Advance Financial is stepping out of its industry’s shadow

Michael and Tina Hodges, pictured here with Advance Financial COO Drew Nord, have brought their call center back from Central America. Jude Ferrara/The City Paper

Drive down the main drag of most middle- and lower middle-class neighborhoods and you’ll likely be greeted by the familiar sight of at least a few check-cashing, payday advance and title-loan businesses. Some are small mom-and-pop operations, others are more nationally known players such as Check in to Cash and TitleMax.

Also mixed in with those players is Advance Financial, an on-the-move local company whose leaders are out to shake up the common perception that their industry fleeces its customers when they are least able to fight back. In doing so, the husband-and-wife team of Mike and Tina Hodges are leaning on some of the core principles of small business success: local knowledge, community involvement and familiar faces.

The Hodges — both Middle Tennessee natives — founded their company in 1996 as Advance Payday. For the first 10 years of its existence, the business was difficult to differentiate from the crowd. It offered payday advances like so many others in its market and in environs not drastically different from its competitors.

In 2006, the couple made the decision to expand Advance’s menu and become “more than a simple payday advance company” and set itself apart from the rabble by getting closer to its communities. They formed focus groups to determine what its customers were looking for both in terms of service and products.

From the groups, Advance learned that most customers of this sort of financial services company were forced to “ping pong” from vendor to vendor looking for other products. As with Advance Payday, most players in the space specialize in a specific product. TitleMax, for example is primarily focused on providing short-term loans against the value of the customer's car.

The industry lacked a one-stop shop.

With this in mind, the Hodges changed the name of their company to Advance Financial, expanded its hours, drastically redesigned their point-of-sale system, expanded product offerings and remodeled all of their stores, a process now nearing completion.

“We wanted to have the look and feel of any other place you would go to do business,” said Tina Hodges.

The company now offers more than a dozen services from payday advances to bill payment services, pre-paid local phone service, tax-preparation and tax-refund loans, as well as auto insurance.

The moves have paid off. Advance added six stores in the last year and now runs 22 locations in the Middle Tennessee area. Its payroll now numbers more than 100 people.

And in a business many have traditionally viewed as murky on a good day, Advance has brought in an added level of transparency with the use of clearly labeled menu boards showing the prices of those services.

“A lot people who use our product do so rather than bouncing a check because it is, in fact, cheaper,” said Mike Hodges.

An industry on the back foot

That’s one of the core arguments from trade groups like the Community Financial Services Association. They say their members’ stores serve people that in many cases may not use banks at all or have emergency financial needs that require more immediate and smaller-scale service than a standard bank provides.

The CFSA’s Web site cites data from California, which shows that residents of that state, while spending $450 million in fees paid to payday loan companies, dropped a far more staggering $4.1 billion in non-sufficient funds and overdraft protection fees during 2008.

The site also goes after the view that such companies are simply “debt traps,” highlighting a paper from Clemson University researchers asserting they found “no empirical evidence that payday lending leads to more bankruptcy filings.”

Many critics look at the rates charged by payday lenders and, extrapolating them out over an entire year, note the huge APRs if compared to products offered by standard banks. This, said Mike Hodges, can be misleading.

“Our typical term on a payday loan is two weeks,” he said. “And this is a one-time, fee-based product.”

Interest on the loan does not accrue and should the borrower, who is required to have a job before acquiring the loan, become unemployed, the company will work on payment options. Eventually, the bad loans simply become bad debt to be written off. But, the Hodges say the vast majority of their customers want to pay on time and are anxious to work out payment plans to settle their debts.

A bump in the customer service road

Local relationships help in those situations. That message was reinforced when part of the company’s rebranding and expansion push produced its most significant hiccup. In short, it was where the Hodges were checked for breaking with their local focus.

As part of their plans, the Hodges outsourced Advance’s call center collection operations to a company with operations in the Dominican Republic. Like so many others, they were looking to move operations offshore aiming to provide the same service on a smaller budget.

After six months, however, things were not working as had been hoped.

“With an outsourced call center, it’s a numbers game,” said Mike Hodges. The emphasis is on the volume of calls being made rather than focusing as much on the service aspect.

“We had lost our connection with our customers,” said Tina Hodges. “If people come into the store and deal with ‘Betty,’ then when they’re discussing payment options, they want to work with ‘Betty.’”

The company has since brought the operation back to Nashville opening a new call center on Church Street west of downtown. Having the operations based locally also allows for a much less “script-based” service.

“We have space for about 32 people and we’ll be filling that up over the summer,” Tina Hodges added.

The recession has been hard on businesses like Advance; with higher unemployment come fewer paychecks to lend against. The Hodges say Advance was handling roughly 35,000 checks a month prior to the downturn. That number has since dropped noticeably.

That can cause problems for a levered company like Advance. In fact, one of the company’s largest and most recognizable competitors, Savannah-based TitleMax, filed for Chapter 11 last month citing an inability to refinance its debt. TitleMax has operations in seven states and boasts more than 1,800 employees.

The Hodges said they have no plans to expand in the current environment and plan to focus further on Advance’s community involvement and continuing to hone on the basics.

“In tough times, the better operators are going to be able to expand,” said Mike Hodges. “They’ll be in a better position to grow.”