Executives at Community Choice Financial, whose company is the corporate parent of Check$mart and also (through a convoluted definition of ownership) of Insight, made some interesting comments during last Friday's analyst call that reveal plenty about
the meta-changes going on in payday.
Community Choice Financial operates under state licenses in nine states. Given that, it has not faced the same headwinds currently buffeting off-shore and tribal lenders in the moment of ACH restrictions. It derives revenue from short and medium-term consumer loans, check cashing, title loans, and prepaid cards. In the third quarter of 2013, it made $537.8 million in loans. Historically, they have done most of their lending from retail, but they have been diving into online business recently.
I see six significant themes in their call. Here they are. By the way, I'm going to do my best to provide the best transcription of their comments but in some instances I may failed to record them in exact detail. Even then, I believe that the intent of the speaker is accurately expressed.
Customer acquisition, we don’t have a crystal ball but were we sit today the window is still open. Suffice to say, we are enjoying that. Let’s consider this example. If I put one hundred customers on the books prior to the disruption in July versus one hundred in September, my expectation of the lifetime customer return is 30 to 40 percent greater. It is a meaningful difference.
I doubt they are the only state-licensed lender to make this decision.
When we have a ruling, it is a chance to take it to the state legislatures….and we can say ‘This has been debated at the highest levels for guidance…on how these products should exist…which is a testament that they should exist.’ There will always be winners and losers from any regulatory regime and our goal is to be a dominant player.
What is consumer harm? Define harm. That is where I have spent a lot of time with them [the CFPB]. What the heck is a cycle of debt? Can you explain what it is besides what the CRL did? Is it owing more than you can pay at one time…they said ‘yes’…well then everyone in a mortgage is in a cycle of debt. There are 60 million people; I honestly believe it…that are a target market for this product. But I have become more and more comfortable that a world without short-term credit is not the place to be. Look at Pew’s report. The history is that 36 percent APR is the way to go and that is what is fair. But one of our greatest distractors just said that Colorado is the new way to go. What you see is that unfair people are staking a new flag on what is fair.
What does tribal and offshore lending mean to the company and how do we position ourselves as a state-regulated player in this space and what the regulatory contradiction has meant? My position has been that either the other business models will join us and participate [in legal lending] or the other business models will come under scrutiny and will come under market disruption and it will be an opportunity for us to capitalize on it. In q3, that is what we saw.