A $118 Million Ray of Hope

In what appears to be the first acquisition in the auto finance space in quite some time, payday lender Dollar Financial Corp. agreed yesterday to buy Dealers’ Financial Services LLC for $118 million.

Lexington, Ky.-based DFS is an auto-loan facilitator for U.S. military personnel. As part of its MILES Program, DFS helps active duty military service members secure autos from a network of 545 franchised and independent auto dealerships. U.S. Bank underwrites the loans and maintains the portfolio.

DFS generates revenue from loan-application fees, warranty and GAP insurance commissions, and an interest rate spread between the bank’s rate and what the borrower pays. Since its founding in 1996, DFS has facilitated vehicle purchases for 75,000 military personnel.

Meanwhile, Berwyn, Pa.-based Dollar is a payday lender with 1,200 stores in the U.S., Canada, the U.K., Ireland, and Poland.

Here’s a comment from Jeff Weiss, Dollar’s chairman and CEO, about the acquisition: "We are very excited about the acquisition of this well-established business and its unique operating model, which provides the borrowers a competitive lending rate from a well known national bank, in addition to a number of consumer protection mechanisms. We intend to operate DFS as a standalone business unit of Dollar, in order to focus on leveraging the existing dealership network and lending platform to other customer segments through a number of proprietary strategic growth initiatives. We are pleased to welcome the entire management team of DFS, who along with their proven business model and strong dealership network, are well positioned to enhance DFS’s share of this growing market. This acquisition extends our multi-country, multi-product, and multi-channel business model, and is consistent with our strategy to pursue additional diversified investment opportunities to increase shareholder value."

The deal is slated to close in early December.

Tags: dfs, dollar, military, payday, us-bank

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Comment by Frank Rauscher on October 29, 2009 at 6:42pm: Marcie, I let 5 hours pass to see if anyone had any thoughts on this. This is a sad transaction for the finance industry. Predatory payroll lenders are now getting a foothold around a vulnerable market - auto financing for young soldiers. Are these not the same people with offices surrounding the military bases and currently exploiting soldiers at rates that would make a loan shark blush?
How about you asking what the interest rate spread is now and mark your calendar to ask what it is after this deal is done and some "time" has passed?

The miltary does a poor job of preparing young soldiers for finance traps. They do have classes (after the fact) for those that have been trapped.

How is this good for the American soldier? Who is looking out for them?

FYI, any difference between the borrower rate and this company that is greater than 2%, means that they are allowing the dealer to really partner in the exploitation. And because soldiers are always being transfered, the dealer does not care because he does not expect repeat business anyway.

Comment by Marcie Belles on October 30, 2009 at 11:12am: Points well taken, Frank. Thanks. I guess I was looking at it more as an indication that interest was up in our sector, which would typically be a good sign. It would be an interesting experiment, for sure, to monitor those spreads as you suggest. I'm guessing any chance of regulation on markups would be slim to none, right?

Comment by Frank Rauscher on October 30, 2009 at 4:59pm: i would hope that there is no regulation. The key is for credit administrators to use sophisticated knowledge to educate dealers that "short-term profits" via all the exploitation has now caused some of the problem with auto sales. When dealers are placing 200-500+ basis points onto deals, it slows car buyer equity buildup and reduces borrower wealth. This backfires on the whole industry. Dealers are great enthusiastic entrepreneurs and many of them need to have financial professionals gently remind them to think of the long-term. Credit administrators have to imagine that they are the lion-tamer at the circus. You have to be quick and strong to keep the lions in line. What is worse is when the lion tamer is the financial provider that only thinks short term and become the animal feeder. They can wreck havoc in the industry via stupid methods to get a small "competitive edge".

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