Tag: payday loan profits

24
Jan

Payday Loans: Good News Continues – CFPB & Payday Loan Ability to Repay Analysis

Payday Loans: Continued Good News for Consumers & Lenders!

WHAT IT IS

Ronald Mann, a Columbia University law professor was hired by our industry to survey 1000 payday loan borrowers.

The question put to our customers? How accurately could they estimate how long it would take the borrower to pay us back and how well the borrower understood our loan product.

No hand cuffs were put on the professor.

Payment to him did not hinge on his findings.

The results of this study per Professor Mann?

WHAT THIS MEANS

Mann said, “That while many borrowers are desperate for cash, they understand the cost of the loans, which typically charge an upfront fee of roughly $15 for every $100 borrowed.”
“The problem isn’t that payday loans are expensive, it’s that we live in a capitalistic society and don’t have a safety net, and lots of people make less than other people and can’t make ends meet,” he said.

Why all the hullabaloo?

Depending on the agenda of the reviewer of his findings, Professor Mann’s 2012 study strongly suggests that underwriting standards are often not necessary. Then again, in other circumstances thay maybe. “The relevant policy question is whether borrowers, deciding to start borrowing from a payday lender, understand what will happen to them,” said Mann in an interview.

The CFPB – Consumer Financial Protection Bureau referred to Mann’s research 30+ times in their effort to place new, crazy restrictions on payday loans, title loans… small dollar loan products.

Ironically, the recently appointed CFPB Director K. Kraninger and her Team are using this same study produced by Professor Mann to refute the attempt by Richard Cordray – previous administartions head of the CFPB – to constrict loan offerings to sub-prime, cash strapped consumers

Interestingly, Professor Mann argued how the CFPB, under former Obama-appointed Director Richard Cordray, interpreted his research, suggesting that “the current rule overemphasized cases where consumers borrowed beyond their means.”

The study revealed that 60% of first-time payday loan borrowers accurately predicted within two weeks when they could repay a small-dollar loan. But it also indicated that in many cases the flip side was true — that 40% of borrowers had no idea when they were going to pay back a loan.

WHY IT’S IMPORTANT: TRENDS

Today, the new CFPB is using this study to undermine Richard Cordray’s craziness. The study seems to strongly suggest that consumers can reliably predict when they can pay back the small dollar loan lender and thus no “ability to repay” determination is required!

In court documents, the CFPB under former acting Director Mick Mulvaney cited Mann’s study as a key piece of evidence in support of “revisiting” the underwriting requirements in the payday rule.

Last year, Mulvaney sided with two payday loan trade groups suing the CFPB to invalidate the rule, which relies on federal law banning “unfair” and “abusive” practices.

Citing Mann’s study, today’s CFPB advocates that our payday loan industry trade groups HAVE presented “a substantial case” demonstrating that most payday loan borrowers DO KNOW “what they’re getting into when they take out a payday loan.”

A judge recently agreed to delay the compliance deadline for when much of the Cordray rule will take effect to give the bureau time to propose and finalize a revamp.

“Basically the only thing that has changed the Bureau’s analysis is the people doing the analyzing.”

So, what’s the premise of our new CFPB to throw out the “ability to repay” analysis requirement? “If borrowers understand the product, then it cannot be abusive. Elements of abusive include “a lack of understanding on the part of the consumer of the material risks, costs, or conditions” of the loans as well as “the inability of the consumer to protect the interests of the consumer in selecting or using” the loans.

Again, according to who interprets Professor Mann’s study, it can be concluded that our consumer understands our payday loan product and “what can happen to them if they do not repay their loan.”

So… our products and processes are not unfair or abusive.

From Professor Mann: “The premise of the rule was that so few people understand that they are going to roll the loans over a lot that the product is unfair and abusive. That’s the real difficulty. It’s difficult to regulate out of existence a consumer finance product because some percentage of people don’t understand how the product works.”

“The funding came from an industry trade association, which hoped that the study would produce favorable findings, but the arrangement, as always, was that I could publish whatever I wanted whether the results struck them as good or bad,” Mann said. “There was not really any relationship with the payday lender.”

BOTTOM LINE

This “ability to repay” analysis WAS a big, black, ugly cloud hanging over our industry!

Sure, maybe some lawyers, lobbyists and more than a few vendors serving “The BUSINESS of LENDING MONEY to the MASSES” would bill for more hours.

THE WORST CASE SCENARIO

Our customers would have zero ability to get a few hundred dollars in their hand to pay an emergency bill, get their prescription filled, keep the lights on and avoid reconnection fees, pay their traffic ticket, fix their car to keep their job…

SMB’s all over America would shut down, jobs lost, landlords vacancy rates climb…

Banks & credit unions want NSF fees! They do not want to go through the hassle of lending $300 to “the masses.”

What do YOU think? Email: Jer@PaydayLoanIndustryBlog.com

Payday Loans, Car Title Loans, installment loans, signature loans

How to Lend Money to the Masses

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03
Apr

How to Make Serious Money Lending to the Masses

You want to make serious money by lending money to the masses or you would not be reading this.

To be successful as a lender – or in any other entrepreneurial endeavor – you really only have to be good at  a few things:

  • Picking the right business niche
  • Raising money
  • Hiring good people
  • Ability to iterate through your challenges
  • Be bold. DO OR DO NOT!

Pick the Right Business Niche

Let’s get real!

Lending money to the masses can be very profitable!

Payday loans, signature loans, car title loans, personal cash advances, merchant cash advances, business to business loans… whatever you call them, all can be very profitable.

Real world example?

We’re charging $15 to $30+ for every 14 day loan we make. [Depends on the state we’re in or the tribe we collaborate with.]

That’s a 400%+ annual percentage rate (APR) for a borrower to use our money for two weeks.

I’ve watched stores reach $10,000 in loans after only being opened 3 weeks; within a year, $100,000 on a good week and generating $50,000/month in fees.

Sure. Lenders have costs. Payroll costs, utility costs, website costs, merchant processing, rent, legal, taxes… but you get the picture.

A lender’s inventory is MONEY!

It’s not flowers that die on you. It’s not food that rots. It’s MONEY, MOOLAH, COIN, DINERO, SCRATCH $$.

NICE!!

DONE! I’ve established that the business of lending money to the masses can be very profitable!

Raising Money

This is a mindset. It’s about presentation. Practice getting good at distilling your idea into a bite sized amount. Get your business launched.

I’m not taking about immediately achieving huge scale. Just get your loan business open for business and fund a few loans. Store front, Internet, mono-line, combo… just fund a few loans!

Next?

Friends, family, peers, members of your network… will find out what you’re doing.

They will want to learn more.

Don’t be shocked when they say something along the lines of, “I have $20K sitting in the bank earning 1% per year before taxes and inflation. Could you put my money to work in your new business?

Of course you can! Offer them 6%, 8%, 10%+ per year. You can afford it when you’re grossing 500%+ APR’s on your loan portfolio!

NOTE: Not sure how I’m calculating these APR’s? Go here: Sample APR Calculations

Hiring Good People

If you’re good at raising capital, you can hire people to do everything else.

You can hire a CEO.

You can hire a lawyer.

You can hire an experienced customer service representative.

You can buy “off the shelf” loan management software.

You can subscribe to a sub-prime consumer credit reporting service.

You can hire great people to do any part of this business you choose to.

YOU GET MY POINT!

To hire right, you need a big funnel. You have to sort through a ton of leads.

You need a system; an on-boarding process.

You’ve got to learn how to do this! [This intel is in our “How to Start a Loan Business.”

The quality of your life is about the people around you.

Everything that bad happened to you in the last 10 years did not happen in a bubble.

Someone either DID or DID NOT do something to you.

That’s life.

Most problems in life are people problems.

We let the wrong – or right – people into our lives.

In business there are some whack jobs! Don’t let them in!

Now go out and BE BAD!

Jer – Trihouse Consulting TrihouseConsulting@gmail.com

http://www.PaydayLoanIndustryBlog.com

How to Start a Loan Business

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23
Jan

DFC Global Corp Earnings Report-Q2 2013

DLLR (NASDAQ) will conduct an earnings call Thursday, January 24th at 5:00 p.m. ET. (Get link below).

From their web site:

“DFC Global Corp. is a leading, international, diversified non-bank financial services company that has served under-banked consumers and small business owners for over 30 years. Through our retail storefront locations, websites and mobile platforms, we provide a range of consumer financial products and services in nine countries (the United Kingdom, Canada, the United States, the Republic of Ireland, Sweden, Finland, Poland, Spain and the Czech Republic). Our customers look to us…”

“Our products are principally unsecured short-term consumer loans, secured pawn lending, check cashing services and gold-buying services that provide customers with immediate access to cash for living expenses or other temporary needs. We also offer high-value ancillary services, including Western Union® money order and money transfer products, electronic tax filing, reloadable VISA® prepaid debit cards, foreign currency exchange, and other services.”

Note: Webcasts are typically available for 30 days. Visit http://www.dfcglobalcorp.com/ if you miss the live event. Link to join the Conference Call for DFC Global

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21
Jan

Heads-Up: EZCORP Live Earnings Call Jan. 23rd

Jer,

Heads-up! Live over the Internet earnings call January 22, 2013 for EZCORP 3:30 Central Time:
http://www.videonewswire.com/event.asp?id=91507

“EZCORP is a leading provider of instant cash solutions for consumers employing approximately 7,200 teammates and operating over 1,275 Company-operated pawn, buy/sell and personal financial services locations in the U.S., Mexico and Canada.  We provide a variety of instant cash solutions, including pawn loans, consumer loans and fee-based credit services to customers seeking loans. At our pawn and buy/sell stores, we also sell merchandise, primarily collateral forfeited from pawn lending operations and used merchandise purchased from customers.”

Jer~Trihouse 702-208-6736
Knowledge Store:
Payday Loan Biz
Car Title Lending
Scrap Gold Profit Centers
Is Your Web Site Mobile Phone Friendly? 

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16
Aug

Payday Loan Customer Acquisition Costs – What Do YOU Think?

Installment & Payday Loan Customer Acquisition Costs

Getting a payday loan customer into your store or on your web site landing page is a challenge. What works today? Radio, TV, direct mail, human directional advertising (sign spinners), Google, Yahoo and Bing, DuckDuckGo searches, referrals, Craigs List, newspapers, Penny Saver and Green Sheet ads, signs, flyers, business cards yada, yada, yada.

Ah! And then there are smart phones, mobile, responsive… 70% of our traffic is coming via our consumer applicant’s phone. This is true for both our brick-n-mortars and our Internet lending properties.

The real question? How much should you spend to attract an installment loan consumer, a payday loan, car tile loan or scrap gold customer?

Consider the “Lifetime Value” of your customer.

The higher your average customer’s “Lifetime Value,” the more you can spend in advertising dollars to attract them. Pretty basic, right? Let’s call this our “Allowable Payday Loan Customer Acquisition Cost – APDLCAC.

So… how do we compute our Allowable Payday Loan Customer Acquisition Cost?

  • We put a value on our average payday loan customer’s Lifetime Value.
  • Then, we subtract our costs to create and deliver payday loans to our customer over the entire relationship we maintain with our customer.
  • We subtract our Overhead (minimum recurring expenses to continue in business (salaries, rent, utilities, phones, etc.) divided by our total customer base (fixed costs) we’ll need to stay in business over this time period.
  • Multiply the result by 1 minus our desired Profit Margin and this reveals our Allowable Payday Loan Customer Acquisition Cost – APDLCAC.

Simple, eh!

Example:

Assume we are simply awesome at servicing our payday loan customers once we latch onto them; I mean acquire them!

Say our typical customer Lifetime Value is $2800 over 10 years. (4 loans/yr X 10 years. Avg loan is $400 at $17.50/$100 = $2800 fees)

And let’s say the costs to create and deliver this customer is $500 over this 10 year period. That leaves us with $2300 in revenue per payday loan customer served.

And let’s say our Overhead expenses are $1,000,000 over the same 10 year period and we serve 2000 customers.

Fixed costs = $500 ($1,000,000/2000 customers = $500 )

This leaves us with $1800/customer before marketing expenses ($2300 – $500).

Assume  our goal is to achieve a 60% profit margin. We can spend a maximum of 40% on marketing costs.

Thus, our APDLCAC = $720 per customer ($1800 X .40).

So… any customer we “buy” for $720 or less is a bargain!

PS: Want to pay $100 for FUNDED loans? That’s correct. We have a seriously experienced lead generation company offering loan leads for $100 each – AND YOU ONLY PAY IF YOU FUND THE LOAN! [Reach out with your contact info and “100 Funded Loans” in the subject to Jer@PaydayLoanIndustryBlog.com.]

NOW, what if these payday loan customers are using your other services as well? You offer car title loans? Installment loans? You buy scrap gold? You sell money orders? You cash checks? You offer mobile phone service? You do tax work? What’s that do to your Lifetime Customer Value number?

What? You don’t like my assumptions? Define overhead? Is that “gross” Profit Margin? Yep, you may find this controversial or even simplistic. But it got you thinking, didn’t it?

For more customer acquisition cost insights, study our “Loan Bible” and read:
“The Personal MBA: Master the Art of Business” by Josh Kaufman.

Jer@PaydayLoanIndustryBlog.com

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