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Payday Loan Industry Newsletter,Payday Loan Laws and An Internet Discussion ****************************************************************Read a few of our previous Newsletters here if you missed them. The focus of our last few Newsletters
was : Subscribe at no cost to you for our Payday Loan Newsletter. The frequency is typically once each month. If
you have an interest in the payday loan industry, YOU NEED OUR Payday Loan NEWSLETTER! How Do Your Payday Loan Numbers Compare To Ours? Our team at Trihouse Payday Loans Trihouse Payday Loans http://www.PaydayLoanIndustry.com receives calls and emails everyday from existing and prospective payday loan operators asking about default rates, startup costs, advertising expenses, average loan amounts, expected loan fees, how soon to expect to turn profitable, “street money” requirements, and a host of other basic statistics relevant to our industry. So for the past several months we at the rock quarry have been bugging you our readers, convulsing over independent studies, listening to conference calls conducted by the "really big guys" ( Think Dollar Financial http://www.dfg.com , Advance America AEA http://www.AdvanceAmericacash.com, etc.), and pouring over our own "brick-n-mortar" and Internet payday loan operations in an attempt to enlighten all of us. Now be advised this "analysis" is a compilation of "De Novo" stores (as Jim Cramer would say, "Wall Street gibberish for new stores"), stores open as long as 84 months, stores in Florida having a 10% cap rate, stores in Tiny Town, Oklahoma, stores in Salt Lake City, Utah, and Internet operations doing tens of thousands of transactions per month. Additionally, we are discussing "mono-line" payday loan operations; no check cashing, auto-title loans, RAL’s (rapid anticipation loans), etc. But, being the brave, optimistic souls that we are, we’re going ahead with this payday loan discussion anyway! And of course, "Your results may differ". On the other hand, if your results drastically differ, you’ll know your team has a lot of work to do. Oh, and if you want to add your own two cents or attack us on any point, PLEASE just email us!! First, the general state of the payday loan industry. The good news; volumes are up! Ah, the bad news; defaults are up also! Consumers in the USA, Canada, the UK and others demand our product. And those consumers that do not have the option of walking into a payday loan store (or are too embarrassed) will go online to get their cash advance. Many, many consumers prefer the Internet product and those residing in places like NY, PA, NJ, NC, and GA go online by the tens of thousands every week. These consumers pay more for their loans and have less protection but they want our product and no "do-gooder consumer protectionist" is going to take their financial options away from them! Of course the majority of us offering payday loans online use the "state-model" in which we get licensed in a state and implement that state’s fee structure to residents of that state applying online. You are licensed, right? We certainly hope we no longer have any of you "Internet bandits" as Jerry Ayles, one of our principals, was once called by an official of FISCA at the national convention in 2002. Whoops! Sorry, we went off on a tangent... Speaking of the average amount of a payday loan, our analysis reveals a number around $350.00 to $370.00. Newer stores have lower averages because many "players" restrict their first-time customers to smaller loan amounts initially. As the operator experiences successful transactions with a specific consumer, the average cash advance amount creeps up. Additionally, some stores in this study are in states having $300 maximum loan amounts (Calif.) while others (Idaho) have $1000 maximums. Marketing expenses range from 3% to 4.5% of revenue. Obviously, new stores (De Novo for you Wall Streeters) experience big hits for marketing the first 3 – 6 months of opening. Stores open more than 18 months in a typical competitive environment are closer to 3%. Noteworthy is that the majority of us belong to FISCA and/or CFSA. Lobbying budgets, "Best Practices" advertising, legislative attacks, etc., are resulting in increased costs for those of us who support our national organizations. (You do support your national and state organizations, don’t you) Many of us bury these additional costs in our advertising and marketing budgets so we think we are seeing some additional costs here attributable to this temporary phenomena; at least we hope it’s temporary :o) Average fees for cash advances are in the $55 - $68 range. Again, Internet originated loans are higher; $60 - $69. And of course, the state or province the consumer resides in plays a pivotal role in fees generated per loan. The average term of the payday loans in our analysis was 15 days. Interestingly, when we performed this same analysis last year, the average loan term was 13 days. We think this is a negative portent of our future margins. Consumers are having a tougher time paying us back. Additionally, CFSA best practices are pushing EPP’s (extended payment plans). This is considered a good thing for our industry as it will prove necessary for our survival. We support it and you should too. Overall growth in the number of payday loan transactions is approximately 8%, a significant slowing from our previous analysis. However, the Internet side of transactions is growing closer to 15% or more. We think there is significant cannibalization of the "brick-n-mortar" model to the Internet model and continued acceptance by the consumer of the Internet payday loan consumer. Of course there were companies that actually saw shrinkage or at least slow growth in their volume of transactions. This was due to store closings in states like OR and PA with a concurrent fairly significant loss of revenue. Think Advance America with 2800 + stores. Our gut tells us this dramatic increase in Internet acceptance by payday loan consumers is due to the improved disclosure of all contact information on web sites including addresses and phone numbers of lenders, the lack of access to the "brick-n-mortar" product in several states/provinces as we mentioned earlier, the convenience of the Internet product, and the lack of privacy and dignity the "brick-n-mortar" model offers the consumer. Growth of our industry is occurring in the USA, the UK, Canada, AU, and more. The Feds in Canada (Federal Bill C26 effective May 2007) put the onus of payday loan regulation on the provinces. Favorable legislation is slowly moving through the various provinces and we are all (including our industry leaders) very optimistic about our future. The Canadian economy is very robust and the “big guys” in our industry are planning significant increases in store count and Internet offerings. Manitoba is probably the closest to enacting specific payday loan legislation and setting rates and regulatory infrastructure. The Canadian economy is rockin as well so this helps our Northern brothers. "Canadians are simply better people", as a CEO at Dollar quipped; jokingly! The UK is in a similar situation. Cash America launched their Internet payday loan product after the purchase of CashNetUSA (see our previous Newsletter). Dollar also experienced substantial growth in the UK. Because the UK is a national market from a legislative perspective, payday loan companies are very optimistic about their prospects there. "Defaults", "provision for losses", "bad debt", etc. are all over the place and measured in many different ways by each of us. As we discovered, these words mean different things and are measured in different ways by our industry. Some companies "redefine" their methods for defining "losses" and "provisions for losses as a percentage of revenues" from quarter to quarter. So, this area proved to be "challenging". Yet, let’s just wade right in... For the "brick-n-mortar" model we see defaults of 5% - 12% of revenue. This is not to imply these funds are never recovered but rather that the consumers that makeup this portfolio must be addressed. With the aid of centralized collection departments, the http://www.CheckDataSystems.com SCAN product (Full disclosure: we own a portion of this company), various "check/ACH guarantee programs", multiple "identity validation services" discussed in previous Newsletters and on our web sites, outsourcing collection activities, "Check-a-Check" http://www.paydayloanindustry.com/check-verification.html and all the other solutions and strategies we see, typical net write offs approximate 3%. BUT AGAIN, it’s all over the map and is dependent on the skill of the specific team addressing the collection activities and how aggressively you pursue your bad debt. For example, Advance America AEA http://www.AdvanceAmericacash.com chose to sell $1.8 million of previously written off customer receivables during their quarter ended December 31, 2007. Assuming the same due-diligence and underwriting criteria, a payday loan internet operator will experience a doubling of the default rate exhibited by their "brick-n-mortar" operation. That just seems to be the way it works! You should be aware that defaults are seasonal and "paydowns" (in which the consumer has a tendency to pay down their debt) increase January through March/April. Of course this is due to their tax refunds. And now with the certainty of "rebate checks" this is an area in which we should all concentrate. Rebates are expected to "hit" in May so prepare for this.
On average, we typically achieve a 30% monthly gross on our loan portfolio (street money). Actually we, and our clients, have stores over 45%. Thus, after 24 months the AVERAGE is a nearly $100,000 loan portfolio grossing $30,000/month! Store Margin: While the specific definition of store margin may vary by industry and even by company, it provides a measure of store-level operating margin (i.e., sales minus cost of sales, labor and other store-related expenses). As an example, Dollar Financial Corp DLLR http://www.dlr.com in their Second Quarter 2008 earnings statement achieved a store and regional margin as a percentage of total revenue of 39.2% compared to 36.8% from the prior year’s quarter! Great job, guys!! Ironically, Dollar Financial stores with 105 out of 1088 company owned stores in Florida and a state having the lowest statutory payday loan rate per transaction in the USA ($10.00/hundred), is achieving nearly 40% store margins! (Damn! We missed an opportunity to use more genuine Wall Street gibberish like, “Dollar Financial DLLR has a substantial footprint in Florida and manages to achieve blended operating margins of nearly 40%!). OK, this Newsletter has gotten too long so we’ll stop here for now. Most of our readers have to start making their collection calls now anyway. See you all next month. And remember, "Make Money Payday Loan Fans". If you thirst for more payday loan knowledge, go here: This information is discussed further in depth in our Payday Loan Startup & Training Manual. You may ORDER it NOW. Next Month a new topic and coverage of more states. From: Trihouse Enterprises, Inc. If you have comments, questions, topics you would like covered...PLEASE contact: |
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