Advance America Confident About Future of Its Cash Advances
It hasn't been the best week for Advance America.
Recent reports state that the company may have discontinue operations in Pennsylvania and Arkansas, but representatives - along with industry insiders - do not regard these as not signs of trouble elsewhere.
Advance America currently operates 2,604 centers in 36 states. In the two aforementioned states, the service operates under an "agency model," partnering with federally chartered banks to offer payday loans. There are a total of 131 stores in the two states.
In its fourth quarter earnings statements released earlier this week, Advance America disclosed that the Federal Deposit Insurance Corp. "has instructed certain banks to discontinue offering payday cash advances and alternative credit products if they cannot adequately address the FDIC's concerns regarding those products."
Jamie Fulmer, Advance America's director of investor relations told the Spartanburg Herald-Journal that it's too early to say how the FDIC news will play out.
"We're evaluating what options might be available to us should they (federally chartered banks) be forced to discontinue payday loans and installment loans in those states. … It's hard to say what those options might be."
In December, North Carolina's commissioner of banking issued an order forcing Advance America to shut down its operations in that state, and state lawmakers in Georgia also shut the payday lender out of that state.
But Fulmer said the company is still in a growth mode - and those individual states should not be seen as representative of a larger trend against faxless payday loan lending.
When Advance America began operations in 1997, Fulmer said, only 15 states had legislation enabling payday lending. Now, 37 states plus the District of Columbia have such legislation, he said, and legislation is now being considered by the Pennsylvania legislature.
"There is a clear trend at the state level … these legislatures are realizing this is a product that consumers want," Fulmer said.
Michael Maloney, a Clemson University economics professor who studies the payday loan industry, said stock prices usually reflect the impact of particular news events to a company.
Because Advance America's stock price has not fluctuated significantly since the recent FDIC news came out, Maloney said he suspects the report won't affect the company much in the long run.
Wachovia Securities analyst Joel Houck believes that Advance America won't be harmed by the situation in Pennsylvania and Arkansas.
"At the risk of sounding like a broken record, we believe AEA growth prospects remain good," Houck wrote in a research report issued Thursday.
Dallas-based analyst Dennis Telzrow of Stephens Inc. said neither Advance America nor the payday industry as a whole should be hurt significantly by this week's news.
"Quite frankly, it's just the FDIC making a statement," Telzrow said.