Tales from the Payday Loan Trenches

A guy I know, we’ll call him Bob, opened a payday loan store roughly 3 years ago in a state having decent payday loan legislation in place. Now at the time, Bob knew doodly-squat about a payday loan business! His brother in-law had mentioned the fact that he had to go down to the local payday loan store and make a payment on his loan.

Bob decided to tag along with his brother-in-law. Needless to say, my friend Bob was blown away by what he saw! A 450 square foot office with 6 customers waitng to either get a loan or make a payment.

Bob did his research and opened his first location. Roughly a year and a half later, he opened a second in the same town.

So… today, Bob calls me. He wants to “run some numbers by me.” I say, “Sure Bob, go ahead. I’ll give you my 2 cents worth.”

Bob’s two stores are “netting $50,000 a month before taxes.” He’s got a default rate of less than 3%. (Bob’s a little maniacal. He visits his late payers at their home! 3 years on the job are required to qualify for a loan from him.)

Bob asks me, “Are my numbers good?”

“Are they good?”, I say! “Damn%^&* they’re good!”

Bob’s so deep in the trenches running his biz he’s got no idea! He wants to know how he compares with his payday loan brethren! When he called me he admitted he was behind the counter in his store!

Bob’s not going to the CFSA Convention. Bob’s never been to a FISCA Convention. He’s never heard of OLA. Bob’s running his payday loan biz and making good money doing it. $50,000 a month net before taxes! With 2 stores and a 3rd on the way!! In 3 years!!!

Sometimes I get so wrapped up in MY DEALS (Sovereign Nation Model, Offshore Model, smart phone aps, call centers, lead providers, consulting… ) I forget what it’s like to actually run a store. It’s been a while!

My point with this is that it’s still doable. There are guys like my friend Bob who are doing their research, entering the biz and making great money!

Bob just needed a little positive feedback! He’s so damn busy running and building his business he’s not able to sniff the air. He doesn’t have time to network or find out what’s the latest and greatest new widget/strategy/solution.

Bob’s just patiently plugging away making MONEY! Bob’s like hundreds of other payday loan, car title lenders and check cashers. They’re staying under the radar and building wealth! AND working HARD!

Bob, all I can say is, “You’re doing great! Now back to work!”

And Bob, keep up with the industry by reading my ramblings :o)

PS: Yeah, I know. The consumer protectionists and the legislators are gonna jump all over this! They’re going to say Bob is making too much $$ or charging too high a fee to his customers. Like Bob told me, “Tell them it’s guys like me whose taxes and licensing fees pay their salaries.” Tell them, “My customers are just glad I’m here for them when they need me.” And finally ask them, “How many actual payday loan customers complained about me or the industry?”

And yes, I did make up the “brother-in-law” part of this story. But the numbers are reported EXACTLY!

Comments? Thoughts? Attacks? Ideas?



Texas CSO Credit Services Organization – Payday Loans

On Tuesday, February 22, the Texas Senate will hear testimony on Senate Bill 253 to discuss the CSO Credit Services Organization payday loan model.

In Texas, it’s estimated there are more than 3,700 payday loan lenders. Two new pieces of legislation — Texas SB 253 and Texas HB 410 — have been introduced as a way to limit this short-term lending. Both of these bills seek to redefine “Credit Service Organization” to exclude payday loan stores.

The two bills that have been introduced in the Texas legislature re-define “Credit Service Organization” to specifically exclude payday loan stores. This would limit the fees that these payday loan and car title loan stores can charge based on an annual percentage rate.

If this issue is critical to your success, you, your customers, and your employees MUST contact your representative and educate them! TODAY!!

The payday loan Industry estimates that roughly between 3,200 and 6,500 of the 7,800 employees at payday loan stores in Texas could lose their jobs. Not only that, but redefining the Texas Credit Services Organization would reduce consumer access to small, non-collateralized loans and shutter hundreds of stores in retail strip malls.

Texas payday loan lenders have voiced their reservations about Texas SB 253 and HB 410. They have said they do welcome further regulation and oversight. Payday Loan and other short-term credit products are not typically offered to consumers by banks, credit card companies and credit unions.

Texas lawmakers have expressed concern over the interest rates charged by payday loan and car title lenders.

The sponsor of SB 253 has posted the following Bill Analysis:
BILL ANALYSIS Senate Research Center
S.B. 253
82R1518 ATP-F
By: Davis
Business & Commerce
2/18/2011-As Filed

Current law defines a credit services organization (CSO) and permits such organizations to receive payment for the service of obtaining an extension of consumer credit for a consumer.  Texas law governing CSOs was originally adopted in 1987.  The intent, according to the House Research Organization bill analysis, was “consumer protection legislation that would address the problem of certain credit-repair services taking advantage of consumers.”

Though intended as a consumer protection measure to address problems with credit-repair services, the laws governing CSOs are currently being used by payday, auto title, and other consumer loan businesses to obtain extensions of consumer credit for consumers.  According to the secretary of state, there were 3374 registered CSO locations in Texas as of October of 2010.  By operating under the CSO laws, these businesses can avoid the rate and fee caps that govern consumer loans under Chapter 342 (Consumer Loans), Finance Code, under which all other lenders function.  Using the CSO model, these businesses obtain loans for customers through third-party lenders.  The lenders often provide the loan at 10 percent interest, the statutory limit on loans made by unlicensed lenders.  The CSOs then charge the customer a fee to arrange and to guarantee the loan.  Typically, the fee ranges from $20 to $30 for each $100 borrowed and customers must pay these fees every loan period, usually every two weeks to one month, until the loan is paid off in full.  These loan charges amount to an annual percentage rate that often exceeds 500 percent, and the recurring high fees can cause a mounting cycle of debt.

The activities and fees of CSOs are not regulated by the state through licensing or agency oversight, which prevents the ability of the state to collect consumer data or properly investigate and respond to complaints.  Federal legislation is already in place to restrict short-term payday and car title loans for active military personnel; however, as payday and auto title loan businesses are operating as credit services organizations, the Texas state agency that oversees consumer lending does not have the authority to ensure compliance with the federal law.

This business model was challenged in federal court, alleging usurious interest rates.  In 2004, the United State Fifth Circuit Court of Appeals ruled in Lovick v. Ritemoney Ltd. 378 F.3d 433 (5th Cir. Tex. 2004), that the fees charged by CSOs in connection with obtaining an extension of consumer credit for a consumer do not constitute usury, because neither the Credit Services Organization Act (CSOA) nor other provisions in the Texas Finance Code expressly attribute the fees charged by CSOs to the loan interest rate for usury purposes.

S.B. 253 seeks to reverse the effect of the Fifth Circuit ruling in Lovick v. Ritemoney Ltd. and to clarify that lenders providing extensions of consumer credit cannot evade Texas usury laws by simply using loan brokers or brokers registered under CSOA.  It amends Chapter 302 (Interest Rates), Finance Code, to expressly prohibit third-party fees for arranging or guaranteeing consumer credit and deems those fees as interest for usury purposes.  It also prohibits a CSO from obtaining an extension of consumer credit for a consumer.  These measures respect the intent of usury limits in state law, promote financial stability for families, and ensure a fair playing field for consumer lenders in Texas.

As proposed, S.B. 253 amends current law relating to the regulation of activities with respect to certain extensions of consumer credit.

This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.

SECTION 1.  Amends Subchapter A, Chapter 302, Finance Code, by adding Section 302.003, as follows:

Sec.  302.003.  PROHIBITION ON THIRD-PARTY FEES TO ARRANGE OR GUARANTEE CERTAIN EXTENSIONS OF CONSUMER CREDIT.  (a)  Prohibits a fee paid or to be paid to a third party to assist a consumer in the transacting, arranging, guaranteeing, or negotiating of an extension of credit from being contracted for, charged, or received by a creditor or third party in connection with the extension of credit if the extension of credit is secured by a non-purchase money security interest in personal property or is unsecured, and the proceeds of the extension of credit are used for personal, family, or household purposes.

(b) Provides that the amount of a fee contracted for, charged, or received in violation of Subsection (a) is considered interest for usury purposes under state law.

SECTION 2.  Amends Section 393.001(3), Finance Code, by redefining “credit services organization.”

SECTION 3. Amends Subchapter D, Chapter 393, Finance Code, by adding Section 393.308, as follows:

Sec.  393.308.  OBTAINING EXTENSIONS OF CONSUMER CREDIT PROHIBITED.  Prohibits a credit services organization from obtaining an extension of consumer credit for a consumer or assisting a consumer in obtaining an extension of consumer credit.

SECTION 4.  Effective date: September 1, 2011.


Mississippi Payday Loan Laws – Update

From “A Big Step Forward Today”

“Hello Borrow Smart members and Mississippi lenders! We have great news to report to you: With a vote of 76 to 43, the Mississippi House just passed our payday lending bill!”

“This is a very important step forward for the industry. We wanted to extend a big thanks to you, because we couldn’t have done it without your help! We’re getting closer to the end, and we will be in touch tomorrow with more details about the next steps in this legislative process.”

“As always, thanks for your participation!”  congratulates The Financial Service Centers of Mississippi, the Mississippi Title Pledge Association and Borrow Smart Mississippi.

And thanks to several of our Newsletter and Blog readers for helping with this Mississippi payday loan legislation!


Tribes Profit on Payday Loan Rules – Wall Street Journal – Jer-Trihouse

Today’s Wall Street Journal article on page C1 (Thursday, February 10, 2011) states,”The sovereign-loan model is exploding and will be the future lending model for payday loan companies, said Jer Ayler, president of Trihouse Inc. a payday loan consultant in Las Vegas.”

Actually what I said was,

“Consumer demand for payday loan type products throughout the world, and Regulators who don’t understand the needs of our customers, are forcing payday loan providers to employ creative ways to offer small, no-hassle, non-collateralized loans.”

In my last communication with the Wall Street Journal reporter, Jessica Silver Greenberg, I stated:

“I must say, there is a LOT of hesitancy by the industry to discuss ANY aspect of payday loan and micro-lending; too much bias by the typical reporter/researcher and a complete lack of understanding of our customer’s needs!”

“My feeling is that the more light we shed on our products and services, the better the regulators will understand the needs of our customers and pass enabling legislation not only enforcing “industry best practices,” such as full disclosure of fees and the temporary solution our product offers our customers, but additionally , negating the need for us to employ creative approaches to offering our products.”

“Additionally, this will reduce the negative stigma surrounding the payday loan product and result in a competitive environment that will drive fees lower and enable new approaches such as, and others to achieve the goal of profitably solving consumer financial problems and make a fair return on our investments. (What ever that is :o)”

What the so-called consumer protectionists and uninformed Regulators don’t get is that it’s consumer demographics and a lack of access to capital that’s driving payday loan customers throughout the world into the arms of payday loan type product providers. Consumers by the millions need our products and services for a multitude of reasons. You cannot legislate this demand away!

Instead, create an environment in which FULL disclosure of ALL financial products including payday loans, installment loans, credit card fees, bank fees, credit union charges… are clearly and plainly revealed to our customers AND enable entrepreneurs to develop products and services that can fairly compete for this customer’s business.

Achieve this, and all these convoluted AFS (Alternative Financial Services) approaches like the Tribal Nation – Sovereign Nation, Offshore, Choice-of-Law, payday loan Internet operations, etc. will evolve into a model that consumers will use to solve their financial challenges and the consumer protectionists can embrace as well.

Jessica Silver Greenberg did a good job in reporting on ONE of the creative models employed to serve payday loan consumers. The reality is that AFS products and services will continually evolve to serve their customers in not only the USA, but in countries throughout the world.

Again, millions of consumers continue to demand these types of products! They are NOT going away!!

Jer Trihouse Enterprises, Inc.


South Dakota Payday Loan Laws

South Dakota Payday Loan Law Stopped Cold

A South Dakota House committee rejected a proposal to impose a maximum fee of 36% APR and increase South Dakota payday loan licensing fees to $5000.

A Republican –  no less, Rep. Steve Hickey of Sioux Falls, sponsored two bills aimed at payday loan lenders.

Luckily for residents of South Dakota, the legislators understand that many payday loan consumers have no other choice. Banks don’t make small, non-collateralized loans and credit card companies are reducing available credit to the payday loan demographic.  See: What’s ALICE Got to Do With Payday Loan Demographics.

South Dakota Rep. Steve Hickey would not only deprive his constituents of choices in solving their financial challenges, but additionally, put more companies, employees and landlords out of business!

South Dakota payday loan lenders clearly display, in large fonts, their fees, charges and sample APR’s.

South Dakota residents freely choose to use the payday loan product. If they don’t think a payday loan makes sense for them, they’ll stop using them… and payday loans will go the way of the buggy whip!

Get out of the way Rep. Hickey. Let private enterprise create more, higher paying jobs. That will reduce the number of South Dakota residents who need to turn to payday loans in the first place. I bet with fewer customers, South Dakota payday loan companies will be forced to reduce their rates or leave the state.