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Payday lenders seemingly have few friends in high places, but they recently found sympathy from a surprising source: an economist at the Kansas City Fed.
July 1 -
New York State is considering legislation that would carve out an exception for check cashers from its 25% cap on interest rates for short-term loans, a move consumer advocates say is a backdoor attempt to allow payday lending in the nation's third-most populous state.
June 1 -
Think Finance wanted to give underbanked consumers access to credit when they needed it, while helping them avoid a bad cycle of debt. To accomplish this, the online payday lender developed the Elastic card, a prepaid debit card with a line of credit of up to $500, that rewards consumers with lower fees for exhibiting good behavior, like making payments on time.
December 3
A payday-loan company backed by a New York private equity fund filed for a $230 million initial public offering this week, expanding some sources of consumer lending as traditional banks face new regulatory restrictions.
Community Choice Financial Inc., which filed for its IPO on Tuesday, offers short-term loans, title loans, check-cashing services and prepaid debit cards to low-income customers. Private equity fund Diamond Castle Holdings LLC is the Dublin, Ohio, company's primary sponsor.
Like other payday lenders and check-cashers, Community Choice is courting the roughly-60 million Americans who do not use traditional banks for some or all of their financial service needs. Its IPO is the latest attempt by alternative financial services providers to win business from potential bank customers.
The traditional financial services industry has long struggled to serve the so-called underbanked, in part because banks usually cannot make much profit from people who do not have a lot of money. Now new financial regulations, including the Dodd-Frank law, have made it even more difficult for banks to compete with payday lenders for some consumers' business.
"We ought to be part of that market, but we find it increasingly difficult to serve the market," said Dennis Hudson, chief executive of $2.08-billion asset Seacoast Banking Corp. of Florida. "Sadly, they (payday lenders) fulfill a very vital service for consumers."
The U.S. regulatory environment has made it difficult for banks to compete against payday lenders, he said.
For example, banks require multiple forms of identification before opening a new account, whereas payday lenders do not require multiple forms of ID. Some underbanked consumers, including immigrants, have more limited forms of ID, Hudson said.
Alternative financial providers also sell high-fee products that banks have mostly avoided. Community Choice said in its
Meanwhile, new regulations since the financial crisis have limited the fees that banks can charge for overdraft protection and other services.
Payday lenders have a "perfect environment" for growth because of the impact of credit card reform, said payments industry consultant Philip J. Philliou.
"The industry gets bigger every single day," Philliou said. "And in times of economic weakness, they're in an even-better position to do well."
But Community Choice and similar companies may face new regulatory scrutiny of their own. The new Consumer Financial Protection Bureau, created by Dodd-Frank, will have "explicit supervisory authority to examine and require registration of payday lenders," Community Choice said in its prospectus.
The IPO comes about four months after the company acquired CCCS Corporate Holdings Inc., which operated about 140 stores under the name California Check Cashing Stores. California is the company's biggest market, followed by Ohio and Arizona.
Community Choice operates a total of 433 stores under several trade names, including CheckSmart and Express Consumer Loans. It reported consolidated, pro forma revenue of $310.4 million for 2010, and adjusted net income of $28.1 million.
The company generated $1.47 billion in short-term consumer loan volume last year, making the category its largest product offering. Community Choice cashed about 6 million checks last year.
The Community Choice board includes five members who are associated with private equity fund Diamond Castle, including Eugene Lockhart, a former executive with Bank of America Corp., MasterCard International and Midland Bank Plc. Diamond Castle is also an investor in Jacksonville, Fla.-based EverBank Financial Corp., which filed its own IPO registration last year, seeking to raise about $200 million.
