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RSSPayday Lender AEA and Its 391% APR Should Be Just Fine Despite New Consumer Cop
January 11th, 2012
All eyes watching the new consumer protector
While the Senate was on break last week, and thereby circumventing Republican opposition to the appointment, President Obama announced his decision to install former Ohio Attorney General Richard Cordray as the director of the new Consumer Financial Protection Bureau. As the President stated, it is his “New Year’s resolution” to all Americans to “keep doing whatever it takes to move this economy forward and to make sure that middle-class families regain the security they’ve lost over the past decade.”
Stocks drop
Cordray’s appointment to the Consumer Financial Protection Bureau (CFPB), underscores Obama’s strong conviction to move the financial products industry towards a more secure consumer-driven sector. Following the announcement, several of the alternative financial services lenders saw stock prices drop including payday loan specialist Advance America.
Advance America
Founded in 1997 by George D. Johnson and William M. Webster IV, Advance America is the largest non-bank provider of cash advance services in the U.S. With around 2,600 locations, and 5,600 employees in 29 states, the Spartanburg, South Carolina-based company provides short-term, unsecured cash advances that are due on the customer’s next payday. The company’s primary business is offering cash advance services, which consist primarily of cash advances but also include installment loans and lines other ancillary products such as pre-paid debit cards and money order transfers. According to the FAQ’s on the company’s Web site its median payday loan size of $361. Over a two week term it might have a fee of $53, producing an APR (annual percentage rate) of 391%.
New rules
Now that the bureau has a Director in place, the CFPB has the power to write new rules and regulations for non-depositories. It is my opinion that having a Director in place shouldn’t change much and little would have changed whether the appointment was for Elizabeth Warren, Cordray or someone else. Representatives from the bureau have been consistent throughout in stating their intentions and Advance America has generally agreed with much of the public comments from the bureau around transparency, full disclosure, simplicity, etc. In fact, just last week Cordray said, “Now, with a director, the CFPB can exercise its full authorities–with respect to both banks and nonbanks – to help those markets operate fairly, transparently, and competitively.”
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