No job? No problem – Unemployment Check Loans

By: Steve Daniels – Crain’s Chicago Business – June 29, 2009
http://www.chicagobusiness.com/cgi-bin/article.pl?article_id=32134&see

The Wolfberg brothers, who built their payday lending company into one of the Chicago area’s fastest-growing businesses, see a new growth opportunity: unemployment checks.

PLS Financial Services Inc., with 47 local branches and $219 million in revenue last year, is marketing its high-rate, short-term loans to the unemployed, aiming to capitalize on the worst recession since the early 1980s. With metropolitan Chicago‘s unemployment rate up to a seasonally adjusted 10.5% in May from 6.3% a year before, that’s a lot of potential customers.

“If you believe there’s nothing wrong with (this type of) loan, why should (the unemployed) be any different from someone who has any other form of income?” says Robert Wolfberg, who shares the title of PLS president with his brother Dan.

Yet the new push doesn’t sit well with consumer advocates, who have fought PLS and other payday lenders in Springfield to try to cap the rates they can charge and are quick to protest on moral grounds.

“It’s just a sad way of doing business when you have to charge people a 700% rate that you know are living in hard times,” says Lynda Delaforgue, co-director of Citizen Action/Illinois. “It’s usury. This is kind of at the cutting edge of it.”

PLS charges the same rates – $15 to $23 every two weeks per $100 borrowed – to unemployed borrowers that it does to those with jobs, Mr. Wolfberg says. That translates into annualized percentage rates of 300% to 700%.

PLS doesn’t have much competition yet. CitiFinancial, the consumer finance arm of banking giant Citigroup Inc., will provide short-term loans to the unemployed if they meet other criteria, but most competing quick-cash chains with local branches say unemployment income doesn’t qualify for loans.

“We’re looking for a steady source of income, and we don’t think unemployment insurance is a steady source of income,” says Tony Colletti, board member at South Carolina-based Advance America Cash Advance Centers Inc., which has 22 branches in the Chicago area.

So far, the jobless aren’t clamoring for payday loans to tide them over until the next unemployment check. Mr. Wolfberg says less than 1% of PLS’ loans are to unemployed borrowers.

“I don’t think we’ve paid for the cost of the banners” in PLS storefront windows proclaiming that unemployment benefits qualify, he says.

PLS, which offers check-cashing services in addition to short-term loans, has seen its revenue increase 413% over the past five years, placing it 28th on the Crain’s Fast Fifty list of fastest-growing local companies. But revenue has fallen this year, says Mr. Wolfberg, declining to say by how much.

“People are making less money than they used to, so they qualify for smaller loans,” he says. “People think we do better when times are bad, but that’s not true.”