Rate), the payment schedule, the amount financed, the total of payments, and any late fees are the very least.

Adherence to Fair Debt Collection Practices are another area that we must be aware of and adhere to.

So, along comes a few payday loan internet fools who fail to comply with these rules causing harm to our Industry when we don’t need it! These people, if guilty, simply blatantly ignored the rules and safeguards put in place for consumers at a time when we don’t need any additional heat!

Here’s the Press Release from the Nevada Office of the Attorney General:

ATTORNEY GENERAL ANNOUNCES CHARGES AGAINST INTERNET PAYDAY LENDER CASH TODAY, LTD.

Company is Also Known as Leads Global Inc. and Rovinge International, Inc.

Carson City, NV— Nevada Attorney General Catherine Cortez Masto announced today the State of Nevada and the Federal Trade Commission (FTC) have charged 10 related Internet payday lenders and their principals, based mainly in the United Kingdom, with violating federal and state law by not disclosing key loan terms to U.S. consumers and using abusive and deceptive collection tactics.
Leads Global, Inc. and Rovinge International, Inc. are Nevada corporations which maintain mail drops in Reno, Nevada to conceal the fact the real operation was located in the United Kingdom.
“Internet payday lenders must know that Nevada will not allow deceptive lending practices to exist in this State,” said Attorney General Catherine Cortez Masto. “These lenders will be charged and prosecuted.”

According to the complaint filed by the State of Nevada and the FTC, through websites such as www.cash2today4u.com, the defendants offered consumers loans of $500 or less within 24 hours without requiring a credit check, proof of income, or documentation. Consumers who applied for a loan on their website were required to submit an online application that asked for their bank account and Social Security numbers.

The complaint said Cash Today, Ltd. representatives called consumers who applied for loans through the website told them that they qualified for a loan which had to be
repaid by their next payday. Typically, the loan was in the amount of $200. Consumers were charged a loan fee ranging from $35 to $80. During the phone call, the Cash Today representative said the loan was not fully repaid by the required date, it would be extended automatically for an extra fee that would be debited from the consumer’s bank account “until the loan is repaid.” Consumers were required to provide the payday lender access to their bank accounts for payment of the fees.

The payday lenders did not disclose key loan terms in writing, such as annual percentage rate, the payment schedule, the amount financed, the total of payments,
and any late payment fees. The complaint states consumers who asked for written disclosures were told that the transaction was verbal only. Some consumers were told written disclosures would be sent to them after the phone call, but were never received.

After repaying the original loan amount, and sometimes hundreds of dollars in excess of the loan, many consumers terminated the lenders’ access to their bank accounts, often by closing the accounts. Once access to accounts was denied, consumers received abusive and deceptive collection calls by the payday lender aimed at regaining access to consumers’ bank accounts.

According to the complaint, Cash Today, Ltd. falsely claimed that consumers were legally obligated to repay the loans, even though the loans did not comply with payday lending laws in many consumers’ states and the defendants were not licensed to make consumer loans in those states. The defendants falsely threatened consumers with arrest, lawsuits, property seizure, or wage garnishment, and repeatedly called consumers, coworkers, and employers at their workplace, using abusive language and disclosing consumers’ purported debts.

The corporate defendants are: Cash Today, Ltd.; The Heathmill Village, Ltd.; Leads Global, Inc.; Waterfront Investments, Inc.; ACH Cash, Inc.; HBS Services, Inc.; Lotus Leads, Inc.; First4Leads, Inc.; Rovinge International, Inc.; and The Harris Holdings, Ltd.; each also doing business as Cash Today; Route 66 Funding; Global Financial Services International, Ltd.; Interim Cash, Ltd.; and BIG-INT, Ltd. The individual defendants are Aaron Gershfield, Ivor Gershfield, and Jim Harris.

The defendants are charged with violating the FTC Act by using unfair and deceptive collection tactics, including falsely threatening consumers with arrest or imprisonment, falsely claiming consumers are legally obligated to pay the debts, making false threats to take legal action that they cannot take, repeatedly calling consumers at work, using abusive and profane language, and disclosing consumers’ purported debts to coworkers, employers, and other third parties.

Cash Today, Ltd. has been charged with violating the Truth in Lending Act and Regulation Z by failing to make required written disclosures, clearly and conspicuously, before consummating a consumer credit transaction, including the amount financed, itemization of the amount financed, the finance charge, the annual percentage rate, the payment schedule, the total of payments, and any late payment fees. In addition, it is charged with violating Nevada’s Deceptive Trade Act by not disclosing loan terms, making false representations in collecting debts, and selling loans to consumers without licenses.

Again, these guys are fools (if guilty). The majority of their transgressions are basic ignorance of the minimum disclosure and collection procedures demanded of business today!

If you want to make certain you’re doing things correctly, learn here:
Payday Loan Industry.com

There is an informative article over at pdlindustry.blogspot.com and at Port Clinton News Herald regarding payday loan type products offered by banks in Ohio; Wells Fargo, U.S. Bank and Fifth Third out of Cincinnati.

It’s interesting to note that after the defeat of the Ohio payday loan initiative banks continue to offer a payday loan type of product legally.

A customer can get an advance for up to 50 percent of their regular monthly direct deposits up to $500 for a fee of 10 percent – a maximum of $50. The APR on this type of loan could easily exceed 400% depending on the number of the days the loan is outstanding!

Julia Tunis Bernard, a Wells Fargo spokeswoman, said the bank has offered its product since 1994.

“Direct Deposit Advance service is available to customers with established Wells Fargo checking relationships and recurring direct deposits,” she said. “It is designed to help customers get through an emergency situation – medical emergencies, a car repair, emergency travel expenses, etc. – by providing short-term credit quickly. It’s not intended to solve longer-term financial needs.”

I wonder if she copied that verbiage off a payday loan web site?

While Wells Fargo, U.S. Bank and Fifth Third all offer their advances for periods up to slightly more than a month, their policy is to automatically pay themselves back upon the first direct deposit of $100 or more.

So if you borrow $200 three days before payday because of an unforeseen emergency, the bank would take $220 upon direct deposit.

Actually, this 10% rate is the same as the payday loan legislated rate mandated in Florida!

I guess payday loan companies simply need to beg for help from Washington D.C., join the ranks of the banks, and join the pig trough for TARP $$$.

A new survey conducted by Dartmouth College reveals residents are WORSE off without access to payday loan products!

Data on 400 payday loan consumers collected before and after the imposition of an interest-rate cap in Oregon indicates that the payday loan rate cap resulted in a severe downgrade in the financial condition of the Oregon households. These survey results indicate that restricting access to expensive credit harms, rather than helps, consumers.

The study was conducted by Prof. Jonathan Zinman in an effort to evaluate the effects of interest-rate and loan-term restrictions imposed by the State of Oregon in 2007.

Prior to 2007, payday loan companies in Oregon typically charged payday loan borrowers $15 per $100. Effective July 1, 2007, the maximum finance charge that can be imposed on Oregon borrowers is $10 per $100, with a minimum loan term of 31 days. The effective APR earned by lenders was reduced substantially as a result of the new payday loan regulation.

As a result of this new legislation the majority of Oregon payday loan operators left the state. Of course, payday loan lending volume fell dramatically as a result.

The Dartmouth Study revealed payday loan consumers were forced to find alternative sources for temporary financial help that is more expensive than payday loans; overdrafts and late bill payments.

The Dartmouth Study focused on the effects of the Oregon cap rate by comparing changes in key financial components of Oregon household finances before and after the effective date of the cap, using equivalent households in Washington state as a “control.” The study covers changes from June 2007 to December 2007.

The Dartmouth Study revealed that, “relative to their Washington counterparts, the Oregon households were far more likely to experience a change for the worse in the key financial outcomes measured by the survey: job status and respondents’ assessments of their recent and future financial situation”.

The conclusions of the payday loan Dartmouth Study reveal that restricting access to payday loans harmed Oregon respondents over the term of the study.

“These results suggest that access to credit, even if expensive, can help some people make productive investments and help others manage their cash flows through emergencies,” Prof. Zinman said. “There’s more work to do to reconcile these results with findings from other studies that suggest access to expensive credit can exacerbate financial distress.”

The data collection for the study was funded by a grant from Consumer Credit Research Foundation, which did not participate in the analysis of the data or the drafting of the study.

The actual payday loan dartmouth study is available:
Study.

Check ’n Go payday lending chain said Tuesday that it will close about half of its Ohio stores over the next several months.

CNG Financial said it will close 36 of its 71 stores in the state, eliminating up to 75 jobs. The company didn’t specify which sites would be shut down, but a spokesman said closures would be based on lending volume.

The Cincinnati-based company has seven Central Ohio payday lending shops.

Sixty four percent of Ohio voters cast their ballots in favor of Issue 5, which supported a law capping interest rates for payday lenders at 28 percent a year. The payday lending industry fought a $13,000,000 battle to repeal portions of the law, House Bill 545, saying the interest rate cap and other limitations would drive many of them out of the state. Payday lenders tried in vain for a rate that allowed them to charge a 391 percent APR.

Texas-based Cash America (NYSE:CSH) announced that it would shut down 43 of its 140 shops in Ohio.

Remaining Check N Go stores will offer loans permitted under the Ohio Small Loan statute, as well as check-cashing services. CNG operates more than 1,300 Check ’n Go locations in 31 states.

Arizona payday loan consumers urge a VOTE YES ON 200!

Concerned about access to small consumer loans and fear that government will continue to encroach on their freedom of financial choice, Arizona voters urge everyone to vote yes on 200.

Even if you have never used a payday loan and have zero plans in the future to do so, Arizona consumers urge all voters to allow the individual to make the choice; not government!

A Yes Vote on 200 will allow the payday loan product to exist in Arizona. A No Vote on 200 will force Arizona payday loan consumers to use Internet payday loan web sites.

Payday loan Internet web sites typically charge $20 - $40 per $100 borrowed. Arizona payday loan stores charge $15 per $100 for a two week period.

Recently the Prescott Courier endorsed Proposition 200! Read more here:
Arizonans for Financial Reform

Payday loan consumers in Ohio are expressing their fears about the future of the payday loan industry. They worry they will no longer have access to small dollar, no-hassle, no credit check payday loans in the future. They urge a VOTE NO on Issue 5!

Ohio payday loan ballot measure Issue 5, if passed will reduce allowed fees from $15 per $100 to $1.50 per $100. Should this occur, it’s estimated 6000 Ohio jobs will be lost, hundreds of thousands of Ohio payday loan consumers will be forced to use payday loan Internet web sites, the state of Ohio will lose tens of thousands of dollars in payday loan licensing and auditing fees, and commercial property owners who lease stores to payday loan companies.

One customer in a store in Heartland, Ohio on Friday said payday lending was there when he needed it.

On Aug. 19, Jim Hurley suffered a heart attack. While he was recovering, his bank account was overdrawn $21.

According to Hurley, his bank would have charged fees higher than a payday lending loan to cover the shortfall if the overdraft was not resolved quickly.

“I had to find a way to clear up my account fast,” he said.

Hurley went to a payday lender and was able to get his account back on positive footing.

“Places like these help when times are bad,” he said.

The Ohio ChillicoThe Gazette has several anecdotal payday loan consumer stories.