Check Into Cash, Inc.
P.O. Box 550
Cleveland, TN
37364-0550
Exploiting the Myth of
Excess Profits
Chart1
Company Net Income Per Operating Location
Build-A-Bear Workshops,
$118,756
25,000
(from Company 10k reports)
$120,000
Net Income per Location
Number of Locations
$100,000
20,000
$80,000
15,000
World Acceptance,
$62,121
$60,000
10,000
$40,000
Advance America,
$24,190
$20,000
H&R Block,
$22,907
QC Holdings,
$10,111
$0
2,604
Net Income Per Location
Zale Corp (Jewelry),
$22,828
Papa Johns Pizza ,
$15,160
532
21,408
620
Page 1
2,349
3,038
5,000
230
Number of Locations
Real Profit from Average Payday Advance Fee
Assuming an average Payday Advance of $100 provides a $15 Fee
Publicly Traded Leading
Payday Advance Companies
Advance America
Ticker
Symbol
Percent of Revenues
TTM Net Income (09/2006) (1)
Payday Advance Company
Profit per $15 Fee Charged
Trailing Twelve Month Net Incomes (1)
Center for Responsible Lending
Self Help Credit Union
Profit per $15 Fee Revenues
2005 Net Income of 18.1% (2)
AEA
10.40%
$1.56
$2.72
EZPW
9.30%
$1.40
$2.72
Cash Amercia
CSH
8.60%
$1.29
$2.72
QC Holdings
QCCO
3.90%
$0.59
$2.72
Dollar Financial
DLLR
0.80%
$0.12
$2.72
6.60%
$0.99
$2.72
EZCorp
Group Average
(1)
Trailing Twelve Months Net Income Percentage as of September 30, 2006; source:
(2)
Annual Net Profit Margin of 18.1% of Revenues; source: www.NCUA.Gov filed financial documents
Yahoo! Finance Stock Screener
PUBLICLY TRADED, LEADING PAYADAY ADVANCE COMPANIES,
ANNUAL PERFORMANCE EXPRESSED AS AN A.P.R. BASE OF 391%
AEA = Advance America; QCCO = QC Holdings; DLLR = Dollar Financial; CSH = Cash America; EZPW = EZCorp
AEA
QCCO
Year Ended December 31, 2005
Year Ended December 31, 2005
CSH
EZPW
Year Ended December 31, 2005
Year Ended September 30, 2005
------------------------------------
DLLR
Year Ended June 30, 2006
------------------------------------
------------------------------------
------------------------------------
----------------------------------
Dollars
APR
----------------------- -----------
Dollars
APR
----------------------- -----------
Dollars
APR
----------------------- -----------
Dollars
APR
----------------------- -----------
Dollars APR
----------------------- ---------
----------------------- ----------630,066
391%
----------------------- -----------
----------------------- ----------152,878
391%
----------------------- -----------
----------------------- ----------320,991
391%
----------------------- -----------
----------------------- ----------410,547
391%
----------------------- -----------
----------------------- --------163,481 391%
----------------------- ---------
Center Expenses:
Provision for doubtful accounts and agency bank losse
115,060
71%
Salaries and related payroll costs
171,092
106%
Occupancy costs
80,540
50%
Center depreciation expense
14,902
9%
Other center expenses
76,849
48%
----------------------- ----------Total center expenses
458,443
284%
----------------------- ----------Center gross profit
171,623
107%
41,417
106%
38,073
97%
19,062
49%
3,890
10%
13,521
35%
----------------------- ----------115,963
297%
----------------------- ----------36,915
94%
29,425
36%
91,982
112%
22,899
28%
7,226
9%
62,371
76%
----------------------- ----------213,903
261%
----------------------- ----------107,088
130%
42,834
(Dollars in thousands)
TOTAL REVENUES
Corporate and Other Expenses (Income):
General and Administrative expenses
G&A Depreciation expense
Interest Expense, net
Loss on disposal of property and equipment
Loss on impairment of assets (if applicable/available)
Other expense (income), net
Total corporate and other expenses
Income before Income Taxes
Provision for Income Tax Expense
Income before income of consolidated variable interes
23,417
220,357
----------------------286,608
----------------------123,939
14,203
8,036
95,876
----------------------118,115
----------------------45,366
34%
0%
0%
19%
229%
--------282%
--------109%
51,758
4,483
3,980
715
2,918
32%
3%
2%
0%
2%
0%
----------------------- -----------
25,585
856
(476)
65%
2%
-1%
0%
0%
715
2%
----------------------- -----------
38,913
3,776
33,878
47%
5%
41%
0%
0%
10,892
13%
----------------------- -----------
43,227
41%
0%
8,996
9%
0%
0%
834
1%
----------------------- -----------
55%
0%
3%
0%
-5%
0%
----------------------- ---------
63,854
40%
----------------------- ----------107,769
67%
43,776
27%
----------------------- -----------
26,680
68%
----------------------- ----------10,235
26%
3,912
10%
----------------------- -----------
87,459
107%
----------------------- ----------19,629
24%
19,986
24%
----------------------- -----------
53,057
51%
----------------------- ----------70,882
68%
26,061
25%
----------------------- -----------
22,316
53%
----------------------- --------23,050
55%
8,298
20%
----------------------- ---------
63,993
6,323
40%
(1,003)
-1%
Income of consolidated variable interest entity (if applic
Discontinued Operations (if applicable/available)
----------------------- ----------NET INCOME
$
62,990
39%
============= ======
16%
0%
944
----------------------- ----------$
5,379
14%
============= ======
(357)
0%
44,821
43%
23,067
68
1,275
79
(2,173)
14,752
35%
0%
0%
0%
----------------------- ----------$
(357)
0%
============= ======
(197)
----------------------- ----------$
45,018
43%
============= ======
----------------------- --------$
14,752
35%
============= =====
ALL DATA BASED ON FILED S.E.C. DOCUMENTS, ARRANGED FOR COMPARISON PRESENTATION, SOURCE DOCUMENTS CAN BE FOUND AT:
AEA
http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?FilingID=4281683&Type=HTML
QCCO
http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?FilingID=4274867&Type=HTML
DLLR
http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?dcn=0000893220-06-002028&Type=HTML
CSH
http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?dcn=0000950134-06-004135&Type=HTML
EZPW
http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?dcn=0000950134-05-023136&Type=HTML
Individual Expense Line Item That Exceed 36% APR
41%
0%
0%
22%
210%
----------273%
----------118%
Payday Advance Companies compared to Federal Credit Unions
2005 NET INCOME for Every $1 OF REVENUE RECEIVED
(from SEC Filed 10k reports and NCUA Filed financial reports)
$0.25
$0.18
$0.17
$0.17
$0.17
$0.14
$0.11
$0.15
$0.11
$0.09
$0.08
$0.07
$0.06
PAYDAY ADVANCE
COMPANY GROUP (1)
SELF-HELP NAVY PENTAGON STATE VIRGINIA SOUTH ALLEGACY COASTAL LANGLEY STATE
SAFE TRULIANT
# 66258
# 5536
# 227 EMPLOYEES' CREDIT CAROLINA # 24438 # 18297
# 1261DEPARTMENT # 9988
# 7840
# 66310 UNION, INC., # 1022
# 435
# 66836
(1) Payday Advance Company Group consists of the 5 Publicly Traded Payday Advance Companies referred to throughout this site:
Advance America, QC Holdings, Cash America, EZCorp, Dollar Financial
For every $1.00 in profit earned by the Self-Help Credit Unions,
the average profit earned by the 11 Federal Credit Unions would have been $0.75,
and the average profit earned by the 5 public payday companies only $0.36 (1)
$1.00
$0.90
$0.80
33%
MORE THAN
THE CREDIT
UNION
AVERAGE
174%
MORE THAN
THE PAYDAY
COMPANY
AVERAGE
$0.70
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$-
Self Help Credit Unions
11 Credit Unions,
Average
(1) Based on the Net Incomes of Revenue of 18.1% (Self Help); 13.6% (Credit Union Average); 6.6% (Payday Company Average)
5 Payday Companies,
Average
Charter
5536
227
66310
Credit Union Name
NAVY
PENTAGON
STATE
EMPLOYEES'
66836
VIRGINIA
CREDIT
UNION, INC.,
1022
24438
18297
1261
435
9988
7840
SOUTH
CAROLINA
ALLEGACY
COASTAL
LANGLEY
STATE
DEPARTMENT
SAFE
TRULIANT
The following data is from www.NCUA.gov website, 2005 Financial Performance reports filed
ASSETS
Unsecured Loans
TOTAL LOANS
Unsecured Loans as
a percent of Total
Loans
3,398,536,677
16,703,197,810
1,074,533,927
462,824,646
250,474,104
112,709,974
97,309,153
81,606,597
80,765,787
90,212,879
39,531,519
87,409,096
7,215,724,046 10,185,022,585
820,539,863
986,195,208
851,481,013
1,274,257,445
444,352,498
486,645,876
260,522,945
932,151,486
20%
15%
5%
31%
11%
11%
6%
18%
19%
15%
9%
1,032,532,896
218,436,136
361,321,405
1,612,290,437
361,530,315
32,767,980
44,515,500
438,813,795
489,493,322
59,507,690
104,902,472
653,903,484
52,678,508
12,575,738
21,058,632
86,312,878
57,943,384
4,658,497
30,501,176
93,103,057
45,330,314
5,843,204
20,052,187
71,225,705
74,519,840
7,301,593
20,382,357
102,203,790
29,702,349
21,783,372
15,617,305
67,103,026
30,367,939
11,188,405
6,871,010
48,427,354
16,072,278
4,736,161
6,658,657
27,467,096
49,061,229
2,613,257
14,507,898
66,182,384
22%
10%
16%
24%
33%
28%
20%
23%
14%
24%
22%
244,369,549
19,229,609
25,500,000
7,683,789
9,600,000
5,119,191
9,800,000
3,191,402
2,666,806
829,660
3,553,267
15%
266,336,966
17%
4%
108,103,290
25%
4%
61,586,714
9%
9%
9,727,627
11%
10%
15,575,917
17%
7%
4,033,768
6%
10%
14,315,105
14%
5%
10,103,166
15%
6%
8,138,668
17%
3%
2,956,840
11%
5%
5,560,080
8%
INCOME
Loan Revenue
Investment Revenue
Other Revenue
Total Revenue
"Other Revenue" as a
percent of Total
Revenue
Prov for Loan/Lease
Losses*
Prov for Losses as a
percent of Total
Revenue
Net Income*
The following data is from 2005 Annual Reports were available
Non-Disclosed Fees
ATM FEES
OVERDRAWN
CHECK FEES
Total ATM/Overdrawn
Fees
Percent of Other
Revenue
33,264,000
21,564,015
6,836,306
15,280,367
103,948,000
33,264,000
28,400,321
15,280,367
29%
75%
93%
98%
24,922,000
79,026,000
SOURCES:
http://www.ncua.gov/indexdata.html
Once on NCUA page enter the Charter Number of a specific credit union (ex. Navy = 5536), Click "Find" then click "View Report"
Comparision of Annual Net Income Percent of Revenue
Hilton Hotels Corp., 10.4%
H & R Block, Inc., 10.1%
Applebee's Intl., 8.4%
Southwest Airlines Co., 7.2%
HanesBrands, Inc., 7.2%
Home Depot, Inc., 7.2%
Hewlett-Packard Co., 6.9%
The J.M. Smucker Company, 6.7%
JB Hunt Transport Services, Inc., 6.6%
Toyota Motor Corp., 6.5%
Lowe's Companies, Inc., 6.4%
Kohl's Corp, 6.3%
Dress Barn, Inc., 6.1%
J C Penney Corporation, 5.8%
Self-Help Credit Unions, 18.2%
(1) Advance America, Cash America, Dollar Financial, QC Holdings, EzCorp
Average of Five Publicly Traded Payday
Advance Companies (1), 6.6%
NOTE: The statement below, from Check Into Cash founder and CEO Allan Jones, came about as a
result of an article from the Center for Responsible Lending (CRL), a front group that is critical of
the payday advance industry. CRL is a well-funded, anti-free enterprise group that disguises itself
as a consumer advocacy organization. The truth is that CRL was created by the Self-Help
Credit Union, a credit union that stands to make huge monetary gains if payday lending is
banned. Their tactics of deceit reflect this desperation to eliminate consumer choice.
Comparisons Show Payday Advance Industry Profit Margins
'Modest' Compared To Fortune 500 Group
Top bank profit margins are 4 times as high, says Allan Jones,
Chairman of Check Into Cash, Inc.
CLEVELAND, Tenn., Dec. 14 /PRNewswire/ -Allan Jones, Chairman and CEO of Check Into Cash, Inc., one of the largest privately
held payday advance companies with over 1250 locations nationwide, took issue
today with the recent attack on the industry by the Center for Responsible Lending (CRL).
Jones calls the CRL, the "Center for Irresponsible Information."
CRL says the rates currently being charged by payday advance companies
are predatory and their profits exorbitant. Jones says their claims are
"unfounded and irresponsible."
While Jones' company is privately held, he released a list of five publicly traded payday advance
companies' bottom line earnings. "We have said all along that it takes a $15 fee or more per $100
advanced in order for these companies to provide their service. If you look at the bottom-line
numbers, any reasonable person will conclude that $15 per $100 is as low as a company can go and
stay in business." Advance America, for example, with more than 2750 centers nationwide, led the
industry in performance with a 10.4% profit, followed by EZ Corp at 9.3%, Cash America at 8.6%,
QC Holdings with 3.9%, and Dollar Financial with 0.8%. The industry as a whole averages about
6.6%, which Jones calls "modest."
"You cannot call payday companies predatory unless you compare their bottom-line percentage
profits to other industries' bottom-line profits. In that case, you'd also have to call Wrigley's
Chewing Gum, General Electric, Mattel, and the International House of Pancakes predatory! While
Advance America earned 10.4%, IHOP Corp earned 12.6% -- that's 21% more! If CRL wants to
label the payday industry as predatory, then by golly they've gotta call Jack in the Box, Steak &
Shake and PetSmart predatory as well, because they earn a higher bottom-line percentage than QC
Holdings' 560 payday centers. I wonder why CRL doesn't try to figure out how much of what they
would describe as 'hard-earned cash siphoned out of the wallets of hard-working American citizens'
is spent buying those over-priced predatory dog collars and fish bowls at PetSmart? You would only
make that statement if your information is fishy, fishy, fishy," Jones concluded.
Jones pointed out that on average the profit margins of the top banks are 26.52% compared to
6.6% for payday companies. The banks' profit margins are 301% greater, or four times higher, than
the five public payday advance companies he cites. "How can the CRL call a $200 payday loan
'financial quicksand' ignoring bank late charges, bounced checks fees, ATM fees, over- draft
protection, and $20,000 credit card balances? This equates to four times greater bottom-line profit
than the small mom-and-pop payday advance companies being targeted by CRL." Jones pointed out
that he personally has bounce protection and credit cards and doesn't mind ATM fees to access his
cash. "It's just a fact that bank fees are more profitable than payday fees, but I certainly would not
want CRL eliminating my banking options."
APR disclosures, while required by federal law, are misleading for micro- lenders. For example, a
typical payday loan of $100 with a $15 one-time fee and a term of 14 days generates an APR of
391%, but the fee is still $15. In fact, a loan would have to be renewed every two weeks for a year
to realize an APR of 391%, impossible under Tennessee and most state laws. "Annual percentage
rate is a red herring on this form of micro-credit lending." Jones insists that the $15 fee is a much
clearer way for consumers to determine the true cost of services, not the fact that the APR jumps
30 percentage points because the loan is paid off one-day early or decreases 26 percentage points if
one day late. He went on to use Wal-Mart as an example. He estimates they have a 30% mark-up
on a two week shelf life. Jones equated fishing rods with a wholesale price of $100, which sell for
$130. "If those rods stay on the shelf two weeks before being sold, that would create a 782% APR
yield for Wal-Mart ($30 return on a $100 investment for 14 days). If the fishing rod only stayed on
the shelf 7 days, then Wal-Mart would have an APR return on their investment of 1564%, which is
very misleading. It is still 'Always Low Prices, Always' because the $30 mark-up doesn't change.
Jones said this allows people like the CRL to create an APR monster out of smoke and mirrors,
misleading consumers and the press into believing that the payday industry is charging exorbitant
fees. "That is why it's unconscionable, in my opinion, to use APR in the manner used by CRL. They
are just trying to alarm the public, for their own benefit. That's why you need to look at the bottomline earnings, and the real truth is payday fees are reasonable," said Jones.
CRL and some of their other cohorts want to limit the fee payday advance companies can charge to
36% APR. According to Jones, "this would quickly put us out of business because it would cut our
fee from $15 for a $100 advance to $1.38." He went on to point out that if a person needed $100
for 7 days rather than 14, the maximum amount a company could charge at 36% APR would be 69
cents. "This would not even pay for the paper we use in the office bathroom! This just shows how
ridiculous the CRL's argument that 36% is a fair amount to charge really is! How long could
Starbucks stay in business if CRL cut the charge for a cup of coffee to $1.38?"
Jones charges that the CRL misrepresents these numbers in an "effort to obtain more donations
from anti-business foundations and advance their legislative agenda of socializing credit." Jones
estimates that CRL "is currently spending about $30 million to defeat a relatively large but
unorganized industry of micro-credit lenders, by quoting the cost of a 365-day rate on a 14-day
transaction."
Regarding the Center for Responsible Lending, based in Durham, NC, Jones concluded: "Heck, with
$30 million, they could brand anything, even the Andy Griffith Show, as predatory!"
Trailing Twelve Months Net Profit Margin Comparisons
SOURCE: Publicly accessible Yahoo.com Finance Stock Screener
Advance America comparisons
1 PROCTER GAMBLE CO
13.0 %
2 MCAFEE, INC
12.9 %
3 BERKSHIRE HATH HLD A
12.9 %
4 ANHEUSER BUSCH
12.9 %
5 SANDISK CP
12.9 %
6 DOW JONES CO INC
12.8 %
7 C S X CP
12.8 %
8 I H O P CORP
12.6 %
9 TEMPUR-PEDIC INTL
12.4 %
10 ABERCROMBIE & FITCH
12.4 %
11 ST. JUDE MEDICAL
12.3 %
12 ALLIS-CHALMERS ENRGY
12.3 %
13 BURLINGTN N SANTE FE
12.3 %
14 AT&T INC.
11.8 %
15 BRISTOL MYERS SQIBB
11.8 %
16 THE HERSHEY COMPANY
11.6 %
17 WORLD WRESTLING ENT
11.3 %
18 COLGATE PALMOLIVE
11.0 %
19 MATTEL INC
10.9 %
20 WRIGLEY WM JR CO
10.8 %
21 GEN ELECTRIC CO
10.8 %
22 ADVANCE AMERICA INC.
10.4 %
2,750 Payday Advance Centers in 36 States
QC Holdings comparisons
1 TARGET CP
2 ALCAN INC
3 THE STEAK N SHAKE CO
4.6 %
4.5 %
4.4 %
4
5
6
7
8
9
10
11
12
PET SMART INC
4.3 %
FOOT LOCKER INC
4.2 %
ROSS STORES INC
4.1 %
FRIEDMAN INDS INC
4.1 %
JACK IN THE BOX INC
4.0 %
DOLLAR THRIFY AUTO
3.9 %
RYDER SYSTEM INC
3.9 %
CASUAL MALE RETAIL
3.9 %
QC HOLDINGS, INC.
3.9 %
560 Payday Advance Centers in 25 States
Acquired 51 Centers Dec 1, 2006 for a total of 611 Centers
Top ten bank holding companies in the U.S. ranked by assets [1]
source: http://en.wikipedia.org/wiki/Banking_in_the_United_States
[1] As of September 30, 2006
1
2
3
4
5
6
7
8
9
10
Citigroup Inc. - 1.746 trillion
29.3 %
Bank of America Corp. - 1.452 trillion
30.8 %
J.P. Morgan Chase & Co. - 1.338 trillion
22.4 %
Wachovia Corp. - 560 billion
26.4 %
Wells Fargo & Co. - 483 billion
25.2 %
HSBC North America Inc. - 474 billion
n/a foreign co
Taunus Corp. - 430 billion
17.0 %
U.S. Bancorp - 217 billion
36.4 %
Countrywide Financial Corp. - 193 billion
23.7 %
SunTrust Banks, Inc. - 183 billion
27.5 %
Publicly Traded Payday Advance Companies
1 ADVANCE AMERICA INC.
2 EZCORP INC CL
3 CASH AMERICA INTL INC
4 QC HOLDINGS, INC.
5 DOLLAR FINANCIAL CORP
Widely Recognizable companies that are
double or triple comparisons
1 PROVIDENT FIN HLD
2 QUALCOMM INC
3 MOODY'S CORP
4 DOLBY LABORATORIES
5 LEHMAN BROS HLD
6 MERCK CO INC
7 JP MORGAN CHASE CO
8 COCA COLA CO THE
9 LILLY ELI CO
10 CHOICE HOTEL INT NEW
11 WESTERN UNION COMPAN
12 ALEXANDERS INC
13 FIRST REPUBLIC BANK
10.4 %
9.3 %
8.6 %
3.9 %
0.8 %
34.1
32.8
32.6
22.9
22.9
22.7
22.4
22.2
21.1
21.0
20.7
20.0
19.0
%
%
%
%
%
%
%
%
%
%
%
%
%
The following news release was issued by CFSA, the payday advance industry's trade association, in
response to CRL's "Financial Quicksand" story from Dec. 2006.
Report on Payday Loans Doesn’t Add Up
Center for Responsible Lending’s Irresponsible
Math Misleads Consumers and Policymakers
Washington, D.C. – The recent report from Center for Responsible Lending (CRL),
“Financial Quicksand,” purposely deceives consumers and policymakers by using
“evidence” that simply does not exist. The entire report should be discredited, according
to the Community Financial Services Association of America (CFSA), the national trade
association of responsible payday lenders.
“CRL has taken data points from various sources, applied their own convoluted math and
passed it off as information confirmed by state regulators and third parties,” said Darrin
Andersen, CFSA president. “In reality, CRL has applied its own ‘assumptions,’
‘calculations’ and ‘adjustments’ to the original data points. They also take the liberty of
‘estimating’ data that simply does not exist,” Andersen said.
“By publishing false information in their reports, CRL is misleading consumers,
legislators and the media who believe and repeat their false allegations. Any report
released by CRL should be reviewed carefully in order to separate fact from the fiction
they use to make up their allegations,” said Andersen.
“CRL’s discredited claims about the costs of the typical payday advance and the inability
of consumers to pay them back makes the overarching conclusion of the report invalid,”
concluded Andersen.
CRL Report: “The typical payday borrower pays back $793 for a $325 loan.”
The Facts: A typical payday borrower pays back $52 for a $325 loan.
In CRL’s calculation, the average borrower takes out nine loans per year, the average
loan amount is $325 and typical fee per $100 borrowed is $16. For a loan of $325, the fee
would be $52.
However, CRL makes the assumption that eight of these loans are rollovers or extensions
of the original loan.
“This figure is absolutely wrong,” said Darrin Andersen, CFSA president. “To come up
with that number, CRL counts the principal for only one loan but adds the fees for nine
loans,” said Andersen. “While it makes for a good headline, CRL’s scenario is
impossible.”
In 37 states, rollovers are limited or prohibited. In states without limits, CFSA members
limit the number of rollovers to four. Therefore, it is not possible for someone to roll a
loan over in the manner CRL contends or to accrue the kinds of fees they claim.
CRL Claim: “Ninety percent of payday advance revenue comes from borrowers who
cannot pay off their loans when due.”
The Facts: According to state regulator reports, more than 90 percent of transactions are
paid when due and more than 95 percent are ultimately collected.
The most recent reports from state regulators — without the “benefit” of CRL’s spin or
re-calculations — show that more than 90 percent of transactions are paid when due and
more than 95 percent are ultimately collected. (The filings of public companies show
similar data.) Therefore, CRL’s assumption that borrowers who take out more than four
loans are “trapped” and cannot pay them back is false.
To use California, Virginia and Florida as examples:
According to the California Department of Corporations 2005 Annual Report, only
7.05% of payday loan customer checks were returned unpaid and 3.44% were charged off
as uncollectible.
In Florida, “Trends In Deferred Presentment,” FL Office of Financial Regulation, August
2006 reports that 5.0% of customer checks were returned unpaid and 2.2% were charged
off as uncollectible.
The Virginia Bureau of Financial Institutions Annual 2005 Report indicates that 4.3% of
customer checks were returned unpaid and 2.27% were charged off as uncollectible.
CRL Claim: “Predatory payday lending now costs American families $4.2 billion per
year in excessive fees.”
FACT: The underlying premise to support this claim has no basis.
CRL arbitrarily decided that taking out more than four payday advances in a year is
inappropriate and that any consumer who does is caught in a “predatory debt trap.” This
runs contrary to research showing that 92% of customers think payday lenders offer a
valuable service and that 90% of customers are satisfied with their understanding of the
terms and costs of payday loans.
A majority of customers have used payday advances to avoid more costly bounced check
fees or late charges on bills. But CRL makes no mention of the benefits reaped by these
customers — the problems solved or the money saved versus more expensive options. It
gives no attention to the possible harm caused by eliminating lawful access to payday
advance credit and forcing them into less desirable and often unregulated alternatives.
Exploiting the Myth of
Rollovers and APR vs. Convenience Fee
Real Math Tells the Story
Rollovers
(Most states do not allow rollovers and most states require the account to be paid in full before a new transaction can be
initiated. Assuming a $15 fee – if paid regularly for 26 times in a year = $391.)
The Center for Responsible Lending (CRL) consistently insists that the payday industry relies on rollovers for profitability. They
allege the payday industry makes exorbitant amounts of money on rollovers, and that even if
The consumer fails to pay back, the payday company makes money.
Let’s do the math. (Refer to Real Profit from Average Payday Advance Fee) Since the industry average of five publicly-traded
payday companies is 6.6%, assuming a $15 fee for $100 advanced creates a profit of .99 cents per transaction.
Based on the .99 cents of profit per transaction, if the consumer failed to pay back the $100, the consumer would have had to
roll the account over 102 times before the payday company made .99 cents. (.99 – 100 = 101.01%)
In other words, on the102nd transaction, the payday company would earn its first $1 of income.
If the consumer comes in, pays off and renews the transaction 102 times, the payday company would have advanced them $10,200.
The math 102 advances at $100 each = $10,200. In other words, the consumer would spend 3 years and 22 pay periods to pay for the
$100 charge off. On the 23rd pay period, the payday advance company would earn .99 cents.
Misunderstood APR vs. Convenience of Fee
The Center for Responsible Lending (CRL) is constantly barraging the payday advance industry for excessively high interest of what
they term “charging 400% interest.” To prove this, you have to work the math, i.e., if a consumer comes in to get a $100 pay day
advance, at 400% interest, the payback is $500. $100 x 400% = $400 interest plus $100 principal = $500…(this is incorrect!)
The real math is a consumer needs $100 and the payday company charges $15 for a 14-day transaction, they are forced to “a 365-day
rate of 391%.” ($15 x 26 times per year = 391% APR.)
CRL regularly blurs the line between interest and the annual percentage, or APR. The interest is $15. The APR is 391%. If the
consumer comes in one day early, on the 13th day, instead of the 14th day, the APR jumps 30 points to 421%. If the consumer comes
in one day late, on the 15th day, the APR drops 26 points to 365%.
Whether the consumer pays our $15 fee on the 13th day or the 15th day has no effect on the consumer. The fee is still $15. The
fact that the APR moves 56 points from the 13th day to the 15th day makes no difference in the profitability. (421% - 365% =
56% APR) Because the fee remains $15.
HOW THE CRL MANIPULATES $15
APR is misleading to consumers on a 14-day transaction and this demonstrates how a 36% cap is unrealistic
APR jumps 56 points from paying off one day early v.s. paying off one day late
BUT the fee remains $15
14-day transaction
391%
$15.00
$15.00
421%
Pay off 1 day early
Pay off 1 day late
330%
$15.00
340%
350%
56 point difference
365%
360%
370%
380%
390%
400%
410%
420%
430%
Why would anyone pay 335% more for coffee?
Payday advance centers are the convenience stores of the financial services industry. Convenience stores are designed to sell one or
two small items at a time and charge much more than a supermarket – they offer a small selection of brand choices for the consumer.
A great example is instant coffee! If you run out of instant coffee and go to a convenience store, you will find only one or two brand
selections, available only in 2-ounce jars. The cost is $2.95, or $1.475 per ounce.
You can go to the supermarket and find a large selection of brands and choices in 12 oz. jars at a cost of $5.29, which is only .44 per
oz.
$2.95
$1.475 per oz
Why would anyone pay 335% more for coffee?
The math:
.44 x 335% = $1.474
The Answer: CONVENIENCE
$5.29
.44 cents per oz.
Exploiting the Myth of Consumer Dissatisfaction
Customer Complaints per State
Tennessee: Of the 606 complaints filed with the Department of Financial Institutions, the
Deferred Presentment (or pay day), received zero (0) for 2005
Colorado: Does not retain this information for individual types of consumer lenders. However,
in 2005 there were 253 total complaints against all consumer lenders.
Deleware: Customer complaints are confidential.
Florida: Does not retain this information for individual types of consumer lenders. However, in
2005 there were 215 total complaints for all consumer lenders.
Kentucky: In 2005 there were 12 complaints involving payday lenders.
Michigan: Does not retain this information for individual types of consumer lenders. However,
in 2005 there were 986 total complaints for all consumer lenders.
Montana: In 2006, there were 10 complaints involving payday lenders. Two complaints were
against licensee payday lenders and 8 complaints were against internet payday lenders that
were unlicensed.
New Mexico: In 2005, there were 11 complaints against payday lenders.
North Dakota: In 2006, there was 1 complaint against a payday lender. The customer was
upset because he was denied a loan. However, he was denied a loan because he was over the
allowable loan limit.
Virginia: In 2006, there were 53 total complaints; 39 with licensed lenders; 14 unlicensed
lenders
Wisconsin: Does not maintain this information for specific industries; they group all consumer
loans under the category of mortgages and would be unable to distinguish payday loans.
South Carolina: Does not maintain this information for specific industrie
Consumer Resources Division
CONSUMER PROTECTION
A key responsibility of the Division is the handling and tracking of consumer
complaints. The Department of Financial Institutions is the only state
agency that has the statutory jurisdiction to handle consumer concerns
and complaints involving financial institutions operating under the various
laws the Department administers in the State of Tennessee. The Division
processes all complaints related to financial institutions chartered and
licensed by the Department. If the Department receives information that do
not fall within the Department’s jurisdiction, those inquiries or complaints
are forwarded to the appropriate agency or entity and the consumer is
accordingly advised. In all cases, the Division follows its routine practice of
submitting the consumer’s written complaint to the financial institution for
response and communicates this in writing to the complainant or forwards
the complaint to the appropriate entity if the Department does not have
jurisdiction. If a complaint indicates that further review is necessary, the
complaint is referred to the appropriate regulatory Division in the Department
for investigation as warranted.
In addition, the information generated from consumer complaints will be
used for specific consumer outreach initiatives as well as assisting the
Governor and the General Assembly with developing legislative initiatives
to ensure Tennesseans have access to sound, non-predatory financial
institutions.
In 2005, the following are the top 10 consumer complaints by
industry:
INDUSTRY
TOTAL
% OF TOTAL
COMPLAINTS
Default *
266
45%
Banks
154
25%
Mortgage Companies
142
23%
Credit Unions
19
3%
TILT**
14
2%
Title Pledge
10
>2%
Check Cashers
1
>1%
Deferred Presentment
0
0%
Premium Finance
0
0%
Money Transmitters
0
0%
606
100%
TOTAL:
* Default category contains phone calls, e-mails, correspondence received, complaint
form mailed but completed form not returned; complainant or financial institution
was not under the Department’s jurisdiction and the complaint was referred to the
correct regulatory authority.
** Tennessee Industrial Loan and Thrift
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Consumer Resources Division
2005 TOP TEN CONSUMER COMPLAINTS BY ALLEGATION
Customer Service Issues 1:
131
Misrepresentation :
63
2
Fraud :
44
3
Payment Processing; Payment History Dispute :
39
Unapproved Account Withdrawal :
25
Account Fee Issues :
23
Excessive Fees :
23
RESPA Good Faith Estimate Violations 8:
16
Privacy Issues :
16
4
5
6
7
9
Failure to Release Deed or Lien :
10
15
Issues included phone calls not returned by staff at financial institutions,
incorrect information given, a requested transaction or service was not
performed or did not occur in a timely
1
Interest rate quotes (loan rate higher than original quote, closing date set
and changed or missed, fixed rate ends up as adjustable rate, etc.)
2
Covers fraudulent activities not under scams, forgeries, insider
information, identity theft, etc.
3
4
Payments not made or processed in a timely manner
Includes debiting accounts for fees, service charges, processing, errors,
etc.
5
Covers fees for insufficient funds (NSF), returned checks, service
charges, etc.
6
Covers closing fees, loan processing fees, loan administration costs, late
charges, etc.
7
Real Estate Settlement Procedure Act due to either not receiving the
document or it is incorrect
8
and took a more proactive approach by becoming involved in a number
of consumer events aimed at educating Tennesseans about basic savings,
credit management and home ownership. Specifically, the Division worked
with other state and federal agencies, and non-profit organizations to focus
on educating the K-12 student population, college students, minorities and
women.
CONSUMER RESOURCES DIVISION
ACCOMPLISHMENTS:
• The Tennessee Department of Financial Institutions and Middle Tennessee State University have partnered to incorporate financial literacy lessons into MTSU’s University 1010, a course designed to
familiarize freshmen with the college transition.
• The Department launched a speakers bureau, TDFI Speaks, to help
increase the financial literacy of adults and youth statewide. Speakers are knowledgeable in the areas of mortgage lending, banking
and savings. The bureau consists of senior management, examiners
and other staff chosen for their knowledge of the topic. Organizations across the state can request a speaker for their events free of
charge.
• In an effort to increase homeownership opportunities for the Hispanic community throughout Middle Tennessee, the Department joined
various other organizations and created the Middle Tennessee Hispanic Partnership (MTHP). Other partners include the Human Rights
Commission, the U.S. Department of Housing and Urban Development, the Tennessee Housing Development Agency, the National
Association of Hispanic Real Estate Professionals and the Nashville
Metropolitan Development and Housing Agency, in an effort to educate and provide services for this emerging market.
Issues include possible improper disposition of records, sharing of
information, etc.
9
Entity does not release the deed of trust within statutory time limit, does
not release car title when paid in full, etc.
10
CONSUMER EDUCATION
A key strategy in helping protect consumers is to develop and coordinate
educational resources that can assist consumers in making informed
financial decisions. Education is a powerful tool in financial literacy.
Consumers who understand their rights and responsibilities are less likely
to become involved in situations that are not in their best interests.
Serving as a conduit, the goal of the Division is to ensure that all Tennesseans
have access to financial literacy programs that will help them make sound
money management decisions. In 2005, the Division stepped up its efforts
25