Several earnings calls made in the last week show signs that the payday lenders are having some trouble, particularly in the United States.
Cash America told analysts that loan volume is dropping. Fewer people are taking out loans.
Here is what Daniel Feehan, CEO of Cash America, had to say:
I don't have any explanation for the ongoing anemic loan demand in our storefronts other than the behavioral issues that I've been discussing for the past several quarters. We don't believe our customers are finding new sources of short-term credit other than perhaps some migration to the Internet, nor do we believe we are losing share to our competitors. I don't know that our storefront customers are consciously trying to deleverage but we don't see any indication that our traditional customers have regained enough confidence in their personal financial situation to risk additional personal leverage at this time. This dynamic is particularly evident in those states with persistently high unemployment rates where we have large footprints, states like Nevada, Arizona, Illinois, Ohio and Florida.
In turn, World Acceptance (installment, pawn, but not payday) says that they are having to charge off more loans in the United States. In the last quarter, the company charged off one of every seven loans outstanding. At Cash America, charge-offs were even higher.
But the whole thing revolves around their ability to get debt from Wall Street. This quarter, Cash America secured $300 million in new financing. That new loan doesn't mature until 2018. Thus the basic business model is this: borrow medium-term at 5.75 percent, and then loan the same dollars back out for two weeks for as much as 533 percent (Texas).
Right now, World Acceptance has about $830 million in loans outstanding, but only $354 million in equity. More than half of their money comes from Wall Street. In fact, the reason that the company can't lend out more is because they are stretched to the limits: they only have about $11 million in cash on hand.
I think Mr. T would have something pithy to say about the plight of these companies.