Pennsylvania may have chased out payday lenders with its new laws. Advance America, Cash Advance Centers (NYSE: AEA) announced that it will close 31 locations in that state, along with 45 Oregon locations, and 27 other underperforming stores. According to a press release announcing the news:
We believe that the decision to close these centers is in the best interest of our stockholders and does not reflect negatively on the financial strength of our overall business model. In Pennsylvania, the uncertain timetable for a ruling on our appeal prompted us to reduce the number of centers there in an effort to control costs. In Oregon, our decision to close our centers is the direct result of a new law that has already prompted most of our competitors to close. Unfortunately, as a result of this new law, consumers will now be left with one less option when they find themselves in need of small amounts of short-term credit. Finally, we have decided to close certain additional centers that have not attained a satisfactory level of performance.
Shares of Advance America lost 9% of their value on Friday and, while payday loans are certainly a terrible idea for consumers, the company may actually have a point: consumers will be left with one less option and, in some cases, a high-interest payday loan is a lot cheaper than a bounced check.
Critics have argued that payday lenders are exploitative, making a profit from legalized loan sharking. But the returns that these companies earn are often unexceptional -- payday lending is just not that great of a business to be in. These business have pretty high expenses and lowering the interest rates on the loans could very quickly make them unprofitable. When North Carolina capped the interest rates on short-term loans at 36%, payday lenders fled the state. Even critics concede that there are occasional situations where a payday loan is preferable to the alternatives.
The answer to the problem of payday lending is education, not litigation and legislation. Depriving consumers of an option is rarely a good solution to a problem.
The week in preview: Chicken soup (or a doughnut) for the recession-weary soul?
Comfort Zone Investing: Oil's down, which is a start, but not good enough
Stocks have their worst week in six years
Reader Comments (Page 1 of 1)
9-24-2007 @ 1:47AM
Tommy Southard said...
Pay day lenders are preying on the poor and less educated people in these states. They need to be shut down, Hell if I was loaning people money at these rates the would lock me up.
9-24-2007 @ 1:48AM
Roy said...
Let me tell you something alright? Leading up to the time that we had to take out a cash loan, we didn't see anything but negative remarks from others online about the cash loan industry. We ended up almost losing our car because we waited. At the last minute, we borrowed $400 from cashloancity.com and I really believe it is the only thing "at the time" that saved us. I understand that there's a problem with some people abusing this industry and crying about it later, but what about the people that really need it and pay it back on time? We're even getting ready to have a positive mark on our credit because of it. Why are the people that never need this type of loan the same people that keep others from being able to get one?
9-24-2007 @ 7:59AM
justpicky said...
PAYDAY LOANS ARE BAD , I FEEL FOR THOSE WHO CAN'T AFFORD IT , BUT THEY NEED TO START SAVING MONEY INSTEAD OF PAYING A HIGH INTEREST RATE .........
THEY NEED TO START READING AND EDUCATING THERESELVES , THERE 'ARE GOOD BOOKS OUT THERE WHERE THEY CAN START GETTING BACK ON THERE FEET , BUT IT'S GOING TO TAKE TIME AND I MEAN A FEW YEARS .....
PRAY AND THINK POSITIVE , THAT WILL GET YOUR SOMEWHERE BELIEVE ME , IT WORKED FOR ME .
ESPECIALLY WHEN YOU GET LAID OFF .......
9-25-2007 @ 11:35AM
PLANTER said...
Funny, the people with money do not understatd that a payday loan is cheep. Try paying 29.00 for a bounced check or overdrawing your account by using a debit card. The banks do not turn down the $4.59 fast food transaction, they just charge an extra fee up to $35.00. I have seen bank statements with "overdraft" fees totaling $280.00 for debit card transactions, gas, fast food and groceries, why did the bank not refuse the trasnactions? A payday loan for $200.00 is $20.00, less than one "overdraft fee". Do not be brain washed by the banking lobby. They collected billions is "fees" last year. A payday loan is cost effective when you are facing bank fees.
9-27-2007 @ 12:05PM
jeff said...
What a bunch of Nannies! Why would anyone care what 2 consenting adults to in a financial transaction? Come one. Why dont we stop the sale of Starbucks coffee, that sway too expensive and what a waste of the consumers money??
10-15-2007 @ 7:14AM
K.L. Louis said...
Payday loans most certainly can be abused but I have used them on exactly 3 occasions to avoid bank fees ($34 each item!) and once to cover rent. Each time I paid the loan when due and only used the loans when I had no other options available to me. In my situation I actually saved myself money by avoiding outrageous fees. But I think we are missing a bigger point here. Part of living in a free country is that we are free to make our own choices good or bad. When we start trying to legislate behavior as some politicians would like to do, I think we are starting down a slippery slope. I don’t always agree with the things some people say but I believe in free speech and their right to say it. I wouldn’t suggest legislation to keep them from saying something I don’t like. Free people are free to make their own choices for better or worse. Better to educate than legislate!