Payday Loan Times

Cash America is flush with cash. The instant payday loan and pawnshop operator reported strong growth in its cash advance operations, along with increases in its pawn business, thanks to an influx of new customers.

First-quarter revenue rose to $223 million, a 37% increase over the $163 million the payday loan company reported last year. Much of that growth resulted from the more than 235 pawn shops and cash advance centers the company opened over the past three years, creating an entry point for a significant number of new customers. Profits, meanwhile, rose 25% to $19.2 million, or $0.63 per share.

The share-price drop was an opportunity in the making for investors, though, since the stock had previously traded at a premium to its competitors. Shares have recovered 15% from the lows they ultimately reached last month, though they’re still some 8% off the fast payday advance company’s 52-week highs.

In the first quarter, Cash America enjoyed a tripling of its cash loans receivable on the cash advance side of the ledger, along with a 6% increase in the number of pawn loans written or renewed. The number of advances written has more than doubled, while the average pawn loan taken out - and the balance remaining at the end of the quarter - has edged upward.

The strength of the cash advance business was also aided by Cash America’s CashNet USA online payday loan business, which the company acquired last year.

Yet all the new customers crowding into Cash America’s stores also raise the risk of more frequent and plentiful defaults. In response, Cash America implemented a sevenfold increase in its loan-loss provision expense. That seems to be a prudent move; according to the company, a 10% increase in loss rates could trigger a corresponding $4 million decrease in net income, assuming cash advance volumes are written at the same rate as in 2006.

The sole tarnish on Cash America’s otherwise sterling quarter came from its check-cashing operations, where revenue dropped 1% on virtually flat fees collected from customers. However, with those operations accounting for just a little more than $1.1 million in revenue, the overall impact of this shortfall was negligible.

Capain Mark Patton, commanding officer of Naval Base Point Loma, has a major problem with the recent influx of military payday loan lenders.

"This is a relatively new problem, relative being within the last five years," he said. "These businesses are multiplying because they are making tremendous profits off of our sailors. It's estimated last year that payday loans took $80 million out of the pockets of our active duty sailors and their families. That is unacceptable."

Pattone gave examples of harmful payday loan data in his testimony on predatory lending in front of the California State Senate Joint Assembly.

"A service member saddled with debt, fear, and considerable stress could suddenly find his integrity compromised," Patton told the assembly. "His job performance will probably suffer, and he most likely will lose his security clearance and be temporarily removed from his assignment. Between 2000 and 2005, revoked or denied security clearances for sailors and marines due to financial problems have increased 1,600 percent."

(Read on …)

According to lead generator, Leadpile.com, consumers can look forward to an historic year for online payday loans.

Sales for the remainder of 2006 will continue to climb, the service reports. Why travel to a brick and mortar location whtn people demand a fast, easy, and efficient marketplace to receive their cash loans?

Andy Jacob, CEO of Leadpile.com says: “Our survey shows that there will continue to be a very competitive atmosphere for payday loan providers on the Internet. It will be a race to the finish line for payday advance providers who can provide the most efficient processes for online payday loans.”

While alternatives to payday loans are being discussed and hitting the market, it's still difficult to find an easier way to receive cash overnight. This can help to pay off debts.

While payday loan reform is gaining momentum is states such as Oregon, companies that specialize in these cash advances are still seeing significant profits. 

EZCorp Inc., for example, is expecting great things. The company anticipates that earnings for its second quarter of fiscal 2006, which ended March 31, will be significantly higher than previously expected.

According to EZCorp, the online payday loan company will likely have earnings of 54 cents to 56 center per share, compared with its previously announced guidance of 40 cents to 43 cents per share. The change in guidance stems from a quarter in which EZCorp realized strong growth in sales gross profit and signature loan contribution, according to the company.

The business provides pawn loans collateralized with personal property, as well as cash loans. The company also sells merchandise, primarily forfeited from pawn operations.

Numerous companies in need of financing have turned to a specific group of investors who are both flush with cash to provide whem with assistance: the nation’s hedge funds and their more than $1 trillion in assets. Many of these 8,000 or so funds have been eating their way up the lending food chain and are becoming increasingly powerful forces in U.S. debt markets.

Payday loan lenders have benefitted from these investments.

Hedge funds are providing loans for everything from small outfits, like payday advance companies and start-up technology firms, to large automotive companies, airlines, and retailers. They are snapping up securitized loan bundles tailored to sate their appetite for risk, scooping up higher-risk loans on the open market, and swooping in to provide companies with bailout funds.

“These guys have a ton of cash on their hands, and they are trying desperately to put it to work,” explains Rob Polenberg, an associate director with Standard & Poor’s. He adds that hedge fund participation in the debt markets “has just become huge.”

Some hedge fund companies, like Ritchie Capital Management, have formed new divisions that focus only on direct lending. Bill DeMars, who heads the Ritchie Technology & Life Sciences Finance Division, says that hedge funds are attracted to such loans because they help diversify their investments, have had low default rates, and offer “double digit” yields.

For the first time in its history, My Payday Loan held its first customer survey. One hundred customers were asked for their comments on the cash advance business.

The comments may have been surprising for those that have criticized the payday loan industry and payday loan companies. The responses ranged from praise for the ease of the service to dispelling some of the myths about short term borrowing. A couple of the customer comments follows:

“I normally budget for my month really well – I know what I’ve got going in and coming out so I know how much cash I’ve left to spend. That was until my car got pranged at a junction and I had to find £100 excess or be off the road until [my next paycheck] … I applied online, sent my paperwork across and was called later to be told my money would be in the account by close of business that day … Thank you, My Payday Loan for being there when I needed”.
- J.M, 31, Stockport

“My girlfriend saw this great deal for a weekend away but neither of us had the cash to afford it then and there … I don’t know why but I did a web search for “money before payday” and there were quite a few sites. My Payday Loan was by far the most professional and so I applied to them.  My girlfriend and I had a fantastic weekend away together and I was able to [the payday advance] back in one lump sum. It was all really easy as they took the payment automatically as agreed, so I wasn’t bothered by extra phone calls or waiting for cheques to clear before accessing my own money the following month”.
- L.R, 29, Cardiff

Another state has tightened up restrictions on payday loans - so much so, cash advances may not even exist in North Carolina anymore. The three major payday loan lenders still operating in there are about to close their doors for good.

State Attorney General Roy Cooper says deals with Check Into Cash, Check ‘n Go and First American Cash Advance just about eliminate payday lending in the state.

The three firms will pay $700,000 to non-profit credit counseling offices as part of the deal. The agreements come after the state banking commissioner ruled in December that Advance America was breaking state lending laws by charging an APR of more than 400 percent.

North Carolina’s Consumer Finance Act caps annual percentage rates on small loans at 36 percent. Advance America appealed the ruling, but agreed to close their offices while the matter is being sorted out. Cooper says the three lenders who entered Wednesday’s agreement operate 152 outlets statewide.