Get a Boost From This Payday Lender

Advance America, Cash Advance Centers (Advance America - commentary - Cramer's Take) is the largest provider of payday cash advances in the U.S., with over 2,600 branches in 37 states. While many Americans use (and abuse) preapproved credit cards and other loan vehicles, a sizable number of workers simply don't qualify for typical financial products.

However, Advance America's customer base isn't limited to recent immigrants without a credit history and to people without fixed addresses. The average customer is between 18 and 44 years old, with at least a high school degree, and makes over $40,000 per year. Some 42% are homeowners.

This makes sense, considering that to get a payday advance, a customer needs an active checking account. Advance America's customers present a personal check at an Advance America location for the amount of the loan, plus fees. Advance America holds the check until the customer's next payday before cashing it.

The latest stats show that Advance America's average payday loan was for $334, and the average loan period was 15.6 days. For this service, the company averaged a fee of $53, or about $15 for every $100 borrowed.

Looked at on a percentage basis, the fees charged by Advance America and other industry players appear usurious. But compared with the alternatives of credit-card interest rates compounded by late fees, or the prospect of penalties for bounced checks, Advance America's terms are often the best a cash-strapped worker can get.

Such fees are also necessary to compensate for the large number of doubtful accounts that the business generates. Typically, 15% of the company's revenue is expensed away because of deadbeats.

Advance America's business is heavily regulated, and the company is active in trying to make it more so, on the idea that it benefits from a level playing field that punishes less-scrupulous operators. Besides federal oversight, state regulations force the company to operate in a slightly different manner from state to state. Advance America made a number of changes to its business in various states this year to address different regulations, and that added noise to the company's recent financials.

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At the time of publication, Moreland was long AEA, although holdings can change at any time.

Jonathan Moreland is director of research and publisher of the weekly publication InsiderInsights, founder of the Web site InsiderInsights.com and the director of research at Insider Asset Management LLC. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, Moreland appreciates your feedback; click here to send him an email.