The Company is one of the nations largest small-loan consumer finance companies,
offering short-term small installment loans, medium-term larger installment
loans, related credit insurance and ancillary products and services to individuals.
The Company offers standardized installment loans generally between $300 and
$4,000 through 1,339 branches in Alabama, Georgia, Idaho, Illinois, Indiana,
Kentucky, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, South Carolina,
Texas, Tennessee, Wisconsin and Mexico. The Company generally serves individuals
with limited access to other sources of consumer credit, such as banks, credit
unions, other consumer finance businesses and credit card lenders. In our U.S.
branches, the Company also offers income tax return preparation services to
its loan customers and other individuals.
The small-loan consumer finance industry is a highly fragmented segment of
the consumer lending industry. Small-loan consumer finance companies generally
make loans to individuals of less than $2,000 with maturities of 18 months or
less. These companies approve loans on the basis of the personal creditworthiness
of their customers and maintain close contact with borrowers to encourage the
repayment or, when appropriate to meet the borrower’s needs, the refinancing
of loans. By contrast, commercial banks, credit unions and other consumer finance
businesses typically make loans of more than $5,000 with maturities of more
than one year. Those financial institutions generally approve consumer loans
on the security of qualifying personal property pledged as collateral or impose
more stringent credit requirements than those of small-loan consumer finance
companies. As a result of their higher credit standards and specific collateral
requirements, commercial banks, savings and loans and other consumer finance
businesses typically charge lower interest rates and fees and experience lower
delinquency and charge-off rates than do small-loan consumer finance companies.
Small-loan consumer finance companies generally charge higher interest rates
and fees to compensate for the greater credit risk of delinquencies and charge-offs
and increased loan administration and collection costs.
The majority of the participants in the industry are independent operators
with generally less than 100 branches. We believe that competition between small-loan
consumer finance companies occurs primarily on the basis of the strength of
customer relationships, customer service and reputation in the local community
rather than pricing, as participants in this industry generally charge interest
rates and fees at, or close to, the maximum permitted by applicable state laws.
We believe that our relatively large size affords us a competitive advantage
over smaller companies by increasing our access to, and reducing our cost of,
capital.
Small-loan consumer finance companies are subject to extensive regulation, supervision
and licensing under various federal and state statutes, ordinances and regulations.
Consumer loan offices are licensed under state laws, which, in many states,
establish maximum loan amounts and interest rates and the types and maximum
amounts of fees and other charges. In addition, state laws govern other aspects
of the operation of small-loan consumer finance companies. Periodically, constituencies
within states seek to enact stricter regulations that would affect our business.
Furthermore, the industry is subject to numerous federal laws and regulations
that affect lending operations. These federal laws require companies to provide
complete disclosure of the principal terms of each loan to the borrower in accordance
with specified standards prior to the consummation of the loan transaction.
Federal laws also prohibit misleading advertising, protect against discriminatory
lending practices and proscribe unfair, deceptive or abusive credit practices.
The Company seeks to provide short-term consumer installment loans to the segment
of the population that has limited access to other sources of credit. In evaluating
the creditworthiness of potential customers, the Company primarily examines
the individuals discretionary income, length of current employment and/or sources
of income, duration of residence and prior credit experience. Loans are made
to individuals on the basis of their discretionary income and other factors
and are limited to amounts we believe that customers can reasonably be expected
to repay from that income given our assessment of their stability, ability and
willingness to pay. All loan applicants are required to complete standardized
credit applications in person or by telephone at local Company branches. Each
of the Companys local branches are equipped to perform rapid background, employment
and credit checks and approve loan applications promptly, often while the customer
waits. The Companys employees verify the applicants sources of income and
credit histories through telephone checks with employers, other employment references
and verification with various credit bureaus. Substantially all new customers
are required to submit a listing of personal property that will serve as collateral
to secure the loan, but the Company does not rely on the value of such collateral
in the loan approval process and generally does not perfect its security interest
in that collateral. Accordingly, if the customer were to default in the repayment
of the loan, the Company may not be able to recover the outstanding loan balance
by resorting to the sale of collateral.
The Company believes that development and continual reinforcement of personal
relationships with customers improve the Companys ability to monitor their
creditworthiness, reduce credit risk and generate customer loyalty. It is not
unusual for the Company to have made a number of loans to the same customer
over the course of several years, many of which were refinanced with a new loan
after the borrower had reduced the existing loans outstanding balance by making
multiple payments. In determining whether to refinance existing loans, the Company
typically requires loans to be current on a recency basis, and repeat customers
are generally required to complete a new credit application if they have not
completed one within the prior two years.
The Company allows refinancing of delinquent loans on a case-by-case basis
for those customers who otherwise satisfy the Companys credit standards. Each
such refinancing is carefully examined before approval in an effort to avoid
increasing credit risk. A delinquent loan may generally be refinanced only if
the customer has made payments which, together with any credits of insurance
premiums or other charges to which the customer is entitled in connection with
the refinancing, reduce the balance due on the loan to an amount equal to or
less than the original cash advance made in connection with the loan. The Company
does not allow the amount of the new loan to exceed the original amount of the
existing loan. The Company believes that refinancing delinquent loans for certain
customers who have made periodic payments allows the Company to increase its
average loans outstanding and its interest, fees and other income without experiencing
a significant increase in loan losses.
To reduce late payment risk, local branch staff encourage customers to inform
the Company in advance of expected payment problems. Local branch staff also
promptly contact delinquent customers following any payment due date and thereafter
remain in close contact with such customers through phone calls or letters until
payment is received or some other resolution is reached. Company employees are
instructed not to accept payment outside of the Companys branches except in
unusual circumstances. In Georgia, Oklahoma, Illinois, Missouri, Tennessee,
Alabama, Louisiana, New Mexico, Wisconsin, Kentucky, Indiana and Idaho the Company
is permitted under state laws to garnish customers wages for repayment of loans,
but the Company does not otherwise generally resort to litigation for collection
purposes, and rarely attempts to foreclose on collateral.
The Company has a wholly-owned, captive insurance subsidiary that reinsures
a portion of the credit insurance sold in connection with loans made by the
Company. Certain coverages currently sold by the Company on behalf of the unaffiliated
insurance carrier are ceded by the carrier to the captive insurance subsidiary,
providing the Company with an additional source of income derived from the earned
reinsurance premiums.
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