ZOMG! Have you SEEN the interest rates payday loan companies charge? They’re worse than deep fried Oreos. Can you believe that there are companies that actually engage in this business? If I was in charge, I’d shut all of them down and kick the CEO in the nuts while I was at it! How can they sleep at night?!?!? GOD! This just makes me sick to my stomach. If only these people read my blog, they’d know better.
Sorry about that, guys. I let these gals take over my blog for a little while. That got a little self-righteous there for a sec.
Since the beginning of personal finance blogs, we’ve complained about payday loans. Because I am a contrarian, I penned a piece defending the industry, If you’re borrowing money to buy beer and smokes, you should pay an inflated interest rate. There is zero collateral covering the loan, and they’re generally made to people who have no alternative. If these people were a good credit risk, they’d be able to get a loan at a bank. They are not a good credit risk, therefore should pay inflated rates. Rational people get this, personal finance bloggers do not.
As I’ve said before, if you’re aware of a situation where a customer is getting gouged, you shouldn’t be outraged. You should view it as an opportunity. If you invest in this company, you should enjoy outrageous profits, right? If customers are being overcharged, investors should be thrilled. We already took a look at The Cash Store, Canada’s largest payday loan company, (which I didn’t like) so let’s take a look at some of the American ones.
How about we start with Cash America, the largest? During 2012, the company booked a little over $1.8B in revenue, mostly because the CEO made a deal with Satan. After the company paid all their expenses, they booked $107M in profits. This puts their net profit margin at 5.94%.
Up next is another big one, First Cash Financial Solutions. They dabble in the pawn business as well as the EVIL PAYDAY LOANS. They have over 850 different locations, most of which regularly torture children in the basement. They booked an $80M net profit on $596M of revenue. That’s a net profit of 13.4%.
How about another one, DFC Global Corp., a very innocent sounding name for such an evil company. They operate financial death stores in eight different countries, including Canada, America, and the worst country on the planet, Ireland. The company booked $52M in profit on $1.06B in revenue, for a 4.91% net profit margin.
And finally, let’s look at QC Holdings, a payday loan company which also dabbles in car loans. They made $7.9M on $143M in revenue, for a 5.52% net profit margin.
We’ve looked at the four largest publicly traded payday loan companies in the U.S. If you average out their profit margins, they make 7.44%, an average which is nicely buoyed by First Cash, which is clearly doing something right. I guarantee that number is much smaller than what most of you thought it was.
Let’s compare that to some other companies. During 2012, Apple made a net profit of $41.7B on revenue of $156.5B. That’s a net profit margin of 26.65%. That’s twice as profitable as First Cash, the darling of the payday loan lenders. Why aren’t we talking about Apple’s outrageous prices? Look at all the money they’re making.
How about another company everyone loves, Google? Chances are they control your email, some online documents, your internet searching, and perhaps your first born child. But that’s okay, because apparently their motto is “don’t be evil.” They booked a net profit of $10.8B on $50.2B. Let me do the math for you, it’s a net profit of 21.5%. Google is doing no evil, but still has much higher margins than the evil payday lenders.
I can keep this up all day. Pfizer, (20.5% net margins) Coca-Cola, (18.9%) Lululemon, (19.8%) IBM, (15.9%) Shaw Communications, (15.2%) Disney, (13.5%) Goldman Sachs, (17.9%) Proctor and Gamble, (13.5%) Microsoft, (28.1%[!]) Intel, (20.6%) and Canadian National Railway (29.9%[!!]) all made more per dollar than even the most profitable payday loan company. Where’s the outrage? Why don’t you all harass Canadian National about their clearly outrageous business practices? Why aren’t you calling on Lululemon to charge less for their ridiculously awesome pants?
Maybe, and this might shock you, the people payday loan lenders give money to aren’t very likely to pay it back.
Yes, some of that is because of the very high interest rates. But how good of a credit risk is someone who needs money to make it until their next paycheque? They’re showing that they’re a terrible credit risk by even getting a payday loan in the first place. Payday loan companies write off a whole bunch of loans every year. Because of that, it turns out that they don’t really make that much money.
Are there problems with payday loans? Of course there are. Are they the outrageously expensive money makers you think they are? Hardly. Maybe the rates are so high because they need to be for the lenders to make money. And now that we’ve figured out that ridiculous profits aren’t being made, can we cut the over the top outrage?