The Most Profitable Business
in Existence
By Tom Dyson
April 7, 2008
The first thing I noticed about the bank was the salsa music. They had set up a guitar amplifier in the corner of the parking lot. The music was so loud, pebbles jumped off the asphalt in front of the speaker.
A waterproof advertising banner hung from the bank's roof. "WE BUY GOLD," it proclaimed in thick black letters. A neon sign in the door read "OPEN." Six cars were parked outside the store. One of them was a police car. Three bicycles leaned neatly against the front wall.
I walked into the bank. It was busy. Three police officers hunched over one of the cabinets. They were studying one of the new handheld videogame consoles. At another counter, an assistant took a gold chain from a display case and handed it to a customer. A couple at the back of the bank browsed stereo systems.
"Can I help you?" said another assistant. He told me he'd lend me money for one month. I asked him how much interest he'd charge me.
"Twenty percent," he answered...
The standard interest rate charged in a "usury bank," like this one, is 20% per month. That's 240% interest per year.
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The dictionary defines "usury" as the act of charging exorbitant interest rates. Usury banks provide financial services to people who have no bank accounts or bad credit histories. They're like a financial one-stop-shop for people without credit. For the past couple of weeks, I've been describing my research on pawnbrokers, which is one kind of usury bank. But I discovered the industry – and the opportunity for investors – is much larger...
Payday Lenders: A payday loan is an advance to cover expenses until the borrower's next paycheck. To secure the loan, customers must show pay stubs to prove they have a steady income. Then they must write a personal check to the usury bank for the full amount of the loan plus the fees. The usury bank will lend customers anywhere from $100 to $1,000. It will charge 15% interest on a two-week loan. That's a 390% annualized interest rate. If the customer does not repay the loan, the usury bank cashes the customer's personal check. Tax-refund loans work the same way.
Check Cashing, Wire Transfers, Bill Pay, Currency Exchange: These businesses generate fees. Charges can reach 17% of total funds.
Buy Here/Pay Here Auto Dealerships: The customer buys a used car with a six-month warranty. He can drive the car off the lot with as little as $400 down. Then he must make a series of weekly payments until he's paid the debt. The payments include a 16% interest rate. If he defaults on a payment, the BHPH dealership reclaims the car and keeps whatever payments the customer made. J.D. Byrider is the leading buy here/pay here auto dealer.
Rent-To-Own: Rent-to-own stores sell new furniture and household appliances. The customer buys the merchandise with a small down payment and pays the balance with a weekly high-interest finance plan until he owns the merchandise. Rent-A-Center is the leading rent-to-own specialist in America.
Readers of my International Strategist newsletter just learned about a usury bank chain that has 475 locations. Management predicts earnings will rise 20% this year. With these formidable cash flows coming our way, I calculate this stock will rise 80% by the end of the year... and 150% by 2010.
You see, both investors and banks, lending money is the easiest way to get rich. That's the way it's been for thousands of years. Just look how much money the big Wall Street banks make. Or the credit-card companies. They have some of the highest profit margins of any business in America.
Usury banks have profit margins 10 times bigger than a credit-card issuer or Wall Street bank. A credit-card company might receive 20% interest on its loan portfolio. Usury banks have products that earn more than 1,000% annual interest. Imagine lending $100 and receiving $1,000 in interest at the end of the year plus your money back.
Not only are usury banks incredibly profitable... the market is growing fast. Usury banks have only been around since 1998, and the concept is still in its growth phase. That's why most investors haven't heard of usury banks, and why I think we have a great opportunity right now.
The market has dumped shares of usury banks along with every other bank. Stock prices are down, but business is booming. And the market is turning around on "financials." I think usury banks are a great bet.
Good investing,
Tom
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