Payday Loan Times

Step up efforts to combat payday loans! So says hopeful NY governor, Eliot Spitzer.

As he fights for regulations against these resources, two State Assembly committees said Wednesday they will hold a public hearing - the first of two - upstate (Buffalo) next month. The idea is to focus on no faxing payday loans and other "challenges and pitfalls" facing low-income consumers cut off from traditional financial services.

The hearing by the Consumer Affairs and Protection Committee and the Banks Committee will be held at noon Sept. 20 in the Frank E. Merriweather Jr. Library, 1324 Jefferson Ave. A second hearing will be held in October in Manhattan.

Advocates for the poor applauded the announcement.

"I think it's wonderful news that the Assembly is going to focus their attention on these kinds of issues that have been facing low-income people for a long time," said Kathleen Lynch, senior litigation attorney at the Western New York Law Center. "It is our hope that some of the abuses that we have seen will be addressed and ended."

You can assume that alleged predatory, faxless payday loan lending will be chief among these topics. The forums follow a June Buffalo News series, "The High Cost of Being Poor," that detailed how low-income consumers pay more for goods and services and the failure of laws and regulations - some of which haven't been changed in 20 years - to address the problems.

The series explained ways in which low-income consumers without cash or credit pay extra to cash checks; buy groceries from corner stores; take out bad credit payday loans; purchase furniture, electronics or appliances over time from rent-to-own stores; borrow money against their taxes; buy homes or cars; and obtain auto insurance.

In the hearings, lawmakers say they plan to examine the problems caused by low-income consumers having to rely for services on alternative providers, such as check-cashers instead of banks and rent-to-own outlets instead of department or discount stores.

The California debate over military payday loans rages on. The fight was taken to the radio airways yesterday.

As reported by The San Diego Business Journal, those turned to the correct dial must've heard quite the debate yesterday. Because payday advance lenders supposedly thrive around military bases, their high-interest loans have drawn criticism from military brass.

Consequently, San Diego bad credit payday loan experts offered their take on the issue during an Internet radio show yesterday afternoon.

An archived program will soon be available on www.wsradio.com and is from a show called the “Entrepreneur Magazine Money and You Show.”

Rear Adm. Len Hering - San Diego’s “Navy mayor” - and Michael Calhoun of the Center for Responsible Lending in North Carolina discussed the issue of faxless online payday loans with the show’s trio of hosts, all from San Diego-based USA Federal Credit Union.

We doubt they got along too well, but hopefully listeners learned a great deal about the overall issue of payday loans online while making a decision on them for themselves in the future.

This isn't how Governor Bill Richardson envisioned things. He has hoped to rid his state of payday loans - or at least restrict their rates of interest - for months now. 

However, a judge has blocked such implementation, staving off regulations on a savings account payday loan industry that critics say robs from the poor.

State officials plan to appeal. Gov. Richardson and Attorney General Patricia Madrid say they will ask the state Court of Appeals to lift the preliminary injunction granted by a district court in Albuquerque.

Meanwhile, naturally, providers of instant payday loans have been challenging the regulations, which cap fees imposed by lenders and limit the number of cash advance renewals and amount of outstanding payday loans a person has in the state.

The fight appears to have only just begun. We'll keep you apprised of the cash loan situation in New Mexico as it develops. 

Military payday loans? You've recently made a new enemy. The high-interest cash advances that target our armed forces are under attack in California, as the Center for Responsible Lending leads the way.

As High-ranking Navy and Marine officers, consumer groups and their allies in the legislature tried to ban such pay day loan lending, it appears as though the'll fall short when the legislative session ends this week.

"We may have missed a chance to keep our service people out of the clutches of predators," said Paul Leonard, director of the California office of the Center for Responsible Lending, a nonprofit that goes after predatory lenders."Our legislators could give them some financial body armor, but it doesn't look like that will happen."

In California, the average faxless payday loan borrower ends up paying $660 on a $255 an advance. Making monetary matters worse, thse providers cluster around the nation's military bases seeking to hook young, cash-strapped, financially inexperienced soldiers and sailors on this expensive kind of debt. Military people are three or four times more likely to be victims of payday lenders, the Pentagon says.

"We're hearing more and more stories from sailors who get themselves in a cycle of debt," says Navy Capt. Mark Patton, who testified for the military at a hearing of the Senate Banking, Finance and Insurance Committee.

Worst of all, payday advance companies are hurting the military's ability to defend the country.

(Read on …)

We reported earlier this summer that Mark Pearce, the former president of the Center for Responsible Lending and a major opponent of payday loans, had been hired as a deputy state banking commissioner for the N.C. Commissioner of Banks.

The appointment arrived at a time when some no faxing payday loan lenders are contemplating a re-entry into North Carolina. Pearce took time out to talk about his new job with The Winston-Salem Journal:

The Center for Responsible Lending has a reputation for being a left-leaning consumer-advocacy group. Do you have any concerns about that reputation affecting your ability to do your new job?

I have never thought of the center as left-leaning, as the center found common ground with both conservatives and liberals, Democrats and Republicans, on many issues. Almost everyone is against abusive [payday advance] lending practices, and I would expect the center's reputation as a strong, fact-based research and policy organization will only help me in my new role.

What do you think your hiring says about the direction of the Commissioner of Banks' office?

The Office of the Commissioner of Banks is well respected as a leader in state financial regulation. I think my hiring highlights that the regulation of nonbank entities, those that specialize in a particular set of loan products, is an increasingly important area to the borrowing public.

What expertise do you believe you will bring to the office that was lacking?

I hope I will supplement the existing expertise at the Office of the Commissioner of Banks, probably most directly with my experience with predatory mortgage lending and small short-term, [same day payday loans]. I also hope I can support efforts to protect North Carolina's ability to protect its citizens and local lenders from out-of-state lenders that abuse federal law to offer products not allowed in North Carolina.

Do you believe you can be more effective operating from within the commissioner's office than as a voice outside it?

I think both roles are important. I am excited about the opportunity to participate directly in the regulation of lending here in North Carolina.

Will there be a direct link between the commissioner's office and Center for Responsible Lending, or will there be a clear, transparent separation required?

To be a good regulator, you have to talk with everyone - lenders, advocates, the public and other interested people. I think to make good decisions on almost any issue, you need to consider all sides of an equation.

What will be your focus in your new job?

I think one of the exciting things at the Office of the Commissioner of Banks is our effort to combat mortgage fraud. North Carolina has a great number of high-quality lenders and brokers. But unfortunately, there are still some scam artists out there that do not comply with North Carolina's law.

Those bad operators hurt not only the individual homeowners and families, but also tarnish the reputation of the lenders and brokers that do good business for people. Another project that I am excited about is the opportunity to promote increased participation in our banking system among people that don't have banking accounts. (And, therefore, would not quality for any sort of pay day loan.)

In today's world, small decisions about financial matters can have a large impact on your ability to get loans on the best terms. I hope we can assist in improving financial literacy.

For one payday advance company, being charitable appears to be paying off. 

ACE Cash Express, which has distributed helped promote financial literacy across Texas, announced fiscal 2006 net income of $25.0 million and earnings per share of $1.76 per share yesterday, compared to fiscal 2005 net income of $27.4 million and $1.98 per share.

As you can see, the regular cash advance and online payday loan company saw its stock price rise a bit.
Things to consider are: Net income for fiscal 2006 includes a net after- tax charge of $0.7 million related to losses from Hurricane Katrina; and an after-tax write-off of $0.5 million related to the quick cash loan company's decision to discontinue operating self-service machines in H&R Block locations.

Additionally, net income for fiscal 2005 includes a one-time after-tax charge of approximately $0.6 million related to a cumulative change to the Company's lease accounting practices.

During fiscal 2006, the providers of no faxing payday loans opened 51 newly constructed ACE Cash Express stores, acquired 135 more and sold 2 stores to ACE franchises. ACE franchisees also opened 32 stores.

There may be controversy swirling over whether or not a no fax payday loan is helpful for those in debt - but there's no longer debate over how well companies that specialize in this sort of resource do on the stock market.

As Motley Fool Inside Value chief analyst, Philip Durell knows a lot about the industry. His job is to help people choose stocks. With this in mind, Durell focuses on national payday advance lender Advance America as one of his two recommendations last October, noting the controversial nature of the cash loan business as one of the risks inherent in an investment.

However, the company has advanced more than 11% since that time, compared to a 7% increase by the market. Moreover, the whole sector has been one marked for growth since April, rising on average nearly 75% over a six-month period, despite the regulatory hurdles it faces.

Slight payday advance decline. The instant payday loan stock market appears to have gone flat recently, though, rising only a little more than 1%, with Dollar Financial leading the pack. In fact, First Cash HAD been the big loser, falling more than 7% over that time frame. Now, though?

The payday loan company jumped more than 8% on the news that it had bought a car dealership. We reported on this yesterday. Financing vehicle sales to the subprime market is actually a logical extension of the pawnshop/payday advance lending business in which First Cash excels.

Also, with the FDIC and various states clamping down on certain aspects of the faxless payday loan lending, the car dealerships are seen as a necessary diversification. First Cash plans on opening another three to five dealerships by the end of 2007.

Even in the challenging economic climate in which payday loan providers find themselves, they are still seeing profit potential rise. First Cash noted in its Auto Master acquisition that it should be able to garner a larger share of the market through better-coordinated advertising and inventory selection. It believes the acquisition will increase earnings in the fourth quarter.

Now, EZ Corp has also raised guidance to $1.90 per share as its third-quarter revenues, which ended June 30, rose 31% over last year. Cash America, another cash advance lender, said profits in its second quarter (which also ended in June) increased 58% from a year ago.

The most recent report on income levels across the U.S. doesn't bode well for consumers. While regular and/or faxless payday loan use was not blamed for sending people into poverty, critics of the industry are still keeping a close eye.

The Census Bureau reported Tuesday that the median household income was $46,300, a slight increase from 2004. However, the number of people without health insurance increased to 46.6 million in 2005.

Delving deeper intot he numbers, about 37 million Americans were living under the poverty line last year - about 12.6% of the population. The rate dipped slightly from 12.7% a year earlier, though the Census Bureau said the change is statistically insignificant. It's the first year such a figure hasn't increased since before President Bush took office.

The last decline in the poverty rate was in 2000, during the Clinton administration, when it dropped to 11.3%. Since then, the use of no faxing payday loans has taken off, an indicator that unsecured debt was becoming more of a national problem.

The report comes four years into an uneven economic recovery - and a little more than two months before congressional midterm elections that will determine whether Republicans continue to control the House and the Senate.

As previously discussed here, regulations on payday loans are an issue of debate in at least on race.

Due to high gas prices and a slowing economy, monetary questions are at the heart of many impending elections. Overall, the poverty rate - the percentage of people living below poverty - helps shape the debate on the health of the nation's economy.

Some believe that a proliferation of personal loans has led to the current, bleak situation; while others can see ways in which cash advances come in handy for the poor.

Despite regulations on payday loans in numerous states across the country, a handful of payday advance companies are watching stock shares soar.

One reason why? They're expanding their business models.

For some, this simply includes taking successful payday loan technology and techniques to markets overseas. For others, such as First Cash Financial Services, it means changing gears a bit into a wholly new world; in this case, that of used cars.

The Arlington, Texas, company, which provides short-term, high-interest quick cash loans to people who otherwise couldn't get credit, paid $34 million for Auto Master, a privately held Arkansas car dealer with eight "buy here/pay here" locations in Arkansas, Missouri and Oklahoma.

Auto Master is expected to boost First Cash's earnings by the fourth quarter, prompting the company to revise its 2006 earnings estimates higher to 96 cents to 97 cents a share from earlier guidance of 94 cents to 95 cents.

Auto Master uses a similar model as First Cash, which has rolled up small operations to grow to about 380 stores that offer short-term paycheck advances, check-cashing and other credit services. It also has a 50% share of Cash & Go Ltd., a joint venture that owns and operates 40 check-cashing and financial-services kiosks located inside convenience stores.

"We believe that projected population growth trends in the South and Southwest, especially among 'unbanked' or 'under-banked' consumers, should continue to create long-term demand for affordable used vehicles and financing, as well as opportunities for expansion into other markets where First Cash operates," First Cash Chief Executive Rick Wessel said.

Payday loan stock analysis: Any company offering financial services to the lower end of the income spectrum will see plenty of demand in an era of $3 a gallon gas prices, rising mortgage rates and higher housing costs, but investors have already bought into that story pretty heavily, and sold off just as strongly.

First Cash and competitors such as Cash America, EZCorp., and Dollar Financial had sizable run-ups in the first half of the year and subsequently sold off as investors figured valuations had peaked, says Dan Fannon, an analyst at Jefferies & Co.

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Perhaps it's because a certain payday advance lender in the state is still causing major problems for former clients. Or maybe they just didn't wish to disagree on absolutely everything.

Whatever the basis for their beliefs, the fact remains that Gubernatorial candidates Mike Beebe (a Democrat, pictured) and Asa Hutchinson (a Republican) both said Monday they support the top items on the legislative agenda of AARP Arkansas.

Among these issues? Legislation limiting fast payday loan lenders from charging interest rates beyond the constitutional limit.

Beebe - the state attorney general and a former state senator - faces Hutchinson, a former congressman and undersecretary of the U.S. Department of Homeland Security, in the Nov. 7 general election. Naturally, the question of regulating cash loans in the state is one of the few they agree on.

AARP Arkansas, which has about 351,000 members in the state, announced plans to push an agenda for improved long-term care funding, better security for nursing home residents and payday loan lending reform in a statewide campaign this fall. The two candidates were asked Monday to respond to these issues of concern.

Beebe said Monday that he opposed the original 1999 Check Cashers Act, having voted to repeal the act in 2001. He said "[payday advance loan] lenders operating in Arkansas under Arkansas law should have to abide by the Arkansas Constitution."

While not exactly a bold statement, The Check Cashers Act allows some out-of-state banks affiliated with check cashers not licensed in Arkansas to hand out small loans above the state-mandated interest rate limit of 17 percent annually. Some cash loan lenders charge rates as high as 520 percent.

AARP Arkansas President Billie Ann Myers said last week the organization wants the Legislature to change to law to restrict providers of bad credit payday loans to charging no more than 17 percent.

Hutchinson campaign spokesman David Kinkade said Monday that Hutchinson has already called for a repeal of the Check Cashers Act and "has advocated placing a penalty fine provision into the state's usury law."

Arkansas seniors, many of whom live month-to-month on their Social Security checks, must be protected from predatory lenders," Kinkade said.