The Predatory Lending Association is a spoof web site (or IS it?). Their motto is: "Helping payday lenders extract maximum profit from the working poor".And extract they do! Advance America offers loans with APRs as high as 495 percent. My experience as a lender on Prosper, and as an owner of junk bonds, gives me a certain amount of sympathy towards lenders. 495 percent sounds pretty good. Can I get some of that action? As a lender, not as a borrower.
Here is a quick comparison between a payday lender and a regular bank:
| Company | Advance America | Bank of America |
| Ticker | AEA | BAC |
| Dividend yield | 5.68% | 5.77% |
| Price/earnings | 11.30 | 10.20 |
| Price/cash flow | 9.40 | 9.90 |
I'd have to say that payday lending, from an investor's point of view, is comparable to banking. The outrageous fees are offset by lower volume, higher expenses, and higher default rates. Of these two, I'd rather own some BAC because I figure AEA has more regulatory risk.
2 comments:
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cet
It is more expensive to be poor. Payday loans are just one of the scams. Poor people pay more for credit and for everything they buy on credit, for groceries, and then there is the furniture rent-to-own stores.
Additionally, poor people have to work harder to use transportation in most parts of the country.
In California children filed suit against school districts that didn't treat schools in poorer neighborhoods the same as in wealthier neighborhoods. Some of them had no books.
Being poor is also more time intensive. I mentioned transportation, but there is also cooking. It is quicker to buy partially or fully prepared food, but it is also more expensive. Buying in bulk from Costco is not only too expensive but too difficult to transport as well as store.
Let's not forget Disney. The CEO makes an obscene salary and poor parents are the ones paying the extra $5 per toy so he can. Why do they do that? Because they want their kids to be part of the mainstream, but so much is against them.
For one thing, they live in poor neighborhoods. What makes a poor neighborhood look poor is that homeowners and renters don't have the excess money to maintain the properties. More people walk because of the transportation problem and walkers litter, especially angry poor walkers and poor people are angry. They are tired, under-nourished, under-educated, and discouraged.
Walmart is criticized for low prices, but poor people like Walmart. Those who want to sell the same thing at a higher price, don't like Walmart. Is it just economy of scale or intentions?
Homeless poor, and their ranks are growing in what one bank is describing as a "depression," have even more difficult lives. I heard from a person who works with the homeless that if a person is homeless for more than 2 weeks it is almost impossible for them to get back into a stable living situation on their own. The time it takes to cover the basic human needs of food and temperature regulation take up most of their time. They are homeless because they don't have money to support a home, and the money they do have is used to keep themselves alive. For many of the homeless that also includes drugs and alcohol.
A very upsetting trend is that a young person with the support of his or her family is finally getting into college and the promise of a different life for the whole group, and someone shoots them dead.
The malaise of the spirit that Jimmy Carter spoke of is very apparent. The discomfort that has been nagging at the country for years has its root in an infection that is more and more visible, but still undefined.
CET
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