Allen Franks, President of Cash Connections, a short-term cash lending firm realized that the most profitable endeavor in the check-cashing store industry is to set up stores in towns where no check-cash stores exist. Setting up Cash Connections in these places, his business became one of the leading companies in his industry by the mid to late 1990’s. The payday industry grew from larger financial institutions leaving the market, huge overdraft and late fee costs, and increased regulation of the firms allowing higher consumer trust.
In an industry that reaches to 10% of all U. S. households, advanced about $40 billion in short-term credit a year, and contributed $2. 9 billion in direct labor income, Cash Connection utilized Sun Tzu’s principle of attacking where unprepared to beat his competitors. Charging these enormous fees and costing only around $130,000 to start-up, the industry entails a lucrative structure. The Complication: There has been some concern for how high the fees are and how the model could take advantage of those caught in a troubling financial situation.
Payday loans averaged around $300, and charged fees between around $15 to $20 per $100 loaned, resulting in an annual percentage rate of 520% (Gamble 2011). The media has decried this credit system as a predatory industry thrusting people into debt, which it no doubt absolutely has in some cases. The demographic of payday customers were middle income, earning mostly between $25,000 to $50,000 a year. They were usually of average education, made up of young families, and were a part of the somewhat normal working class.
Many companies including Cash Connection had requirements such as holding a job and having a bank account in order to do business with the company. As media and public outcry have risen, lawmakers have begun to react and regulate the industry. The more it does so, the more people use it. On the state level, some completely outlaw it, as 13 currently have (Teegardin 2007). Some states limit the amount of rollovers the vendor is allowed to require, and all supervise with regulatory regimes.