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  • Glorified Payday Lender City Holdings: A Wolf in Sheep's Clothing [View article]
    It recently came to our attention that a class action lawsuit has been filed against CHCO for their “unfair” assessment of overdraft fees. The lawsuit highlights some of the aggressive practices that we profiled in this article. We believe this adds additional near-term risk to CHCO’s stock price.
    www.dailymail.com/Busi...
    Jul 12 09:32 AM | Likes Like |Link to Comment
  • Glorified Payday Lender City Holdings: A Wolf in Sheep's Clothing [View article]
    Greedcanbgood, thanks for your feedback. A couple of comments: 1) APRs are relevant because they have been successfully used by consumer advocates, regulators and legislatures to drive awareness of abusive practices. In addition, CHCO will most likely always have a balance of overdraft, so the APR should approximate the yield on these “loans” 2) Order checking is irrelevant if a bank approves ALL transactions. In this case “high-low” drives significantly higher fees with no benefit to the consumer. 3) CHCO does disclose losses on overdraft. According to their 10-k, their net charge-offs for overdraft in 2009 were less than 3% of service revenues. Payday loss rates are 5 to 10 times this amount. In Table 2, a 92% margin assumption is used for service fees. With only 3% going to losses, that margin assumption seems very reasonable.
    Jun 22 11:09 AM | 1 Like Like |Link to Comment
  • Glorified Payday Lender City Holdings: A Wolf in Sheep's Clothing [View article]
    Second, Tom Brown at bankstocks.com is a very vocal bull on bank stocks. Even he is “skeptical” about banks ability to offset the reduction of overdraft fees. He stated that banks “aren’t sure how to respond to changes to Regulation E” and “most banks will experience a meaningful revenue reduction as a result…They expressed a surprisingly high (to me, anyway) level of confidence that they’ll be able to offset the negative impact with still-undreamt-up changes and new products. I’m skeptical.”
    bankstocks.com/Article...
    Jun 22 09:00 AM | Likes Like |Link to Comment
  • Glorified Payday Lender City Holdings: A Wolf in Sheep's Clothing [View article]
    We had two other items we wanted to highlight. First, we found plenty of lawsuits against CHCO for their overdraft practices. The below example appears to the exact customer Congress is seeking to protect:
    "SJ is 71 year old woman who lives alone and whose sole source of income is Social Security benefits of $565 a month. She has a checking account with City National Bank. Her account has a bounce protection plan with something called a sustained overdraft fee, in which the bank imposes a $5 per calendar day fee for every day an account is in overdraft. SJ forgot to record a check in her check register. The next check she wrote was for $124, but she had a balance of only $88.21. For an overdraft of $35.79, the bank charged a $30 NSF fee and, the next day, started charging her $5 a day for each day the account remained in negative balance. SJ did not find out about the overdraft until 11 days later when a letter arrived from the bank. SJ immediately deposited enough cash to cover the overdraft and fees. For a $35.79 loan of less than 2 weeks, the bank assessed bounce protection charges for $75, which was one-eight of SJ’s monthly income. SJ does not even recall receiving the notice that the bank allegedly sent stating it would begin imposing a $5 per day overdraft fee"
    www.consumerlaw.org/is...
    Jun 22 08:59 AM | Likes Like |Link to Comment
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