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, 2006 /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 bottom-line 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 4.6 %
2 ALCAN INC 4.5 %
3 THE STEAK N SHAKE CO 4.4 %
4 PET SMART INC 4.3 %
5 FOOT LOCKER INC 4.2 %
6 ROSS STORES INC 4.1 %
7 FRIEDMAN INDS INC 4.1 %
8 JACK IN THE BOX INC 4.0 %
9 DOLLAR THRIFY AUTO 3.9 %
10 RYDER SYSTEM INC 3.9 %
11 CASUAL MALE RETAIL 3.9 %
12 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 Citigroup Inc. - 1.746 trillion 29.3 %
2 Bank of America Corp. - 1.452 trillion 30.8 %
3 J.P. Morgan Chase & Co. - 1.338 trillion 22.4 %
4 Wachovia Corp. - 560 billion 26.4 %
5 Wells Fargo & Co. - 483 billion 25.2 %
6 HSBC North America Inc. - 474 billion n/a foreign co
7 Taunus Corp. - 430 billion 17.0 %
8 U.S. Bancorp - 217 billion 36.4 %
9 Countrywide Financial Corp. - 193 billion 23.7 %
10 SunTrust Banks, Inc. - 183 billion 27.5 %
Publicly Traded Payday Advance Companies
1 ADVANCE AMERICA INC. 10.4 %
2 EZCORP INC CL 9.3 %
3 CASH AMERICA INTL INC 8.6 %
4 QC HOLDINGS, INC. 3.9 %
5 DOLLAR FINANCIAL CORP 0.8 %
Widely Recognizable companies that are
double or triple comparisons
1 PROVIDENT FIN HLD 34.1 %
2 QUALCOMM INC 32.8 %
3 MOODY'S CORP 32.6 %
4 DOLBY LABORATORIES 22.9 %
5 LEHMAN BROS HLD 22.9 %
6 MERCK CO INC 22.7 %
7 JP MORGAN CHASE CO 22.4 %
8 COCA COLA CO THE 22.2 %
9 LILLY ELI CO 21.1 %
10 CHOICE HOTEL INT NEW 21.0 %
11 WESTERN UNION COMPAN 20.7 %
12 ALEXANDERS INC 20.0 %
13 FIRST REPUBLIC BANK 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.
