This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

The Trouble With Payday Lenders

Stocks in this article: CSH WRLD FCFS

NEW YORK (TheStreet) -- In the last several years of economic uncertainty and tightened availability of consumer credit, payday lenders including Cash America (CSH), World Acceptance (WRLD) and First Cash (FCFS) have posted impressive growth.

As traditional lenders tightened underwriting standards, an unsaturated market for short-term, high-risk loans emerged, and payday lenders filled the gaps with great success. As the largest players grew and consolidated smaller pawnshop operations, investors shared in the bounty.

But there is trouble on the horizon from multiple directions.

A recent $19 million settlement between Cash America and the Consumer Financial Protection Bureau has exposed serious potential legal and regulatory risks inherent in the business model.

To understand how fragile the regulatory situation is, it's helpful to examine the $570 case that precipitated the federal investigations and subsequent $19 million settlement.

In May 2009 one of Cash America's subsidiaries filed a collections suit in Ohio against one Rodney Scott for an amount of $570.16, the balance due under his payday loan. The court ruled the loan, which the subsidiary offered under the Ohio Mortgage Loan Act ("OMLA"), was not authorized under OMLA, and should instead have been offered under a different statute (one that allows for significantly lower effective interest and fees).

As it turned out, Scott's case was not the extent of the company's paperwork troubles in Ohio. Shortly after the district court's decision, Cash America's Ohio division announced that it would forgive all debt collections dating back to the beginning of 2008, and reimburse some 14,000 Ohio customers. This decision, a spokesperson said, was due to "technical errors" that the company "discovered in [its] own due diligence."

As a result of the scrutiny surrounding the Ohio case, the CFPB began looking into the company at a federal level. It, in turn, uncovered evidence of illegal robo-signing practices and violations of a law limiting the interest charged on loans to military service members. The CFPB also alleged that the company instructed employees to erase relevant files and phone calls, and coached them in preparation for speaking to examiners.

It seems unlikely that this is the end of CFPB's interest in the industry as a whole. Regulators are keen on cracking down on lenders that charge very high rates, and it is likely that more state and federal laws and regulations will emerge to tighten around the industry in the future.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs