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Despite Rhetoric, Payday Lenders Earn Minimum Wage

By The Pullins Group LLC

Here's the first of many great guest columns from Check Into Cash Founder Allan Jones:

Isa store that earns $8.96 for each hour they are open ?raking it in?? Believe it not, some elitist people and the mainstream media think so.

This misconception stems from a misunderstanding of APR, or annual percentage rates. Annualized interest calculations unfairly reflect the cost of payday lending in triple-digit figures. But in reality payday lenders charge simple, one-time fees that carries an average 14-day term. A mathematical formula to compare annual periods does not make sense when it applies to days. If the fee is $15 for a $100 loan, the fee will never increase. If a person does not come back for a year,they will still only owe $115, yet using this unfair formula the APR disclosure balloons to 391 percent. The media doesn?t explain that the $15 fee is all you will pay, instead allowing readers to believe the consumer pays back $391.

When you look at the bottom line of the nation?s largest payday lender it becomes very clear why this industry can?t charge any less. Advance America, the nation?s largest payday lending company, recently reported a 40 percent boost in annual net income to $54.2 million. That is a drop in the bucket compared to banks with billion-dollar incomes. Some of these banks even offer payday loans under different names.

Break down the profits of the nation?s largest payday lender and it becomes clear that this industry isn?t raking in heaps of money.

Publicly-traded Advance America (AEA) operates 2,587 centers and is the nation?s largest payday lender.  In 2009 they earned $54.2 million on $647.47 million in revenue.  This shows the company?s 2,587 centers earned an average of $20,950 per year per branch location.  If you look at it on a monthly basis these centers earned $1,745.90 per month.  If you divide that by 4.33 weeks in a month you come to $403.21 per week per branch location.

Based on a 45-hour weekly operating schedule, Advance America earns$8.96 per hour per location. This is hardly ?raking in the cash.? In fact, I would dare say you can not find another financial services segment even close to the small number payday loan companies earn. That may be why they call it micro lending!

It?s hard to feel like a predatory lender when you make about the same wage as the average employee at Burger King a company which, by the way, netted $200 million last year. Whoppers are clearly more profitable than payday loans.

Last year, payday lenders actually made less than the burger chain?s employees. Advance America?s earnings last year were $38.5 million,which calculates down to $5.88 per hour per location. That?s 23 percent less than the federal minimum wage.

Despite the hyperbole about our bottom line, the truth remains that payday lending companies operate on a thin profit margin. Even the most liberal, left-wing group would surely support a business making at least the minimum wage for each hour its doors are open.

Full post as published by The Pullins Report on April 01, 2010 (boomark / email).