2009 Payday Loans, Car Title Loans & Pawn Shop Resolution

Like most prognosticators, we expect 2009 to be a very tough year for jobs. Unemployment will certainly increase; 10% or higher wouldn’t surprise us.

But, like they say, where disaster lurks opportunity reveals itself IF you’re a “glass half full” kinda fellow.

So, in the payday loan, car title loan, rapid tax refunds, and pawn shop industries expect 2009 to experience increased demand for our products followed by a focus on collection activities.

After all, it doesn’t help much if your customers clamor for your products but are unable to pay you back in a timely manner.

Remember, it’s “all about the job”. Construction, retail and service jobs are at risk in most geographic locations. Are you up to date on what’s going on in your community? Do you know which companies are laying off and which ones are growing?

As I write this I’m in Clarksville, TN. I’ve been visiting with family and meeting with clients in car title lending and payday loans. I picked up a local newspaper and on the front page is an article about a $1.2 billion dollar polycarbonate factory coming to town. 1000 construction jobs until the factory is scheduled for completion in 2012. Then 500 manufacturing jobs will result with an estimated 8 more related jobs for every 1 factory job created by this project.

And yet, many of the small business men I’ve spoken to here are unaware of this development. You can bet the manager of the TitleMax store knows about it. In fact I went over and met with him. It wasn’t long before we began to discuss it’s implications on his business.

The point? Resolve in 2009 to always know what’s going on in your community. Join at least on of the local business organizations. Read your local paper every day. Join a charitable group.

Get involved! You’ll be glad you did. Not only will you profit but more importantly you’ll feel better!!


Payday Loans, Indian Reservations & Sovereign Nations

The Metropolitan News Enterprise ran an extremely interesting article regarding The Payday Loan Sovereign Nation Model as employed by several Indian Tribes.

In essence, the Division 7 Court of Appeals ruled that several payday loan companies in partnership with the two indian tribes sued by the California Department of Corporations have sovereign immunity and are NOT subject to California payday loan lending statutes and regulation.

This is a fantastic development as we have facilitated the organization and implementation of the  Request More Info Sovereign Nation Payday Loan Model.

Here is a Reprint
Div. Seven Monday granted a writ of mandate sought by five companies
asserting tribal immunity in an action brought by the California Department
of Corporations. The panel overturned an injunction and sent the case back
to the trial court for a determination of whether the relationship between
the tribes and the companies satisfies the requirements for immunity.

The department sued in June of last year, charging that Ameriloan, US Fast
Cash, United Cash Loans, Preferred Cash and One Click Cash had ignored its
“cease and desist” orders and were violating the Deferred Deposit
Transaction Law by lending without state licenses and charging excessive
fees, among other ways.

Internet-Based Business

The companies are engaged in a largely  Internet-based business of lending
money short-term to borrowers who pay back the loans by authorizing
repayment from their checking accounts on specific dates, typically on the
next payday. The business is controversial because the loans carry huge
charges, without regard to the number of days for which the money is
borrowed, and has been regulated to the point at which it is virtually
outlawed in some states.

In response to service of the complaint on the companies, The Miami Tribe of
Oklahoma and the Santee Sioux Nation appeared specially in the action and
moved to quash for lack of jurisdiction. The tribes asserted that the five
defendants were operated by tribal corporations pursuant to tribal
resolutions, that the proceeds of the businesses were used for tribal
government and social welfare purposes, and that the lenders were arms of
the tribes and shared the tribes’ immunity from being sued in the absence of
express congressional authorization or waiver.

Retired Los Angeles Superior Court Judge Joseph R. Kalin, sitting on
assignment, denied the motions and granted a preliminary injunction barring
the companies from engaging in the allegedly unlawful practices set forth in
the complaint. He ruled that the tribes are not immune from liability for
off-reservation commercial activities and that the state’s power to enforce
its laws under the Tenth Amendment takes precedence over their claims of

He also ruled that the tribes had waived any immunity, the Miami because the
tribal corporation operating the businesses was created by a resolution
authorizing it to “sue and be sued,” and both tribes because arbitration
clauses were included in their standard loan agreements.

Presiding Justice Dennis Perluss, however, writing for the Court of Appeal,
said the trial judge erred in several respects.

Tribal sovereign immunity, Perluss said, will apply to off-reservation
commercial conduct if the predicates for such immunity are met. He
distinguished cases holding that states may regulate tribal commercial
activities occurring on nontribal lands.

Those cases, the presiding justice explained, concerned preemption, not
sovereign immunity. The U.S. Supreme Court, Perluss noted, has recognized
that “[t]here is a difference between the right to demand compliance with
state laws and the means available to enforce them.”

Tenth Amendment

Nor, Perluss said, will the Tenth Amendment override the tribes’ immunity
from actions to enforce lending laws. Such actions, he said, are
distinguishable from those of the type discussed by the Supreme Court in
Agua Caliente Band of Cahuilla Indians v. Superior Court (2006) 40 Cal.4th

In Agua Caliente, the state high court said the state had a right to
enforce campaign contribution reporting laws in administrative proceedings
against Indian tribes. The court said the case involved “unique
circumstances” and that the peoples’ right to a  republican form of
government, as well as the reservation of rights by the states under the
Tenth Amendment, allow the state to insist that tribes obey the same
regulations as other donors.

That ruling is limited to the unique field of campaign reform and does not,
Perluss wrote, permit “a broad abrogation of the doctrine of tribal
sovereign immunity.”

Perluss acknowledged that the expansion of tribal commercial enterprises may
call into question the justification for the broad application of sovereign
immunity. But such policy judgments are left to Congress and not to the
state courts, he declared.

He went on to note that the “sue and be sued” clause in the Miami resolution
was specifically limited “to the extent of the specific terms of the
applicable contract or obligation,” and that the arbitration clauses in the
loan agreements were similarly limited to specific transactions and were not
broad waivers of sovereign immunity that would permit a consumer protection
action by the state.

The presiding justice did, however, take note of the department’s argument,
based on evidence it claimed to have discovered after the injunction was
issued, that the loan companies were actually independent of the tribes but
were involved in a “rent-a-tribe” scheme created solely to avoid complying
with the lending laws.

Such evidence, Perluss said, should properly be considered by the trial
judge in order to determine whether the companies are truly arms of the
tribe. Past Court of Appeal decisions, he noted, have established criteria
for resolving that issue, “including whether the tribe and the entities are
closely linked in governing structure and characteristics and whether
federal policies intended to promote Indian tribal autonomy are furthered by
extension of immunity to the business entity.”

The case is Ameriloan v. Superior Court (People), 08 S.O.S. 6711.


Payday Loan Collections: Will You Get Paid?

There is considerable evidence that 2009 and beyond will see record demand for payday loans, car title loans, rapid tax refunds, pawn and other consumer loans of all types. We are experiencing this in our stores and our online businesses. Our clients are reporting record loan volume as well. Volume is up!

Of course, that means collections will become more of an issue as the economy continues to sputter along. So, will your business prosper during the coming year with this increased demand for your products or will you go down in flames because you can’t get your customers to pay you?

Online Resources Corporation (Nasdaq: ORCC), a provider of online financial services, released results of a survey on the bill payment patterns of U.S. households. Results show which bills Americans consider highest priority and are most likely to pay on time.

Their press release highlighting their key findings show how different bills rank in consumers’ stacks, in order of priority:

* Mortgage – Though the number of households with delinquent mortgage payments are up 67 percent over last year, this bill remains at the top of the stack;
* Insurance – Of all major bills, insurance premiums have the lowest delinquency rate at 2 percent;
* Loans – In just one year, households with overdue loan payments have increased 58 percent;
* Utilities – Delinquent utility payments are up 18 percent since last year;
* Healthcare – Emergency medical care bills are most delinquent with 34 percent of respondents late;
* Phone – More Americans say they can do without phone service, and 26 percent of households put this bill on the bottom of the stack; and
* Credit Card – 1 in 3 of the households that are late paying their credit card bill continue to use their card, thereby increasing their outstanding balance.

Across multiple industries, their survey results indicated that one in three households was contacted by a collector in the past year. Consumer preference for resolving delinquencies online has increased by 18 percent over the past year, but only one percent of delinquent households were contacted via the Internet.

Households that set up recurring payments had a significantly lower likelihood of becoming delinquent in the first place. (Do you have an EFT preauthorization from your customer? If not, implement this approach!)

Bottom line, get proactive! Tighten up your underwriting if necessary. Consider modifying the number of NSF’s you allow on a previous checking account statement. Call all references. Verify time on the job and consider increasing the minimum from 3 months to 6 months or longer. Call, email and text your customer BEFORE the loan payment is due. Use SCAN for collections help. Integrate with a minimum of 1 or 2 ID Validation services like TeleTrack, Accurint, Lexus Nexus, etc.

If you are faced with significant collection challenges check out
The Collections Manual for insight, tactics and strategies to improve your operation.

In the coming months and years record profits are possible for those of us who know how to get paid! Evaluate your performance and make adjustments NOW if warranted.

On Line Resources has a free white paper with additional collection and consumer bill payment insight available here:
White Paper

What do you say? Are your collection efforts becoming more of an issue?


Even the Rich Using Pawnshops! Are Payday Loans Next?

The Royal Pawn & Jewelry location in Royal Palm Beach, Florida is experiencing record transactions in high-end jewelry, fine art and automobiles.

Thanks to our current economy and the arrest of ponzi-king Bernard Madoff, or should we say “made-off as in made-off with all our money”, even the very rich are heading to their local pawnshop to make it through the week.

Levi Touger, co-owner of Royal Pawn & Jewelry, said big ticket items, including more than one ferrari and several yachts, are finding their way to his pawn shop. Having lost millions with Madoff, these “Royal Palm Beachers” need to get their hands on cash quick!

I sure hope the Palm Beach payday loan stores are stocking up on cash as well. I wouldn’t want the poodles in the area to want for their weekly shampoo.

Oh, if you’re planning to head over to Levi’s place for a deal on a 10 carat diamond ring, better wait. Florida state law requires pawn shops to provide 60 days for owners of pawned items to redeem them.


Credit Card Companies Whine Like Payday Loan Companies!

New proposed Federal Reserve rules “could make it more difficult for millions of people with bad credit to get what’s referred to as a sub-prime card”, whines Governor Mike Rounds of South Dakota. Gov. Rounds further states, “In essence it would shut down the low-limit credit card business across the U.S.”

The proposed rules ban credit card companies from boosting interest rates on existing account balances. Peter Garuccio, a spokeshole for The American Bankers Association, says, “What it does, by and large, is limit the ability of credit card issuers to use risk-based pricing. And in so doing, the credit card issuers will have to sort of change their models to figure out how to project changing risks going forward. It’ll be a big challenge for the industry.”

No dah! This is exactly where those of us in the payday loan industry are. With the regulatory and legislative assault on our business model escalating we must adapt new, creative approaches allowing us to offer a product in huge demand by our clients AND make a sufficient profit to remain in business.

The other similarity between credit card issuers and our payday loan industry is the credit card industry’s reference to a potential loss of jobs should the FED rules be adopted. Gov. Rounds of S.D. predicts 3,000 to 5,000 job losses if limits on sub-prime cards take effect (They only have 788,000 people in the whole state!). Didn’t we just lose 6000 jobs in Ohio as a result of the passage of their referendum limiting interest rates on payday loans? And surely the same thing will happen in 2010 in Arizona as a result of their recent election.

Greg Ticknor, owner of Premier Bankcard (estimated net worth $2 billion), states,”Under the current proposal, some of the 70 million Americans with challenged credit won’t qualify for a card so they’ll have to rely on payday loans.” Not in North Carolina, Ohio, Arkansas, North Carolina, Georgia, New
York, Pennsylvania, New Jersey … These folks certainly can’t walk into their nearest payday loan store today! I guess they’ll just have to deal with some offshore payday loan provider via the Internet. You know, one of those Internet companies that insist on knowing your social security number, your bank account number and your payroll info without revealing their phone number or location!

Finally, a review of the public comments to this proposed FED rule change are very interesting. Many of these public comments urged the FED not to limit the product (sub-prime credit cards) because, “It’s a way for some people to rebuild their credit rating.” Well, with products like PRBC’s, folks using payday loans for temporary emergency help can build their credit as well. Several other consumer comments were along the lines of, “If adopted, this rule would have a disproportionate and adverse impact on minority consumers, who historically have had difficulty obtaining access to credit.”

There are a tremendous number of similarities between payday loans and credit card companies; particularly sub-prime credit card issuers. It would make a great deal of sense for
CFSA and FISCA to develop partnerships with the credit card companies to educate the public, so-called consumer protectionists, the regulators, and the legislators so we can all serve the public demand for credit building, small non-collateralized loans and access to credit.

Your thoughts? Comments?