Mr. Hilary B. Miller, an attorney with considerable payday loan and consumer finance experience, has been kind enough to share his wisdom with our 4000 plus readers regarding his expectations for our future and the impact of the Consumer Financial Protection Bureau (CFPB) which contains Title X, the Bureau of Consumer Financial Protection (”we all need to start abbreviating properly as BCFP”).

A majority of our readers will recognize Mr. Hilary B. Miller as a presenter at The Community Financial Services Association of America; a national organization dedicated solely to promoting responsible regulation of the payday advance industry and consumer protections through CFSA’s Best Practices. CFSA, in addition to FISCA and OLA are the three organizations we recommend all our readers become acquainted with and support with donations and membership. An additional resource you must investigate is: Consumer Rights Coalition

As previously discussed, our thoughts on the future of the payday loan industry are EXTREMELY OPTIMISTIC! So continuing in that vein, today we have additional expert opinion specific to the payday loan industry from an industry veteran!

By Hilary B. Miller

What, exactly, are the implications of the Dodd-Frank Wall Street Reform and Consumer Protection Act for payday lending? For those in the industry, how the Act will shape the future of short-term consumer loan products is this week’s “$64 question.” Some law firms, Wall Street analysts and others have summarized the Act and its possible effect on various other financial businesses, but commentary on payday has been lacking in the media - including, surprisingly, the blogosphere. For better or worse, I’m going to launch myself into this lacuna.

My views will surprise many readers and will appear at odds with the public statements of some industry professionals. (I’m going to be making a presentation on this subject at the ABA Annual Meeting on August 8; so if you think I’m all wet, please let me know right away before I embarrass myself.)

These thoughts come with some caveats: First, if you are not my client, this is not legal advice to you. Second, efforts at punditry of this nature are notoriously unreliable and subject to the vagaries of political winds that will blow and crack your cheeks - or possibly worse. Third, I propound this primarily as a thought experiment to elicit alternative or better theories, to which I am receptive; if you have a different view, I want to hear it.

President Obama signed Dodd-Frank on July 21, and it is now Public Law 11-203. Despite nearly contemporaneous public statements from adversaries that the enactment would be the death knell for payday lending, the Act doesn’t contain any substantive regulation of payday lending in any of its 848 single-spaced pages. If there is a deadly weapon in the Act, it is apparently has a silencer.

Maybe it’s here: Title X of the Act creates the Bureau of Consumer Financial Protection (which we all need to start abbreviating properly as “BCFP”). The BCFP has amazingly broad powers to adopt and enforce regulations with respect to the conduct of “covered persons” - if you’re a payday lender, this means you.

The industry’s antagonists have pronounced that the BCFP’s first act will be to regulate payday lenders out of business (even though payday lending was entirely unrelated to the causes of the recent financial crisis, they assume that the BCFP will have no bigger fish to fry than payday lending). Some of my colleagues believe that payday lending is “low-hanging fruit” that the BCFP can use to put up a quick and easy “W” on the scorecard and, in the process, placate consumer groups. I think they’re all wrong.

A thoughtful analysis of how the BCFP will go about regulating payday lending needs to be multifaceted and nuanced. This process does not lend itself to facile, throw-away lines like “Liz Warren hates payday lending.” Rather, we need to look at the people who will promulgate the regulations, at the deliberative process mandated by the statute and at the guidelines the statute provides. Consideration must also be given to the effect on other BCFP constituencies of a perceived hasty and baseless proscription of payday lending. Finally, we need to think about timing and the likelihood that changes in the political composition of Congress will have occurred by the time the BCFP can get around to turning its guns on payday lenders.

The heavy lifting in the drafting of any regulations affecting payday lending will be done by staff of the BCFP. (The Bureau has no staff today but will acquire staff soon as a result of the combination of staffs of several federal agencies and outside hiring.) Staff are frequently the unsung heroes of Washington. Many of them are doctorally prepared career experts - economists, lawyers and psychologists - who could do better for themselves in the private sector but who choose instead to serve the public. No fooling. They work hard, and their work outlives the politicians to whom they report. And this factor is important for a critical reason: their primary motivation is to get it right, not to serve the ends of consumer groups or even of their more politically minded, but time-limited, bosses. The BCFP’s staff will be aware that consumers will be driven to inferior substitute credit products if payday loans become less available. They understand that eliminating supply does not eliminate demand. They will want to know what will replace the payday loans that are proposed to be outlawed. They don’t care about getting votes.

Staffs understand science. At the FDA, science sounds like this: “The effect of Diasporex was studied in a multicenter, prospective, randomized, double-blind, controlled trial conducted from 2002 through 2008 at 163 institutions, which enrolled 2,539 patients with type 2 diabetes without a history of atherosclerotic disease. A total of 34 patients in the Disasporex group and 38 patients in the control group died from any cause (hazard ratio 0.90, 95% confidence interval).” We grasp from this study that 10% fewer patients died with Diasporex than without it, a determination made using the gold standard of scientific inquiry in a large-scale, controlled experiment.

What is the analog of this for payday lending? For the CRL, it’s this: “Kym Johnson, a single mother working as a temp in Tempe, took out a payday loan when a friend told her about how she could borrow money easily. She quickly fell into the debt trap and had to pay a high fee every payday to renew the loan and avoid default. When she had trouble keeping up this cycle, she took out a second loan to pay fees on the first. It took Kym another eight months to shake free from the debt trap.”

Staff people understand that anecdotes are not science.

There is a significant existing body of real science on the issue of whether payday loans are welfare-enhancing for consumers. Most of the academic research shows that consumer welfare is enhanced by access to payday lending - although, in candor, a few studies are ambiguous or to the contrary. But there is no unambiguous research showing that payday loans are “bad” for a majority of borrowers. Likewise, there is no scientific evidence that the “right” number of rollovers at which to limit consumers is eight or six or zero. Think about all of the states with rollover limitations - there is no state in which a rollover limitation has been adopted based on a scientific study; such limitations have always been the product of a horse trade or something worse. That is not going to happen with the BCFP. Staffs are not going to make this stuff up. They are going to study it and get it right.

And this is precisely the process that Barney Frank intended. Despite numerous proposed amendments from the Left to impose specific interest-rate or rollover limits on payday lending, Frank pushed them all back and urged that these matters should be left to the agency’s expertise. They are going to study it and get it right.

The argument can be made that, even if staff personnel are scientific and apolitical, the regulatory process can easily corrupted by a political director. Let’s take a close look at a couple of the current directorship candidates and how they approach consumer-credit ambiguities:

Elizabeth Warren’s approach to regulatory issues becomes clear in her law review article, “Bankruptcy Policy,” 54 U. Chi. L. Rev. 775-814 (1987) (you can pay for the full article and download it at http://www.jstor.org/stable/1599826). The article illustrates her struggle with some thorny policy matters. She resolves them by adopting an economic analysis, which she admits is imperfect - “a dirty, complex, elastic, interconnected view of bankruptcy from which I cannot predict outcomes nor even necessarily fully articulate all the factors relevant to a policy decision.” In short, she is resistant to elemental dogma and takes little on faith. She has spent her career as a scholar who will follow the data and who is willing to vary her position when the facts lead that way. If, indeed, Warren hews to this mold, she is precisely the kind of leader whom we might want as the head of the BCFP: a non-dogmatic social scientist who listens. FiSCA interviewed her last year for its members’ magazine, and she presented a balanced and thoughtful approach to the credit requirements of lower-income consumers. At the time, I thought she was merely being polite (and politic); on reflection, while there is much on which I do not agree with her,  I’m not so sure she’s the devil incarnate.

The same can be said of the other leading candidate, Michael S. Barr, although his writings are more often cited as directly antithetical to payday lending. While he was on the faculty of the University of Michigan Law School, he conducted a study of Detroit-area lower-income consumers. The analysis in the paper is thoughtful and not critical of payday lenders in isolation; it shows that users of payday loans often have been turned down for other forms of credit and use overdraft and pawn to equal, often detrimental, effect. The paper is cited by CRL frequently for the proposition that payday users have three times the rate of bankruptcy, double the rate of evictions and phone cut-offs, and almost three times the rate of having utilities shut off. Unsurprisingly for CRL, these statistics are absent from the paper. And, of course, Barr never claims causation; he merely observes coincidence. See, “Financial Services, Savings, & Borrowing Among LMI Households in the Mainstream Banking & Alternative Financial Services Sectors,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1121195 (2008). He is a pretty level-headed, data-driven analyst, as far as I can tell. He understands that people often use payday loans because they are in trouble; he has not asserted that they are in trouble because they use payday loans. Barr shows every indication of being, like Warren, an evidence-based scholar.

Are these folks arch-conservative, pro-business zealots? Of course not. But they’re certainly not as awful as the trade press portrays them.

The director’s term is five years. Control of Congress and/or of the White House seems likely change in that time. The director will need to be mindful of the likely changes.

I turn now to the specifics of the Act. The BCFP’s authority includes proscribing by rule any “unfair, deceptive, or abusive act or practice under Federal law in connection with any transaction with a consumer for a consumer financial product or service.” Sec. 1031. To be clear, if the BCFP is going to curtail payday lending, it can only be because the Bureau finds payday lending to be “unfair, deceptive, or abusive” - there is no other basis in the statute for a proscriptive regulation. Unfortunately, the Act doesn’t define any of these three terms.

So what, exactly, is it about payday loans that the BCFP could find to be “unfair, deceptive, or abusive”? The resolution of this question really consists of two parts, because “unfair” and “deceptive” are already well-established legal concepts with time-tested meanings (largely from FTC practice).  Indeed, the language used in the Act to describe an “unfair” practice is lifted nearly verbatim from the FTC Act (at 15 U.S.C. § 45[n]). An example of a “deceptive” consumer financial service is one that economists refer to as a “shrouded attribute” - like a critical deal term concealed in fine print.  Although the statute explains certain conditions that must exist for an act to be found “unfair” or “deceptive” for purposes of brevity, suffice it to say that payday loans do not meet either of the traditional standards of “unfair” or “deceptive” products, because they comply literally with the requirements of applicable state enabling statutes and do not shroud any of their material terms. There is abundant judicial precedent on this point, including the FTC’s own Policy Statement on Deception (http://www.ftc.gov/bcp/policystmt/ad-decept.htm). If this were not the case, the FTC would long ago have shut the entire industry down. To my mind, this argument entirely disposes of two of the three “bad conduct” badges in the Act. Even if it did not dispose of this issue, the BCFP is required to take into account “public policy” considerations - such as the fact that access to payday loans remains the legislative public policy of 36 states - although such considerations are not dispositive (again, this language is lifted from the FTC Act). The FTC Act and Title X of Dodd-Frank are manifestly in pari materia, and chaos would result if they were interpreted differently.

Conversely, the third - “abusive” - is a standard created out of whole cloth for this legislation by Rep. Frank and his staff, without historic or judicial precedent, and without much in the way of legislative history in the Act itself. Here is what the statute says about “abusive”:

(d) ABUSIVE.-The Bureau shall have no authority under this section to declare an act or practice abusive in connection with the provision of a consumer financial product or service, unless the act or practice-

(1) materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or

(2) takes unreasonable advantage of-

(A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service;

(B) the inability of the consumer to protect the interests of the consumer in  selecting or using a consumer financial product or service; or

(C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

Sec. 1031.

This is a strange way not to define a term. Note that the statute doesn’t explain what “abusive” is; it simply tells the Bureau what minimum conditions must be present for “abuse” to be found. And I would argue - persuasively, I think - that none of those four conditions is present in a traditional payday loan.

An argument could be made that hyperbolic discounting might lead a small subset of consumers to take on debt that, had they known better, they might have realized they would not be able to repay (a [2][B] violation). This argument is readily reduced to an absurdity because the same hyperbolic discounting leads to excessive use of mainline credit products, such as credit cards, which nearly everyone agrees are non-”abusive.” The possibility that some subset of borrowers, however small, might over-consume a credit product when they have not been deceived into doing so does not strike me as an abusive process worthy of a ban applicable to all consumers.

Perhaps ultimately some argument could be made that an egregious combination of high interest rates and rollovers is “abusive.” While this argument, too, might lend itself to a reductio ad absurdum analysis - no one objects when the consumer pays three times the principal over the life of a thirty-year conventional mortgage - the “cycle of debt” claim remains seductive for those who would do right by consumers. The problem with the “cycle of debt” is that there is no scientific support for its existence; it exists only in CRL anecdotes and screeds. The emerging science is actually to the contrary; higher interest rates do not cause consumers to be indebted for longer, even though a superficial and unstudied review tells us this “must” be true. Ultimately, the BCFP isn’t merely going to take CRL’s word for it.

There is another problem with even taking interest rates into account in determining a payday loan to be “abusive.” Very importantly, under the Act, the BCFP has no authority to set or limit interest rates. Sec. 1027(o). By logical extension, I would argue that the BCFP has no authority even to take interest rates into account in determining a consumer loan product to be “abusive,” simply because the power to do so is the power to ban a product because of its high interest rate - a power expressly denied the BCFP under Section 1027(o). Congress did not want the BFCP to be able to supersede otherwise lawful state interest rates. Under the statute, the BCFP might find a 16-week loan term to be abusive from some reason, but it cannot - without spurring litigation - do so merely because the loan bears a 391% (rather than 18%) annualized interest rate.

In summary: payday loans are not “unfair” or “deceptive,” under well established and longstanding FTC standards, and it will be a very long shot to find them “abusive.”

The Act recognizes the importance of access to small-dollar consumer credit and actually creates (at Sec. 1205) a Treasury-funded small-dollar loan program, as an “alternative” to payday loans. The BCFP’s rulemaking authority is to be exercised in a manner so that “all consumers have access to markets” (Sec. 1021[a]); and the BCFP is required to balance “the potential benefits and costs to consumers and covered persons, including the potential reduction of access by consumers to consumer financial products or services resulting from such rule” (Sec. 1022[b]). It seems unlikely that a thoughtful and deliberate BCFP would eliminate consumer “access to markets” for small-dollar, short-term credit before the government’s own program catches on. Of course, it won’t ever catch on, just as the FDIC program flubbed. Banks don’t want these customers. And banks will have their hands full for years to come with the other provisions of the Act and don’t need to bother themselves competing with payday lenders.

Finally, the rulemaking process - collecting disparate views, drafting, giving notice and taking comments - will take time and is inherently deliberate and deliberative. All of this will happen only after the BCFP hires staff, finds office space and buys coffeemakers. It will therefore be many months, possibly 18 to 24 months, before the BCFP is effectively able to address these issues. During that time, control of Congress may change, and economic conditions are unlikely to militate in favor of further reductions in the supply of consumer credit.

There is every reason, too, why the BCFP would want to give the impression of being deliberate. It has other constituencies with far more economic and political clout than payday lenders. A perception by these other groups that payday lenders had been given hasty, incomplete or unfair consideration would lead to predictable howling and adverse consequences for both BCFP leadership and staff. There is simply nothing in it for the BCFP to throw payday lenders under the bus without at least careful research and a thorough, fair hearing.

In summary, I do not believe that the people who will lead the BCFP and who will execute the BCFP’s rulemaking process will regulate the payday loan industry out of business on the basis of prejudice, malice or politics, or that they will promulgate regulations in anything other than a near-plodding, diligent and fair way. I do not believe that a payday loan is “deceptive” or “unfair” within the common legal meanings for those terms, and I do not believe a payday loan can be shown to be “abusive” without the BCFP’s impermissible intrusion into interest-rate matters denied to it under the statute.

At the end of the day, heads-up against the BCFP, I believe the industry either wins outright, pushes or can negotiate an acceptable compromise.

As a consequence, at least a significant part of the “action” through at least mid-2011 is likely to remain at the state level. Continued diligence by trade associations, lobbyists and grass-roots organizations will therefore be required. This is especially the case because payday lending antagonists may flank the industry by pushing state legislatures to act early next year while the trade associations are focused on the BCFP.

At least as far as the BCFP is concerned, with apologies to Mark Twain, the rumors of the death of the payday loan have been greatly exaggerated.

Hilary B. Miller
hilary@miller.net

Read Part 1 here: Part 1

Law offices of Hilary B. Miller

Law offices of Hilary B. Miller | 500 West Putnam Avenue | Suite 400 | Greenwich | CT | 06830-6096

Payday Loan, Car Title Lenders, Check Cashers and all the rest of us in the micro-lending niche will survive. In fact, we’ll thrive.

How can I say this? How can I be so certain?

First, let me share with you the catalyst for this rant.

I got into payday loans, car title lending and check cashing in 1997 when I opened my first store in Mission Viejo, Calif. It was the early days and nobody in my world even knew what a payday loan was. I attended my first National Association of Check Cashers Convention (now called FISCA), networked, attended the workshops and left feeling really upbeat about the future of the payday loan industry and micro-lending in particular.

Everything was going great. Sure, there were always rumblings about regulators in a few states getting their feathers ruffled after prodding by The CRL or some other anti-business, anti-capitalist, anti-financial choice group. But I came to realize we enjoy a huge demand by consumers for our products and services. And we have some really smart and creative people in our industry.

Then October 2003 came along. I was at the FISCA Convention (I think it was at The Broadmoor in Colorado) when the FDIC announced all federally chartered banks involved in payday loan lending would have to increase their reserves to 1:1. Additionally, the FDIC advised that banks should ensure that payday loans are not provided to customers who have had payday loans outstanding from any lender for a total of three months in the previous 12-month period. “FDIC-supervised institutions currently engaged in payday lending are instructed to submit plans detailing how they will address the revised guidance.”

This announcement swept like wild fire through the halls of the convention. Shares of publicly traded payday loan lenders and check cashers plummeted that day. Valuations of brick-n-mortars plunged! “There would be no financing available in the future for our industry.” Stephens Investment Bank dutifully reported M & A action in our market segment was “dead” for the foreseeable future. Fully a third or more of the convention attendees freaked out. It was they said, “The end of our industry.”

Many operators bailed. They sold out; some at fire sale prices. (I know that many of these sellers eventually came back to our industry. They couldn’t stay away :o)

And then a funny thing happened; our industry survived. Store revenues increased. Transaction volume increased. The Internet began to play a role. CFSA was formed and eventually the OLA .

******************NOTE************************************
I don’t know the date you’re reading this. It doesn’t even matter. Just be aware that the regulatory and legislative issues discussed here are a universal theme, so keep reading. You’ll be glad you did! It’s very optimistic!!
**********************************************************

Now don’t get me wrong! There have been more bumps and grinds along the way. The payday loan advocates in Georgia were defeated by GILA . Oregon went down the tubes. Arizona and Ohio were tough battles. Virginia is edgy. And there were others! (By the way, don’t think the residents of these “dark” states are no longer getting their payday loans and car title loans; they most certainly are. They simply aren’t walking into a store in their state. Instead, they’re using the Internet,they’re driving across state lines, they’re calling 800#’s… meanwhile there are fewer jobs in their state. There is more crime in their state. Fewer taxes are being paid in their state. Vacancy rates for commercial buildings are higher in their state. And the fees that licensed payday loan and car title loan businesses were paying to their State are now non-existent. I guess that’s the subject of another rant!)

But it’s not all doom and gloom for us!

Here’s just a few reasons why we will overcome!

It will be 12 to 24 months before anyone in Washington even reads the 2300 page Consumer Financial Regulatory Agency Proposal. It will take months and months to form the committees and boards required to attempt to oversee our industry. There will be massive lobbying by the banks, the credit card companies, the automobile dealers, and our own organizations including OLA, FISCA and CFSA creating a lot of “give-and-take.” Who knows what the ultimate outcome will be. I’m certain we will evolve into whatever it takes. (For more on this read USA Today’s description of past failures of new financial regulatory reform out of Washington.

And there’s technology. Technology is in our favor. Technology knows no boundaries. Pay attention to Internet solutions. Get acquainted with “peer-to-peer” lending. Educate yourself regarding the origination of the Grameen bank and Muhammad Yunus who won the 2006 Nobel Peace prize for micro-lending. Do you know what he’s doing in New York and Pennsylvania today? Take a look at the Kiva Model and Prosper and Lending Club. Here’s a Business Week article offering some further insight into peer-to-peer lending:

Acquaint yourself with installment lending, open-end credit agreements, closed-end credit agreements, the Credit Services Organization (CSO) Model, collateralized and non-collateralized loans… (all of these are discussed in our Training Manual at PaydayLoanIndustry.com .

And don’t forget to learn what you can implement in your specific location/ model regarding setup fees, one time application fees, credit check fees (even if it’s simply Teletrack), referral fees, check cashing fees, connection fees…

MOST IMPORTANTLY, let us not forget about our customers! THEY NEED US JUST LIKE WE NEED THEM. They’re out there by the millions in the USA, the UK, Canada, Australia, New Zealand, Korea, Japan; they’re EVERYWHERE! And our customers DEMAND our product! They WANT our product! They MUST HAVE our product!

We simply have to organize better, support our industry organizations better, join forces with complementary industries, and prod our customers to support us with videos, email, letters and face book accolades. Most importantly, we must EVOLVE into whatever we need to be in order to SERVE OUR CUSTOMERS. No matter what the Regulators do, OUR CUSTOMERS WANT US! CUSTOMERS NEED OUR HELP! AND WE DESERVE TO MAKE A PROFIT SERVING THEM!!

So… with no end to consumer demand for our products and services in conjunction with an industry composed of some of the most intelligent and creative men and women on the planet, I’m 100% certain the payday loan, car title loan, check cashing …the whole micro-lending niche will not only survive but prosper in the coming decades.

Educate yourself! Read this PaydayLoanIndustryBlog.com . Read The Payday Loan Pundit . Read Nick’s stuff at PDLIndustry.com .

Consumer Financial Service Centers are our destiny! Evolve!! Adapt!! Create!!! You’ll prosper!!!!

Go into your location.

Make certain your primary employee(s) are AWARE of what you’re about to do. Make certain they see and hear your every move!

Pull up a customer contract on your computer or pull out a copy of a printed one.

Call the customer.

Here’s what you say:

“Hello CUSTOMER NAME!” This is “YOUR NAME at YOUR COMPANY NAME.”

I see you we’re here in our store on, “DAY OF WEEK and CONTRACT DATE.”

“I’m simply calling you to thank you for your business CUSTOMER NAME and make certain there isn’t anything more we can do for you.”

Then SHUT UP! Just listen!!

Hopefully, your customer will describe a pleasant experience at your store.

If things are in disarray your customer may describe a rude employee.

If things are really bad in your store, this customer may tell you they have not been in your location for the past six months, or one year or…

Employee fraud is occurring! It’s not uncommon, believe me!! When performing audits for clients wanting to buy or sell their payday loan business, we’ve found as many as 22% of the contracts are bogus. They never occurred! The employee(s) made them up!

We audit our stores. You must audit your store(s)!

Your employee(s) must be aware you perform this task RANDOMLY! UNANNOUNCED!! FREQUENTLY!!!

Not only is this a great way to get a real feel of how your business is doing but, just as importantly, you’ll eliminate EMPLOYEE TEMPTATION and generate new ideas for products and services your existing customers want and need.

DO THIS! Do it this week.

And of course, if you can’t reach them by telephone you can text them, you can email them, you can leave a voice message, etc. A critical element of this exercise is for your employee(s) to be aware you do this.

Then email me. I want to know how it went! I REALLY WANT YOU TO DO THIS!!

And if you need help with any part of your business visit our “Vendors & Suppliers”

Jer

A customer who owns their car outright and has the title or “pink slip” drives their vehicle to your location. Most of us who make car title loans require at least the following from our customer:

• A clear title to the car without liens or encumbrances
• A duplicate set of keys
• Proof of insurance including collision
• Driver’s license
• Phone bill
• Proof of employment
• Last 1-2 bank statements
• Last utility bill
• A minimum of 3 references with their complete contact information

Car title loan software is highly recommended for the above.

After the car title lender confirms the accuracy of all the application information (there are a multitude of data bases to perform these verifications) and verifies the “low-book” value of the automobile the car title loan is approved. Typically, the amount loaned on the vehicle (motorcycle, car, boat or RV) is 25% to 55% of this “low-book” value.

The car title loan consumer typically has 30 days to repay the loan principal and fees. Fees average 30% per month on the face amount of the car title loan. Of course, this varies greatly depending on where the car title loan takes place.

If the car title loan consumer is unable to repay the principal and fees on the date due, the car title loan lender usually collects the fees and agrees to extend the principal due date another 30 days.

100% Guaranteed Payday Loans

Have you thought about adding payday lending to your business?  Are you doing Payday Loans but not getting the return you deserve? Or, are you thinking about getting into the payday loan business but afraid of the losses and collections?

Allow us to 100% guarantee your payday loans.  Once we have approved a loan, if it goes “bad” just send the check to us and we will put the principle and interest back into your bank account.  You have your money from us within 5 to 6 business days and ready to put back on the street.

If  you are utilizing a collection company now:

* It typically takes 90 to 120 days for them to collect

* They generally collect less that 50% of the checks you submit to them.

* That’s 90 to 120 days you don’t have use of that money

* And 50% of your money you will never see again.

* How many times can you turn that money in 90 to 120 days if you had access to it?

Would you like to explore this? Email your contact info to explore

Additional payday loan collection resources:

This Newsletter probably received more responses than almost everything I’ve previously written about. (and we have over 4000 readers!)
http://paydayloanindustryblog.com/collections/
It’s heavily focused on collection tactics using some of the latest techie tools available.

I’ve written about some of the newest techie tools

Which bills a consumer will pay first. How different bills rank in consumers’ stacks, Get Your Customers to Pay You First:

How and why Text Messaging can help your Collection efforts INCREASE up to 25% or more and your payment defaults DECREASE by about 40%, as well as generate new leads and create repeat customers.

Payday loan lending businesses are now prohibited from operating in the state and, as a result, many Arizona payday loan lenders are considering converting to car title or auto-title loans and check cashing operations, which may be legal under Arizona law. Payday loan lawyers and compliance experts are researching these business models now.

Our clients and others are weighing the advantages and feasibility of switching to car title or auto title loans in order to continue to serve their customers. Demand for simple, no-hassle, minimum documentation micro-lending products remains huge! Unfortuately, Arizona Regulators fail to realize this demand. So, the Regulators simply outlawed payday loans leaving thousands of Arizonan’s without access to $300 to $1500 loans.  Check cashing services have also grown amid tighter state regulations.

The payday loan industry faces increased regulations from many states. Payday loan lenders narrowly escaped the financial regulatory reform bill, which would have required federal oversight of the payday loan industry. Millions of consumers through out the country welcomed this development as their ability to choose the payday loan product to solve short-term financial problems is a high priority.

Don’t think because you’re focused on the “brick-n-mortar model” (stores) that this subject is of zero importance to you. Leads and applications from local customers can make a huge difference in your profits. Never forget the life-time value of your customer.

So… you want to learn more about payday loan leads? Read on…

What is a PDL Lead?
A Payday Loan (PDL) or Cash Advance Lead is a consumer looking to obtain financing through an unsecured loan product which is designed for short term use. Generally a “lead” is classified as an interested consumer who has taken the time to complete a loan application while providing full information. That information includes full name, address, home & mobile numbers, personal identification items, employment status & income, references, and if they currently have an active checking account.

Different sources of PDL leads:
A “source” is the start, beginning, or origin of something. In the marketing industry the terms used to identify different sources are: organic search, search engine optimization, PPC (pay per click), email, banner, contextual, video, print, radio, and TV advertising. Different methodologies have been applied to generate interested consumers looking for a Payday (PDL) or Cash Advance Loan.

Why certain sources are better than others?
Do you wear the same size shoe as all your friends? Of course not! Same thing applies in which scenario of sources are better than others. Typically the most preferred way of obtaining customers is where they initiate a Google or Yahoo search by typing something like “I need a loan”. From the results they will select which advertisement looks most appealing and then hopefully apply for their Payday Day Loan. Every source is existent because it has proven its effectiveness in the market place. As a buyer or lender, you will have to decide which sources are most prevalent to your portfolios needs.

What to watch out for as a buyer/ lender?
The number one issue with a lead generation campaign in any industry is fraud. Buyers should put several verification systems in place to validate the identity of the applicant. The best solution is to verify via phone with every transaction if applicable. The secondary issue would be leads sold multiple times to several buyers all within minutes. A trusted and amicable relationship with your lead provider will go a long way in seeing a positive outcome.

What to expect, how to avoid pitfalls?
Setting clear expectations on what should happen and the type of outcome you might see from the campaign is very important. As we know Murphy’s Law, “If something can go wrong, it will go wrong”. A lead generation campaign is no different. Technology can bring situations that were unforeseen at conception as well. Overall working with a trusted partner that has longevity in the industry is ideal. At least you know they are committed to successful solutions.

Rough range of pricing of leads:
There are several ways to price leads. Most common would be purchasing on different tiers or levels in a lead providers market place. That can range from $1 all the way up over $100. Other pricing arrangements could be on a Cost Per Funded Loan (CPFL) or on a Revenue Share (split 80/20) model.

How to help your lead provider do a better job for you?
Communication between your lead provider and you are extremely relative to the outcome of your campaign. Be willing to share statistics of how the loan performs after funding, what sources of leads are converting best, and communicate your realistic expectations of the campaign. Feedback from buyers is the number one key for a successful lead generation campaign.

How to get the most from your leads?
Some buyers after initially buying a lead will not pursue a continued monetization campaign to convert the client if not successful on the first round. The sole responsibility of the marketing company is to bring a prospective customer to your door step but it is the buyer or lenders reasonability to sell them on way they should accept the loan. Be willing to invest additional marketing methods after the lead is received such as offering a special offer via email, call center, or print mailer.

Any other Tips for buying payday loan leads?
Most companies to a certain degree taunt that they have “exclusive leads”. The real question would be how would the lead provider know that you the buyer have never seen that lead before without presenting it to you? Let’s face it, people want money and will go to extreme lengths with multiple applications online to find someone willing to give them money. Please remember that you will see a certain percentage of duplicate leads whether they are from your portfolio or from another lead provider.

Lastly, be cautious of companies asking you to prepay money to receive leads. Unfortunately this isn’t the dollar menu at McDonalds. Make sure the rationalization of why a prepay is required is justifiable.

Want to discuss your situation with a pro? Do you need payday loan leads? Email your contact info to receive additional information free. Email Your Contact Info

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Virginia car title loan interest rate caps:

•22% per month (264% APR) for that portion of the loan under $700

•18% per month (216% APR) for that portion of the loan between $700
and $1,400

•15% per month (180% APR) for that portion of the loan exceeding
$1,400

Also, car title lenders must give a 10-day notice by mail before repossessing a
vehicle and must give a 15-day notice before selling the car after repossession.

The Virginia Consumer Finance Act prohibits unlicensed lenders from charging
and receiving interest in excess of 12 percent per year on consumer loans.

The current proposed bill in the Senate would create a consumer financial protection bureau. That office would carry a long list of regulatory responsibilities, including enforcement of a proposed interest-rate cap on short-term loans.

But in late hour negotiating, an amendment introduced by Sen. Kay Hagan, D-N.C., would also impose a limit of six payday-type loans per customer each year.

An interest rate cap could still carve into revenue for payday lenders. But analyst Joshua Elving of Feltl & Co. surmises that without Sen. Hagan’s loan limit, the overall bill would have little immediate impact. Various analysts estimate it would take a minimum of 3-4 years before any infrastructure to be developed by the newly proposed financial reform board.

If Hagan’s amendment fails, look for the publicly traded consumer lending stocks like EZCorp (EZPW), Cash America (CSH) and First Cash Financial Services (FCFS) that lost an average 17% in the two weeks ended May, to rally strongly in the coming weeks and the industry to continue on it’s merry way making some serious money.

We’ve shown our readers in the past that a lot of insight can be achieved by listening in on the publicly traded payday loan companies during their conference calls and 10-Q presentations. So… here’s another chance. It’s lengthly but WELL WORTH IT!

Want some really interesting insight into whats going on in our industry? Go here and read the last 2 or 3 10-Q’s. Man… make my head tingle!  Click here: Advance Cash America Investors

If you’re like the majority of our readers, legislation and alternative products are of great interest. Here’s a little insight into the advance cash America thinking from their 10-Q:

Changes in Legislation

Ohio Legislation

In November 2008, the State of Ohio capped interest rates on cash advance loans and limited the number of cash advances a customer may take in any one year. As a result of this legislation, the Company began offering small loans pursuant to the Ohio Small Loan Act and check-cashing services. The small loan product and check cashing services generate less revenue than the Company’s former cash advance product and, as a result, the Company has closed some of its centers in Ohio. In the third quarter of 2009, the Company stopped offering small loans and began offering cash advances pursuant to the Ohio Second Mortgage Act through a registered Second Mortgage Lender.

In the first quarter of 2010, the Ohio Division of Financial Institutions issued a rule restricting certain activities by licensed check cashers which would have a negative impact on the Company’s operations in Ohio.  This rule was scheduled to become effective by May 1, 2010, but has been temporarily stayed by the Court of Common Pleas of Franklin County, Ohio.

During the three months ended March 31, 2010, the Company closed four centers in Ohio.  For the three months ended March 31, 2010, $0.1 million are included in the income statement as an increase in other center expenses, and other related payroll costs.

Virginia Legislation

A Virginia law that went into effect in January 2009 substantially changed the terms for cash advance services in Virginia and severely restricted viable operations for short-term lenders.  The Company continues to offer cash advances in Virginia in conformance with the new regulations, and between November 2008 and February 2010 also offered an open-ended line of credit product.  However, a subsequent Virginia Corporation Commission ruling limited the Company’s ability to offer the open-ended lines of credit effective March 1, 2010.  As a result, the Company ceased offering new open-ended lines of credit in February 2010 and has continued to service existing lines of credit since that time.  Because of additional legislation that was passed in 2010, the Company also will stop providing new draws on existing lines of credit on or before October 1, 2010.

During the three months ended March 31, 2010, the Company closed 53 centers in Virginia. For the three months ended March 31, 2010, closure costs of $1.3 million are included in the income statement as an increase in other center expenses of $0.9 million, a loss on disposal of property and equipment of $0.1 million, and other related payroll costs of $0.3 million. If the Company closes all of its remaining centers in Virginia, the estimated closing costs, including severance, center tear-down costs, lease termination costs, and the write-down of fixed assets, will range from $2.8 million to $7.4 million, and the collectability of advances and fees receivable in Virginia most likely would be impaired. As of March 31, 2010, the net advances and fees receivable balance in Virginia was approximately $13.1 million. At this time, the Company is unable to determine the amount of goodwill impairment, if any, that would result from the cessation of operations in Virginia.

Arizona Legislation

An existing law permitting cash advances in Arizona is scheduled to expire on June 30, 2010. In light of this pending expiration, the Company is reviewing alternatives to continue serving customers in Arizona.  However, if the law is not renewed or extended or we are not able to offer an economically viable alternative product or service, we may be forced to close our centers in Arizona.  If we decide to close our remaining Arizona centers, we estimate the closing costs, including severance, center tear-down costs, lease termination costs, and the write-down of fixed assets would range from $1.2 million to $3.7 million, and the collectability of advances and fees receivable in Arizona most likely would be impaired. As of March 31, 2010, the net advances and fees receivable balance in Arizona was approximately $4.6 million. At this time we are not able to determine the amount of goodwill impairment, if any, that would result from the cessation of operations in Arizona.

Washington Legislation

A law became effective on January 1, 2010, in the State of Washington that limits the number of cash advances a customer may take in any one year, limits the cash advance amount that can be taken out at any one time, and implements a statewide database to monitor the number of cash advances. The Company believes this law will negatively impact its

revenue and profitability. The Company may close or consolidate some or all of its centers in Washington if management determines that it is no longer economically viable to operate all of its Washington centers.

During the three months ended March 31, 2010, the Company closed eight centers in Washington. For the three months ended March 31, 2010, closing costs of $0.2 million for the eight centers are included in the income statements as other center expense and other related payroll expense.

If the Company closes all of its remaining centers in Washington, the estimated closing costs, including severance, center tear-down costs, lease termination costs, and the write-down of fixed assets would range from $2.1 million to $7.5 million, and the collectability of advances and fees receivable in Washington most likely would be impaired. As of March 31, 2010, the net advances and fees receivable balance in Washington was approximately $7.1 million. At this time the Company is not able to determine the amount of goodwill impairment, if any, that would result from the cessation of operations in Washington.

South Carolina Legislation

A new law in South Carolina became effective January 1, 2010 that, among other things, implements a statewide database to monitor the number of cash advances made to customers within that state. The Company believes this law will negatively impact its revenue and profitability in South Carolina. Although the Company expects this law to have a negative impact on its operations in South Carolina, management currently believes operations will remain economically viable in that state.

Kentucky Legislation

A new law in Kentucky became effective in the first half of 2010 that, among other things, implements a statewide database to monitor the number of cash advances made to customers within that state. The Company believes this law will negatively impact its revenue and profitability in Kentucky. Although the Company expects this law to have a negative impact on our operations in Kentucky, management currently believes operations will remain economically viable in that state.

Overview

Headquartered in Spartanburg, South Carolina, we are the largest non-bank provider of cash advance services in the United States as measured by the number of centers operated. Our centers typically provide short-term, unsecured cash advances that are due on the customers’ next payday. As of March 31, 2010, we operated 2,461 centers in 32 states in the United States, 21 centers in the United Kingdom, and 13 centers in Canada.

Our industry has been significantly affected by increasing regulatory challenges. Legislation that negatively impacts cash advances services, whether through preclusions, interest rate ceilings, fee reductions, mandatory extensions of term length, limits on the amount or term of our products and services, or limits on consumers’ use of our products and services could materially and adversely affect our business. We are very active in monitoring and evaluating regulatory initiatives in all of the states and are closely involved with the efforts of the Community Financial Services Association of America (“CFSA”), which is an industry trade group composed of our Company and more than 100 other companies engaged in the cash advance services industry.

Cash Advance Services

Our primary business is offering cash advance services, which include cash advances, installment loans, and lines of credit. However, we continue to expand our cash advance services and to offer additional complimentary products and services.

In most states where we operate, we originate cash advance services under the authority of state-specific enabling statutes that allow for cash advances ranging from single and installment closed-end terms to revolving lines of credit with open-ended terms. The particular cash advance services offered in any given location may change from time to time depending upon changes in state law and federal law. Additionally, where permitted by applicable law, we may assume the responsibility of servicing as an agent to a regulated lender. In Texas, where we operate as a Credit Services Organization (“CSO”), we offer a fee-based credit services package to assist customers in trying to improve their credit and in obtaining an extension of consumer credit through a third-party lender. Under the terms of our agreement with this lender, we process customer applications and are contractually obligated for all losses. The permitted size of a cash advance varies by jurisdiction and ranges from $50 to $5,000. However, our typical cash advance ranges from $50 to $1,000. The finance charges on cash advance services currently offered also vary by jurisdiction and range up to 22% of the amount of the cash advance.

A customer may obtain a cash advance in one of three ways: (1) by visiting one of our centers in-person and completing an application; (2) by visiting our website, beginning the application process online, then visiting one of our centers in person to complete the application and receive a cash advance; or (3) by visiting our website, completing an application online, and receiving a cash advance from a third-party lender that is directly deposited in the customer’s bank account.

Our customers also may obtain online cash advances made by third-party lenders that are governed by the laws of the state where the customer resides. We receive revenue from online cash advances made by third-party lenders based on a percentage of the net fees, defined as advance fees less a provision for doubtful accounts and a cost of capital charge, but otherwise are not contractually obligated for losses.

Additional fees that we may charge and collect include origination fees, annual participation fees, fees for returned checks, late fees, and other fees as permitted by applicable law. Currently, none of the cash advance services we offer include annual participation fees. Origination fees on cash advance services currently offered by us range from $15 to $30, but future cash advance services may have higher or lower origination fees depending on applicable state law. Fees for returned checks or electronic debits that are declined for non-sufficient funds (“NSF”) vary by state and range up to $30, and late fees vary by state and range up to $50.  In Texas and online, the third-party lenders charge NSF fees and late fees in accordance with applicable law.

23

· writes a personal check or provides an ACH authorization to cover the amount advanced plus charges for applicable fees and/or interest; and

· makes an appointment to return on the specified due date to repay the amount advanced plus the applicable charges and to reclaim his or her check.

In jurisdictions where we provide cash advances, we determine whether to approve the cash advance to our customers. We require proof of identification, bank account, and income source, as described above, and we primarily consider the customer’s income in determining the amount of the cash advance. In the future, we may consider other criteria in evaluating cash advances. When a third-party lender provides the cash advance, such as in Texas and online, the applicable third-party lender decides whether to approve a cash advance and establishes all of the underwriting criteria and terms, conditions, and features of the customer agreements.

Payment Plans

In most states, a customer may qualify for an extended payment plan (“Payment Plan”). Generally, the terms of our Payment Plans conform to the CFSA Best Practices for extended payment plans. Certain states have specified their own terms and eligibility requirements for Payment Plans. Typically, a customer may enter into a Payment Plan for no additional fee once every twelve months and the Payment Plan will call for scheduled payments that coincide with the customer’s next four paydays. In some states, a customer may enter into a Payment Plan more frequently. We do not engage in collection efforts while a customer is enrolled in a Payment Plan. If a customer misses a scheduled payment under a Payment Plan, we may resume our normal collection procedures. We do not offer a Payment Plan for installment loans or lines of credit. Nor does the third-party lender in Texas offer a Payment Plan for advances to its customers. The third-party internet lenders offer Payment Plans as required by state law.

Collection Process

Repayment terms vary depending upon state law, the type of cash advance service offered, and whether the cash advance was completed online or in one of our centers. Generally, as part of the closing process, we explain the customer’s repayment obligations and establish the expectation that the customer will pay us in cash on or before the due date in accordance with their agreement with us. The day before the due date, we generally call the customer to confirm their payment.

If a customer does not pay the amount due, our center management has the discretion to either commence past-due collection efforts, which typically may proceed for up to 14 days in most states, or deposit the customer’s personal check or debit their bank account in accordance with their ACH authorization. If center management decides to commence past-due collection efforts, employees typically contact the customer by telephone or in person to obtain a payment or a promise to pay and, in cases where we hold a check, attempt to exchange the customer’s check for a cashier’s check, if funds are available.

If, at the end of this past-due collection period or Payment Plan, the center has been unable to collect the amount due, the customer’s check is deposited or their ACH authorization is processed. Additional collection efforts are not required if the customer’s deposited check or ACH debit clears. For the year ended December 31, 2009, and the three months ended March 31, 2010, we deposited customer checks or presented an ACH authorization for approximately 5.9% of all customer checks we received and approximately 30% and 37%, respectively, of these deposited customer checks or presented ACH’s cleared.  If the customer’s check or ACH debit does not clear and is returned because of non-sufficient funds in the customer’s account or because of a closed account or a stop-payment order, we begin additional collection efforts. These additional collection efforts are carried out by center employees and typically include contacting the customer by telephone or in person to obtain payment or a promise to pay and attempting to exchange the customer’s check for a cashier’s check, if funds become available. We also send out a series of collection letters, which are automatically distributed from a central location based on a set of pre-determined criteria.

In the case of cash advances in the form of lines of credit, if a customer fails to make payment when due in accordance with the terms of their agreement with us, center management may close the line of credit, accelerate the maturity date, and take the steps outlined above or work with the customer to bring his or her payments current. If we close the line of credit and accelerate the maturity date, we stop charging interest on the outstanding amount and begin collection efforts as described above.

Selected Operating Data

The following table presents key operating data for our business:

(1) Excludes lines of credit and installment loans.

(2) Excludes the impact of extended payment plans.

(3) We began offering lines of credit in Virginia in November 2008 and ceased offering new lines of credit to customers in Virginia in February 2010.

(4) The installment loan activity reflects loans we originated as the lender in Illinois.

Provision for Doubtful Accounts, Allowance for Doubtful Accounts, and Accrual for Third-Party Lender Losses

Our provision for doubtful accounts and accrual for third-party lender losses are primarily based upon models that analyze specific portfolio statistics and also reflect, to a lesser extent, management’s judgment regarding overall accuracy. The analytical models take into account several factors including the number of transactions customers complete and charge-off and recovery rates. Additional factors, such as changes in state laws, center closings, length of time centers have been open in a state, and relative mix of new centers within a state are also evaluated to determine whether the results from the analytical models should be revised.

The provision for doubtful accounts decreased from 13.5% of revenues or $21.1 million for the three months ended March 31, 2009 to 8.8% of revenues or $12.7 million for the same period in 2010. This decrease is due primarily to an improvement in the loss rates in Virginia and a reduction of approximately $22.2 million in receivables related to the line of credit product in Virginia at March 31, 2010 compared to March 31, 2009.  During the three months ended March 31, 2009 and 2010, we received proceeds from the sale of receivables in the amount of zero and $0.5 million, respectively.

Changes in Legislation

During the last few years, legislation that prohibits or severely restricts our products and services has been introduced or adopted in a number of states and at the federal level, and we expect that trend to continue for the foreseeable future.  For example, in 2008 and 2009, bills were introduced at the Federal level that would have placed a cap of 36% on the effective annual percentage rate (“APR”) on all consumer loan transactions.  Another bill would have placed a 15-cent-per-dollar borrowed ($0.15/$1.00) cap on fees for cash advances and implemented other consumer protections.  Recently, Senator Kay Hagan introduced a bill that seeks a limit of six cash advances that a consumer would be permitted to receive in any twelve-month period.  Additionally, Congress has been debating the creation of a Consumer Finance Protection Agency (“CFPA”), which would establish additional regulatory restrictions on consumer finance transactions and could expressly restrict cash advance transactions. At the state level, a 2009 law in Virginia prompted us to change our cash advance product and to offer an open-ended line of credit product.  However, a subsequent Virginia Corporation Commission ruling and additional legislation limits our ability to offer and service the open-ended line of credit product in Virginia. As a result, we have consolidated a number of our centers in Virginia, and we may determine that further consolidation of centers in Virginia is appropriate if the cash advance product we now offer in Virginia is not sufficiently profitable to maintain.  Also, on January 1, 2010, a law became effective in the State of Washington that places a number of restrictions on our cash advance product including limiting the number of cash advances a customer may take to eight advances in any one year. As a result, we expect that our revenues and profits in Washington will be significantly reduced. If we are unable to operate profitably in Washington, we may cease operating in that state. New laws in each of South Carolina and Kentucky have become effective during the first half of 2010 that will, among other things, implement a statewide database in each state to monitor the number of loans made to customers within that state.  Similar legislation is likely to become effective in Wisconsin in the third quarter of 2010. Further, legislation permitting cash advances in Arizona and Mississippi is scheduled to expire in 2010 and 2012, respectively. This legislation may not be renewed or could be modified in a manner that affects our operations negatively. We are regularly refining our cash advance services and developing new products and services or operations to address recent or anticipated legislative and regulatory changes. Some of these legislative and regulatory changes may result in our discontinuing operations, while other changes may result in less significant short-term or long-term changes, interruptions in revenues, and lower operating margins. We generally cannot estimate what effect, if any, operational changes we make in response to legislative and regulatory changes may have on our financial results until we are able to develop legal and financially viable alternative products and services.

Operations in Ohio

In November 2008, the State of Ohio capped interest rates on cash advance loans and limited the number of cash advances a customer may take in any one year. As a result of this legislation, we began offering small loans pursuant to the Ohio Small Loan Act and check-cashing services. The small loan product and check cashing services generate less revenue than our former cash advance product and, as a result, we have closed some of our centers in Ohio. In the third quarter of 2009, we stopped offering small loans and began to offer cash advances pursuant to the Ohio Second Mortgage Act as a registered second mortgage lender.  A rule issued by the Ohio Division of Financial Institutions in the first quarter of 2010, and temporarily stayed by the Ohio courts, has restricted certain activities by licensed check cashers and could have a further negative impact on our operations in Ohio.

Operations in Virginia

A Virginia law that went into effect in January 2009 substantially changed the terms for cash advance services in Virginia and severely restricted viable operations for short-term lenders.  We continue to offer cash advances in Virginia in conformance with the new regulations, and between November 2008 and February 2010 also offered an open-ended line of credit product.  However, a subsequent Virginia Corporation Commission ruling limited our ability to offer the open-ended lines of credit effective March 1, 2010.  As a result, we ceased offering new open-ended lines of credit in February 2010 and have continued to service existing lines of credit since that time.  Because of additional legislation that was passed in 2010, we also will stop providing new draws on existing lines of credit on or before October 1, 2010.

During the three months ended March 31, 2010, we closed 53 centers in Virginia. For the three months ended March 31, 2010, closing costs of $1.3 million are included in the income statement as an increase in other center expenses of $0.9 million, a loss on disposal of property and equipment of $0.1 million, and other related payroll cost of $0.3 million.

If it is not economically viable for us to continue operations in Virginia and we decide to close our remaining Virginia centers, our estimated closing costs, including severance, center tear-down costs, lease termination costs, and the write-down of fixed assets would range from $2.8 million to $7.4 million, and the collectability of advances and fees receivable in Virginia most likely would be impaired. As of March 31, 2010, the net advances and fees receivable balance in Virginia was approximately $13.1 million. At this time, we are not able to determine the amount of goodwill impairment, if any, that would result from the cessation of operations in Virginia.

For the three months ended March 31, 2009 and 2010, 12.6%, and 4.9%, respectively, of our total revenues were generated from our operations in Virginia. The following is a summary of financial information for our operations in Virginia for those periods (in thousands):

Operations in Arizona

Legislation permitting cash advances in Arizona is scheduled to expire on June 30, 2010. If the law is not renewed or extended and it is not economically viable for us to continue operations in Arizona and we decide to close our remaining Arizona centers, we estimate the range of closing costs, including severance, center tear-down costs, lease termination costs, and the write-down of fixed assets would range from $1.2 million to $3.7 million, and the collectability of advances and fees receivable in Arizona most likely would be impaired. As of March 31, 2010, the net advances and fees receivable balance in Arizona was approximately $4.6 million. At this time we are not able to determine the amount of goodwill impairment, if any, that would result from the cessation of operations in Arizona.

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Table of Contents

Centers

The following table illustrates the composition of our center network at December 31, 2009 and March 31, 2010:

New centers

We opened four and zero new centers during the three months ended March 31, 2009 and 2010, respectively.

Provision for Doubtful Accounts, Allowance for Doubtful Accounts, and Accrual for Third-Party Lender Losses

We believe the most significant estimates made in the preparation of our accompanying consolidated financial statements relate to the determination of an allowance for doubtful accounts for estimated probable losses on cash advances we make directly to customers and an accrual for third-party lender losses for estimated probable losses on cash advances and certain related fees for loans that we process for the third-party lender in Texas. See “Off-Balance Sheet Arrangement with Third-Party Lender” in this section. Our advances and fees receivable, net, on our balance sheet, do not include the advances and interest receivable for loans processed by us for the third-party lender in Texas because these loans are owned by the third-party lender.

The provision for doubtful accounts decreased from 13.5% of revenues or $21.1 million for the three months ended March 31, 2009 to 8.8% of revenues or $12.7 million for the same period in 2010. This decrease is due primarily to an improvement in the loss rates in Virginia and a reduction of approximately $22.2 million in receivables related to the line of credit product in Virginia at March 31, 2010 compared to March 31, 2009.  During the three months ended March 31, 2009 and 2010, we received proceeds from the sale of receivables in the amount of zero and $0.5 million, respectively.

The allowance for doubtful accounts and accrual for third-party lender losses are primarily based upon financial models that analyze specific portfolio statistics and also reflect, to a lesser extent, management’s judgment regarding overall accuracy. The analytical models take into account several factors including the number of transactions customers complete and charge-off and recovery rates. Additional factors such as new products, changes in state laws, center closings, length of time centers have been open in a state, and relative mix of new centers within a state are also evaluated to determine whether the results from the analytical models should be revised.

We record the allowance for doubtful accounts as a reduction of advances and fees receivable, net, on our balance sheet. We record the accrual for third-party lender losses as a current liability on our balance sheet. We charge the portion of advances and fees deemed to be uncollectible against the allowance for doubtful accounts and credit any subsequent recoveries (including sales of debt without recourse) to the allowance for doubtful accounts.

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Table of Contents

Unpaid advances and the related fees and/or interest are generally charged off 60 days after the date a customer’s check was returned, the ACH was rejected by the customer’s bank, or the default date, unless the customer has paid at least 15% of the total of his or her cash advance plus all applicable fees, or 15% of the outstanding balance and related interest and fees for our line of credit and installment loan products. Unpaid cash advances or cash advances of customers who file for bankruptcy are charged off upon receipt of the bankruptcy notice. Although management uses the best information available to make evaluations, future adjustments to the allowance for doubtful accounts and accrual for third-party lender losses may be necessary if conditions differ substantially from our assumptions used in assessing their adequacy.

Our business experiences cyclicality in receivable balances from both the time of year and the day of the week. Fluctuations in receivable balances result in a corresponding impact on the allowance for doubtful accounts, accrual for third-party lender losses, and provision for doubtful accounts.

Our receivables are traditionally lower at the end of the first quarter, corresponding to tax refund season, and reach their highest level during the last week of December.

In addition to the seasonal fluctuations, the receivable balances can fluctuate throughout a week, generally being at their highest levels on a Wednesday or Thursday and at their lowest levels on a Friday. In general, receivable balances decrease approximately 4% to 7% from a typical Thursday to a typical Friday. The first quarter of 2009 began on a Thursday and ended on a Tuesday. The first quarter of 2010 began on a Friday and ended on a Wednesday.

To the extent historical credit experience is not indicative of future performance or other assumptions used by management do not prevail, our loss experience could differ significantly, resulting in either higher or lower future provisions for doubtful accounts. As of March 31, 2010, if the estimated rates used in calculating our allowance for doubtful accounts and third-party lender losses were 5% higher or lower, it would have increased or decreased our provision for doubtful accounts by approximately $2.2 million.

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