Payday Lenders: The industry, leaders, owners, and regulation

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Payday Lenders: The industry, leaders, owners, and regulation Lothringer Who are the Payday Lenders? Thoughts of the neighborhood payday lender might conjure up images of small‐scale, independently owned facilities operating out of a low‐rent strip mall where the signs advertising FAST CASH look hand‐made. Don’t be fooled. This is a lucrative industry dominated by large publicly traded companies including Cash America International, Inc. with a net income (NI) of more than $79 million and Advance America, Cash Advance Centers, Inc. with a net income of approximately $54 million. Other leading industry participants include World Acceptance Corporation (NI ≈ $53 million), EZCORP, Inc. (NI ≈ $52 million), First Cash Financial Services, Inc. (NI ≈ $35 million), and QC Holdings, Inc. (NI ≈ $14 million). Who are the Executive Leaders? Similar to other large corporate entities, the leadership of these organizations is educated and credentialed. Many have vast experience in public accounting and investment banking and hold advanced degrees from prestigious institutions such as Yale. Payday lender board members have served as executives and on boards of other well‐known corporations including RadioShack, Toys “R” Us, and Ryan’s Family Steak House as well as non‐profit boards such as the YMCA. Further, many have significant ties to the health care industry with organizations such as GE Healthcare and UnitedHealth Group. Their leadership experience also includes roles in government and politics, where they possess years of experience in organizations such as the Federal Deposit Insurance Corporation (FDIC). Examples of high‐level governmental leadership roles include William M. Webster (Founder, Director, and Chairman of the Board at Advance America Cash Advance Centers, Inc.) who served as Assistant to the President and Chief of Staff to the U.S. Department of Education during the Clinton administration Who are the Institutional Investors? The size and ownership of the industry is both startling and unsettling for many. This billion dollar business counts as its major investors Barclays Global Investors UK Holdings Ltd. who has approximately $177 million invested in securities associated with payday loan organizations and The Vanguard Group, Inc. with roughly $115 million of similar industry assets. Other large institutional holders include Thomas W. Smith with over $79 million invested in the industry. Smith is the senior partner of Prescott Investors and serves as chairman of the board of the National Center for Policy Analysis (NCPA) a nonprofit organization whose stated goal is to develop and promote private alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector. Banking organizations, also large institutional owners of payday lenders, include Bank of New York Mellon Corporation with approximately $25 million invested in payday lending interests, JP Morgan Chase & Company holding about $21 million in such investments, and Bank of America Corporation with roughly $2 million in similar assets. Finally, and perhaps most troubling, are public funds invested in the industry such as CALPERS (California‐Public Employees Retirement System) that holds slightly more than a quarter of a million dollars in public employee retirement resources in the form of payday lender investments. 2
Payday Lenders: The industry, leaders, owners, and regulation Lothringer Who are the real owners? For those readers who consider themselves conscientious investors, those who have avoided the tobacco and gaming stocks and instead embraced the eco‐friendly green funds, now might be a good time to determine if you are in fact an innocent participant in the predatory lending industry via your employer’s 401k or 403b plan. The chart below lists the twenty largest mutual fund holders of what the investment community refers to as consumer finance companies who offer short‐term small loans to consumers – AKA… payday lenders. Reflective of the institutional ownership, The Vanguard Group, Inc. has the largest number of individual mutual fund holdings with ownership interests in the payday loan industry. Illustrating the dynamics of diversification, Vanguard has holdings in all of the largest payday loan organizations. Another disconcerting issue presented in the table is the approximate $8 million in the College Retirement Equities Fund‐Stock Account TIAA‐CREF has invested in the two largest payday loan organizations, Cash America International, Inc. and Advance America, Cash Advance Centers, Inc. For many in the academic, medical, cultural, and research fields ‐who spend their lives committed to the helping others while entrusting their retirement security to TIAA‐CREF, this presents an obvious ethical conflict of interest. Payday Loan Industry: Top 20 Mutual Fund Investors Fund Shares Value Industry Holdings 3 Reported Columbia Acorn Fund 1,545,000 $55,620,000 WRLD 9/30/08 Vanguard Explorer Fund, Inc. 587,686 $38,868,799 QCCO 10/31/08 Oppenheimer Main Street Small Cap Fund 177,300 $29,965,821 WRLD 9/30/08 Vanguard Small‐Cap Index Fund 145,703 $27,256,624 WRLD 9/30/08 IShares Russell 2000 Index Fund 193,870 $23,002,862 WRLD 10/31/08 Columbia Acorn USA Fund 407,900 $14,684,400 WRLD 9/30/08 IShares S&P Small Cap 600 Index Fund 170,845 $13,956,807 WRLD 10/31/08 Harbor Small Cap Value Fund 385,662 $13,640,864 CSH 10/31/08 DFA U.S. Micro Cap Series 177,000 $13,571,709 WRLD 8/31/08 Pacific Advisors Small Cap fund 400,000 $13,250,000 EZPW 9/30/08 Vanguard Total Stock Market Index Fund 186,950 $10,981,762 FCFS 9/30/08 Columbia Fds Ser Tr I‐Columbia Small Cap Core Funds 177,170 $10,596,237 QCCO 9/30/08 Vanguard Strategic Equity Fund 563,426 $10,592,408 EZPW 9/30/08 American Century Small Company Fund 266,565 $9,607,002 CSH 9/30/08 American Beacon Small Cap Value Fund 204,100 $9,466,443 WRLD 11/30/08 AXA Premier VIP Multimanager Small Cap Value Portfolio 330,000 $8,554,500 EZPW 9/30/08 College Retirement Equities Fund‐Stock Account 195,529 $8,139,901 CSH 9/30/08 Bridgeway Funds Inc‐Small Cap Value Fund 396,000 $7,444,800 EZPW 9/30/08 American Century New Opportunities II Fund 360,769 $6,782,457 EZPW 9/30/08 Allianz Funds‐NFJ Small Cap Value Fund 2,230,900 $6,670,391 AEA 9/30/08 AEA: Advance America, Cash Advance Centers Inc. CSH: Cash America International, Inc. EZPW: EZCORP Inc. QCCO: QC HOLDINGS, INC. WRLD: WORLD ACCEPTANCE C Source: Yahoo Finance
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Payday Lenders: The industry, leaders, owners, and regulation

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