Jones defends cash advance businesses
December 28, 2006 - Cleveland, Tennessee
Cleveland, Tn.'s Allan Jones, chairman and CEO of Check Into Cash, Inc., is taking issue with the recent attack on the industry by the Center for Responsible Lending (CRL).
Mr. Jones, who heads one of the largest privately held payday advance companies with over 1,250 locations nationwide, 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. Mr. Jones says their claims are "unfounded and irresponsible."
While Mr. 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."
He said Advance America, for example, with more than 2,750 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 Mr. Jones called "modest."
He said, "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."
Mr. Jones said 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, he stated.
Mr. Jones said, "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."
Mr. Jones said 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, he said. 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, he said.
Mr. Jones said, "Annual percentage rate is a red herring on this form of micro-credit lending."
Mr. Jones said 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 used Wal-Mart as an example, saying he estimates it has a 30% mark-up on a two-week shelf life. He 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 its investment of 1564%, which is very misleading. It is still 'Always Low Prices, Always' because the $30 mark-up doesn't change."
Mr. 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."
CRL and some of their other cohorts want to limit the fee payday advance companies can charge to 36% APR.
Mr. Jones said, "This would quickly put us out of business because it would cut our fee from $15 for a $100 advance to $1.38." He said if a person needed $100 for seven 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?"
Mr. Jones charged 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."
He said he 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, N.C., Jones concluded, "Heck, with $30 million, they could brand anything, even the Andy Griffith Show, as predatory."
Trailing Twelve Months Net Profit Margin Comparisons
Advance America comparisons
SOURCE: Publicly accessible Yahoo.com Finance Stock Screener 12/6/2006
QC Holdings comparisons
- PROCTER GAMBLE CO 13.0%
- MCAFEE, INC 12.9%
- BERKSHIRE HATH HLD A 12.9%
- ANHEUSER BUSCH 12.9%
- SANDISK CP 12.9%
- DOW JONES CO INC 12.8%
- C S X CP 12.8%
- I H O P CORP 12.6%
- TEMPUR-PEDIC INTL 12.4%
- ABERCROMBIE & FITCH 12.4%
- ST. JUDE MEDICAL 12.3%
- ALLIS-CHALMERS ENRGY 12.3%
- BURLINGTN N SANTE FE 12.3%
- AT&T INC. 11.8%
- BRISTOL MYERS SQIBB 11.8%
- THE HERSHEY COMPANY 11.6%
- WORLD WRESTLING ENT 11.3%
- COLGATE PALMOLIVE 11.0%
- MATTEL INC 10.9%
- WRIGLEY WM JR CO 10.8%
- GEN ELECTRIC CO 10.8%
- ADVANCE AMERICA INC. 10.4% - 2,750 Payday Advance Centers in 36 States
Top ten bank holding companies in the U.S. ranked by assets
- TARGET CP 4.6%
- ALCAN INC 4.5%
- THE STEAK N SHAKE CO 4.4%
- PET SMART INC 4.3%
- FOOT LOCKER INC 4.2%
- ROSS STORES INC 4.1%
- FRIEDMAN INDS INC 4.1%
- IN THE BOX INC 4.0%
- DOLLAR THRIFY AUTO 3.9%
- R 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
Source: http://en.wikipedia.org/wiki/Banking_in_the_United_States - As of September 30, 2006
Publicly Traded Payday Advance Companies
- 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%
- North America Inc. - 474 billion n/a
- 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%
Widely Recognizable companies that are double or triple comparisons
- ADVANCE AMERICA INC. 10.4%
- EZCORP INC CL 9.3%
- AMERICA INTL INC 8.6%
- QC HOLDINGS, INC. 3.9%
- DOLLAR FINANCIAL CORP 0.8%
- PROVIDENT FIN HLD 34.1%
- QUALCOMM INC 32.8%
- MOODY'S CORP 32.6%
- DOLBY LABORATORIES 22.9%
- LEHMAN BROS HLD 22.9%
- MERCK CO INC 22.7%
- JP MORGAN CHASE CO 22.4%
- COCA COLA CO THE 22.2%
- LILLY ELI CO 21.1%
- CHOICE HOTEL INT NEW 21.0%
- WESTERN UNION COMPAN 20.7%
- ALEXANDERS INC 20.0%
- FIRST REPUBLIC BANK 19.0%
The Chattanoogan, Staff Writer
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