Video-Banks In Cahoots With Payday Loan Businesses

Payday loans and banks?  I like this! It’s worth watching no matter how you feel about banks, the payday loan industry, making money…The financial numbers quoted in this video are a bit skewed, a little dated and are meant as an attack on banks and the payday loan industry but check it out and leave a comment.

State of the Payday Loan Industry Today

Here’s a quick summary of what’s going on in the micro-lending space today!

The Internet side is growing 30% – 35%. There is a constant influx of newer, younger customers accessing short-term lending products. They’re coming to us via the Internet and their phone. Rather than cannibalizing the stores, the Internet is bringing new customers to our services. A majority of these consumers have not appeared in our data bases before. Of course, Internet loans = higher default rates (double) but fixed costs are considerably lower. The keys to success here? SEO (Search Engine Optimization), SEM (Search Engine Marketing), smart lead buying, analytics, use of offline marketing strategies…

Sure, there are still millions of consumers entering payday loan stores all over the world! However, there’s a huge number of tech savvy, younger consumers entering the work force in search of “quick-n-easy” access to cash via technology.

Millions of new consumers graduate from high school and college every year. Many of them get jobs in spite of what you’re hearing in the media. And it doesn’t matter whether they’re in the USA, Canada, the UK, Poland, Finland, the AU… they tend to spend more than they make – it’s human nature!

For those customers that have already used our products, nothing has changed for them either. Consumers are facing higher costs for goods and services. Wages are flat to stagnating. They need money now! The ALICE demographic continues to grow.

Example? I got a call today from a lady in Virginia. She works for the department of education. She was sobbing because she needed cash to get her prescription. The problem? She had paid off her payday loan with a licensed lender in Virginia but she had not yet been removed from the Virginia state data base. She chose to get a loan to solve this challenge via the Internet! Multiply this experience by millions and you’ll begin to understand our industry and our customer.

The “in-home loan model” is going strong! The payday loan product is offered and serviced at the consumer’s home. This is particularly pronounced in the UK and the Scandinavian market. We’re seeing this develop in the USA car title lending market and payday loans to a lesser extent. It’s a growing trend!

The world wide pawn/ collateralized loan segment is growing dramatically. Pawn shops are experiencing record profits and growth in revenue. Typical monthly fees for these collateralized loans run in the high teens. Cloud based pawn software and internet transactions are beginning to appear in this segment as well. We’ve had a number of creative entrepreneurs reach out to us lately for help in reaching potential franchisees/investors or introducing new solutions for operators in the pawn business.

Scrap gold jewelry buying is going through the roof! We have clients netting over $50K per year in some very competitive markets. If you aren’t in this space yet, FIGURE IT OUT!

Regarding acquisitions? The lack of liquidity is creating a pipeline of realistic sellers. Very sophisticated money is on the prowl for partners who offer local expertise and opportunities for growth in markets that are new to them.

The bottom line? There has never been more opportunity in our space! Growth is world-wide. What should you do? Research! Figure out what you and your Team bring. Choose the right partners. Develop your “secret sauce.”
Consult, analyze, adjust, and implement. Then REPEAT!
Questions? Call me: Jer 702-208-6736 Jer@PaydayLoanIndustryBlog.com

Payday Loan Franchise?

I received a call this morning from John. John wants to start a payday loan business. He’s been researching the payday loan industry for 6 months. John’s question, “Should he buy a franchise?”

This particular payday loan franchise company requires John to have about $215,000 to open. This consists of a $35,000 one-time franchise fee, $65,000 for build-out,  $15,000 for software, signage and miscellaneous marketing materials. This leaves roughly $100,000  “for the street.”

Finally, a 6% monthly commission must be paid to the Franchisor “on the gross revenue of the business.” That’s 6% on the gross revenue! As John explained this to me, the Franchisor has a system for payday loans – nothing else. That means,  if John develops a scrap gold buying business or if John adds car title loans, or anything else for that matter, he must pay 6% on his total gross revenue; this despite the fact that the Franchisor offers zero support and expertise for these additional services.

This Franchisor cannot guarantee a specific return, but they imply John will earn 18%/month EBITDA. (This using a licensing model allowing 15% of the face amount of the loan to the consumer.) Of course, as in life, this potential return depends on a lot of factors. There are no guarantees.

So… should John purchase a franchise? With zero hesitation, I responded to John with an emphatic, “NO.”

BUT, I began to listen to the path John was on. I sensed the frustration John was experiencing. AND I sensed the answer to his initial question requires a macro perspective rather than a simple yes or no to, “Should I buy a payday loan franchise?”

For the past 6 months, John has used Google.com for keyword searches like, “how to start a payday loan business, payday loan software, payday loan industry, payday loan customer demographics, payday loan lawyer” and on and on…

He’s called and participated in demo’s of  various payday loan software vendors such as eChecktrack, Answers, Epic, Azo Blue (Apogee), PLM (Infinity), Alpha Omega, IntroXL, TranDotCom, eCash, EData and more.

Additionally, John has reached out to legal counsel including Paul Soter, Claudia Calaway and Hillary Miller to discuss compliance,  consumer contracts, arbitration agreements, licensing models (choice-of-law, state-by-state, offshore)… This led John to Allen Parker and the tribe model (sovereign nation), and Michael Brown at CAB Consulting (CSO to CAB transition).

John talked with the consumer data scrubbers; Clarity, DataX, CoreLogic-Teletrack, Idology, Factor Trust,  and more.

And of course, John contacted a few ACH providers like Advantage Resources, LST, ACH Works and the new payday loan”wire transfer” provider introduced at OLA. ($3.00 wire transfers using the EFT Network rather than the ACH system.)

Then there are the web site builders like Frank Masotti, the lead generators, the SEO and SEM companies, outsourcing of call centers vs in-house, analytics experts, collection companies, reputation management companies…

After doing all this research and reading some of our training and start-up materials, John still didn’t have clear answers to questions such as:

Is the PDL industry saturated? Is there room for another payday loan lender? Maybe I should lend capital to an existing operator? (For example, there’s a team with 50 brick-n-mortars in 3 states offering 10% returns with personal guarantees. Or, an operator in Las Vegas with 3 locations is offering 3% per month with car titles as collateral.) Or, John wonders if he should act as a 3rd party Texas Lender by making capital available backed by a CD and an Irrevocable Letter of Credit? He’s been told he can earn 15% – 24% annually on his capital with very little risk.

John has determined there is a TON of opportunity in the payday loan – micro lending space! The puzzle for John is to figure out HOW we wants to play it based on his goals, his family situation, his existing skill set, and his appetite for risk.

So… John asks himself the following:

Internet or store or both?

How do I market? Online and off-line?

Do I focus solely on payday lending and cash advance?

What other products and services make sense to add to my PDL business?

Do I really need to invest in a franchise system or can I do this on my own?

I’m concerned about my family (John’s health is questionable and he has a wife and 1 child) and their ability to carry on the business should something happen to me. Would my being part of a franchise system reduce this risk and add value to my new enterprise?

Do I need legal counsel on retainer or can I rely on the Franchisor to keep me compliant?

As a Franchisee, I’ll be part of a system, a group of peers in the same industry. How valuable is this? Or, do I go on my own and rely on my state organization, FISCA, CFSA and/or OLA to educate me and help me build my business? Will I have the time and money to be part of these trade organizations?

What do you think? What would you do? For that matter, maybe you already made the decision! What are your thoughts? What would you advise John to do? Put on your consultant hat! It’s time to give back… LEAVE A COMMENT!

Jer@PaydayLoanIndustryBlog.com

Texas CSO Credit Services Organization Transition to CAB Credit Access Business, January 1, 2012

If you have an interest in the Texas payday loan CSO Credit Services Organization transition to the new CAB Credit Access Business Model read on! Delete this now if not!!

Texas (CSO) Credit Service Organizations are facing a new phase of payday loan regulation as they are forced to transition to the Credit Access Business (CAB) model.

Texas has mandated several new requirements to obtain this new CAB license. As a result, many existing CSO’s are scrambling to make the January 1, 2012 deadline for implementation.

A new company called C.A.B Consulting & Brokerage, formed by a group of highly experienced payday loan executives (full disclosure: In addition to Michael Brown, Jer  with Trihouse is one of the founding members ), is now available to help you with this transition!

C.A.B Consulting and Brokerage is the most informed consultancy in the payday loan – micro-lending space regarding the new Texas CAB laws. C.A.B.’s strategy is to focus exclusively on assisting existing CSO’s and new CAB’s through this transition.

http://www.CreditAccessBusiness.com offers free information, packets, manuals, consultant arrangements and a Credit Access Business Blog. Contact C.A.B today to discuss options and transition services to move your business into this new era of lending in Texas. Sign up for the Newsletter via Email or an RSS feed for daily posts.

If you’re lending in Texas now, or you plan to enter the Texas micro-lending space, you need this new C.A.B. resource!

Michael Brown
Jer Ayles-Ayler
C.A.B. Consulting and Brokerage
“Compliance, Capital, and Collections”
http://www.CreditAccessBusiness.com

Email Michael: Michael@CreditAccessBusiness.com
Call Michael: 214-293-8676
Fax Michael: 888-561-0986

Online Lenders Alliance OLA Convention Followup – Denver

I just returned home from the payday loan Internet convention put on by OLA in Denver. My initial reaction?

OPTIMISTIC! POSITIVE!! OUR FUTURE IS SECURE!!!

I’ve been riding this payday loan roller coaster since 1997. From a legislative and regulatory perspective, it’s been challenging to say the least.

Our industry, the business of loaning money, has been attacked since time began. The thing is, DEMAND for our product cannot be legislated away.

There are some really smart guys in our space! And, we have trade organizations that leverage our individual strengths.

First we had FISCA. Then we had CFSA. And now we have OLA as well. All 3 are good organizations and all 3 deserve our support.

Over the next several days, I’ll address some of the latest techniques, solutions, technology and strategies for achieving success in the micro-lending space that OLA attendees were exposed to.

For now, like I always say, “Hang-in there payday loan fans because the future REALLY IS OURS!”

Jer@PaydayLoanIndustryBlog.com

Bank Fees in Violation of Military Authorization Act?

One of the provisions of the FY 2007 Military Authorization Act, makes it illegal for creditors to grant payday loans and car title loans to military members.

The change also prohibits charging more than 36 percent interest to military borrowers. Fees, service charges, renewal charges, credit insurance premiums or any other product “sold” with the loan must be included when calculating the interest rate.

Among other things, this law prohibits “using a check or any other access to a member’s financial account as security for a loan.”

So… what if a member of the military has a checking account with one of the banks or credit unions making loans to customers based on their direct deposit paychecks? These “payday loans” are then repaid in full – both principal and fees – once the direct deposit clears. It’s VERY common for this bank customer to take out another loan. If you analyze the numbers, you soon calculate these bank customers pay $900 in interest to borrow $500 from the bank for less than 6 months – an APR of 365% !

Doesn’t this violate the Act? I’ve looked at these transactions and the banks and credit unions offer virtually zero disclosure. I’m not a lawyer but, if I was, “I’d be licking my chops!” The media is beginning to sniff this out. Both Bloomberg and The Wall Street Journal are on this. Bank of America and the other banks are getting nailed over this new $5 ATM fee. They’re about to get MORE HEAT! Man, what a shame.

What do you think? Jer@PaydayLoanIndustryBlog.com

OLA – Online Lenders Alliance Conference in Denver next week, read on

If you’re going to be at OLA – Online Lenders Alliance Conference in Denver next week, read on.

I can’t believe this is free!

Current Major Issues in Online Lending from the Regulatory, Litigation and Tax Perspectives Brunch

You’re invited to join Claudia Callaway and Christina Grigorian of Katten Muchin Rosenman LLP and Allen Kutchins and Tom Duffy of Kutchins, Robbins & Diamond Ltd. over brunch before the OLA Conference for an overview of the regulatory, litigation and tax issues facing online consumer lenders today.

If you have ANY interest in lending via the Internet or plan to, YOU NEED TO ATTEND! NO CHARGE!!

Monday October 10
10:00 AM – 12:00 Noon
Complimentary Brunch & Seminar

Sheraton Denver Downtown
Silver Room 1550 Court place

Topics:
CFPB and FTC: New Rules, New Enforcement Actions

Offshore Lending: Tax Consequences and IRS Developments

Tribal Lending: A Primer

Tax Considerations for Your Corporate Structure

Litigation Roundup

Presenters:

Claudia Callaway
Allen Kutchins
Christina Grigorian
Thomas Duffy

These are some of the best minds in the payday loan Internet space! If you’re attending OLA you must attend.

Email Ann Jones ann.jones@kattenlaw.com   or call 202-625-3548  to get in! SPACE IS LIMITED!!

Washington State DFI Report Shortsided – Payday Loans

“Report shows Payday Lending Law is helping keep people out of debt” – All the Washington regulators did was shove Washington payday loan customers into the hands of unlicensed internet and tribal Lenders! The Washington DFI has no clue how many payday loan transactions are completed online. Nor does the DFI know the APR’s, the fees being paid…

Yes, the number of payday loan lenders with offices in WA have contracted. So… less jobs, higher commercial vacancy rates, less taxes paid and on and on. And, the DFI has enabled an unlicensed payday loan operator in Belize or Costa Rica or the XXX Tribe to gather financial data (SS#’s, bank acct. info…) about Washington state residents! Consumers everywhere WANT their payday loan.

Payday Loan Tribe Model Attacked

We all know the payday loan – tribe partnership model is highly controversial. It’s a strategy being evaluated by tribes having considerable wealth, “poor” tribes lacking gaming success, and sophisticated payday loan Lenders with superior management skills. State Attorneys General, the Fed’s, legal counsel and our industry is watching this develop.

Ultimately, when constructed in a fashion that achieves the spirit intended, the sovereign nation model appears sound. If you’re interested in the tribe payday loan model, there is an interesting article here: EquityNews.info. We have not vetted all the data here so perform your due-diligence! Obviously, Equity News is not a fan of Scott Tucker, the payday loan industry, or “creative approaches” to satisfying the desire by consumers for access to our small, non-collateralized, short-term loans. (Of course, that doesn’t preclude Equity News from earning revenue by displaying ads for payday loans on their web site.)

And this won’t  be the first time I’ve been chided by my “brothers and sisters”  in the payday loan industry for continuing to shed light on offshore, choice-of-law, tribal and other controversial methods for offering payday loan products.

I continue to believe that open discussion about micro-lending will help regulators, legislators, the media and our industry find methods to serve the millions of consumers, around the world, who want and need access to our products and services.

What do YOU think? Leave a comment.
Jer@PaydayLoanIndustryBlog.com

Indian Loans-Indian Reservation Loans-Indian Payday Loans…

WOW! Interesting at least to me. This payday loan industry blog receives a LOT of daily traffic. I just happened to look at the top keyword searches. Here they are: “Indian loans-indian reservation loans-indian payday loans…” Our telephone inquiries and emails reflect this as well. There’s a TON of interest by Lenders, tribes, the media, hedge-funds, etc. If you desire specific information about the tribal – sovereign nation model, visit Allen Parker’s web site or call him at: 951-260-8149.