World Acceptance Pay Day Lending Rip-offs

Citizen Wealth Financial Justice

New Orleans  Most cases of payday lending abuse come to me in the normal channels, which is to say right from the mouths of the victims.  This time the shock and awe at the abuses of some payday lenders, like that of large, but low profile small loan, payday lender, World Acceptance, are so offensive that news of their consumer outrages were forwarded to me by a friend in the investment business and included scathing indictments by a hedge fund manager in  his advisory newsletter.

            World Acceptance operates a big niche business of lending at high interest rates and predatory terms to largely lower income and working families in the South and Mexico, where they have more than 1100 offices handling a portfolio of about 800 loans per location.  They are huge in Texas, but Texas is huge, too, with 245 offices, Louisiana with 45, South Carolina, where they are headquartered, Georgia, and other states that don’t do much for their citizens in keeping the wolves away from the doors.  Arkansas where there are still remnants of what were once the most aggressive anti-usury laws in the country has no World Acceptance offices, nor does North Carolina where pay day lending was outlawed years ago.  Not that such prohibition stops World Acceptance since they are thriving in Georgia where payday lending is also prohibited.

            In negotiating with subprime lenders while with ACORN, I would frequently begin the session by conceding that our members used subprime lenders and needed them, since banks ran away from direct lending of small sums and often our members did not have pristine credit histories.  Forbes in a glowing report on World Acceptance at the end of 2012 was giddy about World Acceptance’s 327% stock price increase since the recession meltdown, as well as the soaring increases of their competitors Cash America and First Cash Financial, all of which are ubiquitous in lower income, minority neighborhoods on my daily journeys.  As Forbes reported without a hint of irony, “Left to its own devices, it’s hard on customers but potentially kind to investors.”  And, as I have often argued, the $2 billion in loans put out by World Acceptance would not be possible without the huge, and lucrative, lines of credit extended to them by in this case their bankers, Wells Fargo and Bank of America.

            Reports from ProPublica, the nonprofit foundation funded investigative news shop, were more revealing about World Acceptance’s business methods.  Routinely, they bundled in all kinds of different credit insurance products in the loans as a primary part of their business model.  The hedge manager, admittedly trying to short the stock, argued that 50% of the company’s net profit came from the various insurance scams.  Furthermore, he called the fact that 30% of their repayments every month are late, a “giant ponzi-accounting scheme,” which certainly stirs the pot hotter.   The “ponzi” part comes partially from what some former World workers described as the operating motto, “pay and renew, pay and renew,” meaning that they were constantly refinancing the original loans to lard them up with higher rates, meaning higher returns, when ever fulfilled.  Ex-workers descriptions of “chasing” where they visited borrowers homes and workplaces to implicitly threaten them about their loan status, are more reminiscent of the common practices of big lenders, including Citibank and others, using gangs to force collection of small loans in India where it is standard operating procedure.

            Interest rates between 200% and 400% are not uncommon on the World Acceptance schemes. Abuses of the Military Lending Act are rampant as the company exploits loopholes.  Meanwhile the new Consumer Finance Protection Bureau is vilified for its efforts at the federal level to issue regulations and guidelines attempting to curb the industry.

            When people inside the finance world are grossed out by the business model, interest rates, and predatory practices of payday lenders like World Acceptance, there’s hope, but they may be as isolated inside that world as we are, banging on the front door for change, drowned out by the voices in Forbes and elsewhere, essentially saying “buy,” but hold your nose while doing so.

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