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Cash-back mortages: A deal from your bank that regulators are not keen on

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It’s the last refuge of those who don’t have money, but who still want to own a home.

Be careful before you break that mortgage

You want some of these record low rates on the market but you’re locked into a mortgage. Just break it, right?

Not so fast, there’s a key question you need to ask before you commit to break a mortgage: how much will it cost you? Actually, it’s a question you should be asking before you sign up in the first place.

The banks have long used the offer of giving cash back as a lure to attract customers, many of whom can’t come up with the minimum 5% down payment demanded by government-backed mortgage insurance rules.

Whenever I withdraw money from my bank’s cash machine I  get this offer of instant money, if I take out a mortgage. “Cash Back Mortgage: you can get the cash you need to help pay your land transfer tax, lawyer’s fees, moving costs, closing costs and other expenses,” one bank website brags.

The deal is simple. The bank gives you cash up front to use however you want, except for as the down payment.

The price of the upfront cash is a much higher interest rate — usually the posted rate, which is almost two percentage points higher than you might get negotiating.

It’s a costly move when considered over a five-year mortgage. My bank says you can get $20,000 up front on a $400,000 mortgage, based on a 5% cash-back mortgage. Based on monthly payments at the current posted rate of 4.99%, that mortgage will cost you $93,422.91 in interest over five years. The same mortgage will cost you $55,288,48 in interest at 2.99% — the going rate in the discount market.

You are paying almost $40,000 in interest — the difference between the posted and discount rate — to get $20,000 today. Even when you consider the money is in present-value dollars, it’s pretty clear why this type of offer is not a great deal for the consumer and is being discouraged.

You’re not supposed to use it for a down payment, but it finds its way there anyway, according to many people in the industry.


If you want to have a mortgage in retirement, be prepared to make some big sacrificesCanada housing correction could trigger another recession, BMO report saysFears of a Toronto condo crash ease as sales hit record in March

This past week the Office of the Superintendent of Financial Institutions reiterated it doesn’t like the practice at all, recommending mortgage default insurers not underwrite loans that use cash back for a down payment.

Draft guidelines on residential mortgage insurance underwriting practices issued by OSFI included a section on down payment.

“Incentive and rebate payments (ie. cash back) should not be considered part of the down payment,” said the regulator. In cases in which people don’t use their own equity and opt for non-traditional sources as a down payment, the regulator seems to want federally regulated mortgage insurers to consider that risky and charge a larger premiums.

Led by Canada Mortgage and Housing Corp., the Crown corporation that has the largest position in the market, all mortgage default insurers will be raising their premiums come May 1.

It’s not mentioned very often, that even though you supposedly need to have 5% down, you are allowed to add the cost of mortgage insurance premium to your loan. Premiums are as high as 3.15% for a mortgage with 5% down, but not to worry, you can still add that to your loan which will take you to 98.15% of the value of your home.

Lenders have been giving cash back, it’s kind of a loophole to the 100% financing rule prohibition

“I think you want to have some savings mechanism in place to make sure you have some sort of down payment,” says Calum Ross, a Toronto-based mortgage broker, who is not a supporter of cash-back mortgages. “I think it’s a fundamental risk to the system if you don’t have any skin in the game.”

The cash-back market is a small percentage of the overall market, but it’s well known that people work around the so-called rule that is supposed to prevent you from using it for the down payment.

Rob McLister, editor of Canadian Mortgage Trends, says there’s not much banks or insurers can do if consumers are coming up with their 5% through other means, such as borrowing from family or putting it on a credit card.

“Lenders have been giving cash back, it’s kind of a loophole to the 100% financing rule prohibition,” Mr. McLister says, referring to a previous rule change that demanded the minimum 5% down. “But you can still get that down payment by borrowing at 18% on your credit card, if you want to.”

He wonders if during the comment period on the OSFI guidelines, there will be suggestions for even more restrictions on sources of borrowed down payments. Mr. McLister says credit unions, which have been allowed to do 100% financings because they are not federally regulated, will no longer be able to provide those loans if they are to be covered by government-backed mortgage insurance.

All this squirming happens over a minimum 5% down payment. Imagine if it went up 10% — something that scares everybody in real estate.

“Nodody wants to see that in the lending industry. It depends what it is — 6% is not a big deal, but 10% will be a major deal,” Mr. McLister says, adding he doesn’t think OSFI is pushing for a larger down payment.

Phil Soper, chief executive of Brookfield Real Estate Services, says people having trouble getting the 5% for a home are generally unsophisticated buyers.

“It makes sense, it’s hard to argue against more transparency in mortgage financing,” says Mr. Soper, about trying to get rid of cash-back programs. “People talk about it being used to cover closing costs or initial furniture or renovations and there are sources of credit for that.”

Benjamin Tal, deputy chief economist with CIBC, says some people will always find a way around rules and the cash-back stipulation from OSFI is no different.

“You can get a loan from a parent and call it a down payment [and then pay it back]. You can never underestimate the creativity of people,” says Mr. Tal.

Consumers should think twice about this offer. The national banking regulator seems to be saying as much.

Illustration by Chloe Cushman, National Post

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Cash Now – Cash Now Plus – Cash Now USA – Miro-Zecevic-Andrea-Zecevic

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Branches continue to operate and daily lending is continuing

Companies cited in this article

Cash Store Financial Services Inc.

Cash Store announces deal to settle class actionsCash Store Financial sees loss almost double to $6.9 million in Q3More

The Cash Store Financial Services Inc. (TSX:CSF) says its application for creditor protection has been granted by an Ontario court.

The Cash Store says it sought protection to address liquidity issues caused in part by regulatory actions taken in Ontario that affected its operations there.

In mid-February, Ontario’s Registrar of Payday Loans said it wanted to deny new licences to Edmonton-based Cash Store Financial Services Inc.

The registrar cited conduct that included convictions in November 2013 that Cash Store and Instaloans were operating as unlicensed payday lenders.

It also alleged the company charged more than a legal maximum of $21 for every $100 payday loan and that the loans were not provided immediately to consumers.

Cash Store Financial says its board determined that a proceeding under the Companies’ Creditors Arrangement Act is the best way to carry on business and maximize value for stakeholders.

The company says it remains open for business, its branches continue to operate and daily lending is continuing.

Cash Store Financial has 510 branches across Canada under the banners “Cash Store Financial” and “Instaloans.” It also operates 27 branches in the United Kingdom.

The company says FTI Consulting Canada Inc. will serve as a court-appointed monitor of the company and report to the court during a restructuring.

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When thinking of a home loan, ask this

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Without having A Penny This Weekend? Get Bad Credit Payday Loans

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If your lavish spending habits have acquired you a bad credit, get rid of it immediately. Opt for negative credit payday loans and get a answer to your financial crunch.

Bad credit payday loans are usually short term loans that are offered to meet the urgent requirement of cash. These loans are meant to fill in the time gap amongst two pay cheques.

Bad credit payday loans cater to the money needs when you have an unexpected automobile or medical bill, electricity bill, grocery bill or bill of an item bought from a sale or auction.

No credit check is essential while applying for negative credit payday loans. Persons who have earlier filed for bankruptcy can also apply for the loan. The loan provider is not concerned with your past. What he calls for is repayment inside the fixed time period.

Before applying for negative credit payday loans, the borrower needs to check the eligibility criteria. Source includes extra info concerning why to see about it. The loan qualification verifies the following factors-:

The borrower should be of 18 years of age or above.

He must have a typical job with a fixed earnings.

He ought to have a bank account.

The credit score of the borrower is significant in finding poor credit payday loans approved. Realizing the credit score will safeguard you against treachery by the lender and will assist you to get the loan at a favorable rate of interest.

Repaying negative credit individual loans is straightforward. When the borrower receives his paychecks, the loan term gets terminated automatically. The loan provider withdraws the fees from your bank account. If you want to eradicate this fee, you want to make the repayments earlier.

Applying for negative credit payday loans is quite straightforward. The borrower can submit the loan application on-line. He can even fill in the on the internet loan application form at midnight. It saves you time as you dont want to travel right here and there in search of the lender. The loan provider will demand you to present certain documents like the most recent electricity bill, driving license, bank statement and so on. If you need to learn supplementary info on payday loans, there are tons of on-line databases you could pursue. The loan request will be preceded instantly right after the lender receives the necessary proofs. The loan quantity gets directly deposited in your bank account in less than 24 hours.

Poor credit payday loans assist you to overcome your financial disaster. But these loans are not each and every borrowers cup of tea. For that reason, these loans really should not be utilized so usually. If you use negative credit payday loans twice a year, you undoubtedly want to maintain a check on your spending habits.

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Why you should pay off your car loan ASAP

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You may not save a huge amount on interest, but you’ll free up cash in your budget every month.

By Jean Chatzky

Free yourself of your car loan.

FORTUNE — Let’s say you have an extra few thousand dollars — maybe from a tax refund, a bonus, or some other quick windfall. How can you best put it to use?

There are a lot of options, and high-interest rate debt goes on top of the pile. But if you haven’t done that kind of borrowing, and you have a comfortable cushion of emergency cash, you might consider throwing it toward your auto loan.

Why? Not because you’re going to save a huge amount on interest. You will save some, but most car loans have fairly low interest rates these days, averaging 2.98% for a 60-month new car note. (Note: Used car loans are — surprisingly — even a little cheaper than the new ones. They’re averaging 2.78% on a 48-month loan, 2.86% on a 60. If you had lousy credit or didn’t shop carefully for financing when you bought your car, refinancing is a good and simple move. Credit unions are a particularly good source of loans.)

But the majority of car loans are calculated using what’s called the simple interest method, says Mike Sante, managing editor of Interest.com. This means the interest paid each month is based on the loan’s outstanding balance. “The earlier you pay off or pay down these loans, the more you’ll save in interest payments.” You can figure out how much you’ll save on your particular loan by plugging your numbers into a calculator like the one at Bankrate.com.

Not wowed by the figure? You don’t have to be. The real reason for getting out of a loan like this early is that you’ll be freeing up money in your budget every month. There’s an opportunity cost involved whenever you borrow money, and it’s a cost many people fail to consider.

“We are in favor of paying off auto loans early because it can help you cope with sudden life changes and afford you more freedom in the long run,” says Philip Reed, Edmunds.com senior consumer advice editor.

This is, by the way, is the same logic that suggests it’s a good idea to get out of your mortgage — despite its low rate — before you retire. And that, if you have extra cash to throw against your student loan, you should consider that too. It’s not the hefty interest rates associated with these debts, but rather the fact that you have them that stops you from doing other things.

The average monthly payment on a car loan right now is $471 — what else could you do with that money each month? For instance, if you invest it instead at a 6% interest rate, you’d have close to $77,000 after 10 years. You could build a fully fleshed-out safety net — something more than half of all Americans don’t have right now. Or maybe it would simply give you a little more breathing room in your budget.

In the best of all possible worlds, you could also use that freedom as an opportunity to build a habit of saving. Let’s say you have $3,000 left on your car loan, and you pay it off in one shot with a windfall (very possible, as the average tax refund this year is very close to that number). Then you invested the $471 every month, like the example above that gives you $77,000 after 10 years. If you instead just invested that $3,000 at 6%, you’d only have $5,373 after 10 years. Now, obviously, you’re investing a lot more money with the first example, and that’s why you end up with much more. But part of the reason we don’t save is that we never give ourselves the ability to see how good it feels. Once you start to see your money growing, you’ll be inspired to keep at it.

If you decide to put a chunk of money toward your auto loan, you want to make sure you’re actually paying down principal. In many cases, paying extra will signal to the lender not that you are trying to reduce the amount of interest paid or get out of the loan early, but that you don’t have to make another payment for a few months. If you want the payment to go toward principal — and you do — you should call the lender and ask how to make that happen. “In some cases, you may need to restructure the loan (which can be done without prepayment penalties). In others, you might have to write two separate checks and clearly instruct the second payment to go toward principal,” Reed says.

Arielle O’Shea contributed to this report.

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3 Dumb Ways to Borrow Money

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Money — everyone needs it, but not everyone has it.

Many people who find themselves in a financial bind aren’t left with many options, and sometimes applying for a loan isn’t realistic. The most accessible methods of getting quick cash come with a high cost, but those who need money badly won’t mind. Still, there are positive alternatives to shady loan methods, even for those with bad credit or who are in tight circumstance. Here are three:


Instead of a pawn shop…


Pawn shops are one of the immediate images that come to mind when thinking of fast cash. People get money from pawn shops by giving their personal items as collateral, and if they aren’t able to pay on their loan due date, the items are sold. The pawn shops profit because the amount borrowed is generally much less than what they would receive for the items sold. Loans are typically for 30 to 90 days, and interest rates and storage fees range from 10 to 20 percent each month.


Try online sites


If you need money quickly and know that there is no chance that you will be able to repay the loan, try selling your items on Craigslist, eBay, Amazon, or Etsy. These online sites help you cut out the middleman and allow you the freedom to list the prices you deem fit based on the value of your wares. Typically, the site will take a small percentage of your sales, but the sum is insignificant compared to the profit pawn shops make at your expense.

Keep in mind, however, you items may not sell right away, so be sure to do your research to see what others are selling it for, and perhaps you can price it lower in order to sell it faster.


Instead of a payday loan…


Of all the potentially shoddy ways of borrowing money, getting a payday loanseems the least extreme. However, getting caught in a never-ending cycle of debt repayment is a very real outcome of using this method.


Here’s how it works: individuals who take out payday loans, which are small short-term loans that usually range between $100 to $1000, list two or three of their upcoming payday dates on their loan application. Once payday rolls around, the lender collects the balance due, but individuals can always opt to “rollover” the loan until the next payday. This is where people can get into trouble.


Payday loans come with high interest and fees, but the laws regarding these loans vary from state to state. In 2013, at least one Utah payday-loan company charged 1,564 percent annual interest, roughly translating to $30 in interest each week for every $100 loaned. In New York State, payday loans are illegal, for these reasons listed on their site:


- “Payday loans are designed to trap borrowers in debt.”

- “If the loan cannot be paid back in full at the end of the term, it has to be renewed, extended, or another loan taken out to cover the first loan. Fees are charged for each transaction.”

- “The annual percentage rates on payday loans are extremely high, typically around 400% or higher.”


Try these methods


There are a variety of methods available to those seeking financial help, the most dire of which we have outlined in our bankruptcy alternatives article. We have also discussed strategies for paying off massive debt. However, here are some quick, specific alternatives to try before getting a payday loan:

- Negotiate with your creditors — ask them for more time, and ask if they can lower your late payments, finance charges, or interest rates. Telling them your sincere story can help.

- Find a community development credit union which can provide affordable small-dollar loans.

- Have a consultation with a credit counseling service.

- Consult social service agencies which can assist in getting individuals necessities such as food, housing, and home heat costs.

- Ask for a salary advance.

- Try peer-to-peer lending.


Instead of a buy-here-pay-here car dealership…


Buy-here-pay-here car dealerships use sensational advertising to attract individuals with bad credit who can’t lease or buy a vehicle at a typical car dealership. The sales process begins by looking at that person’s income and credit. Those who make the cut can buy a car, but at a high price — average annual interest rates at these specialized dealerships are 24 percent. That’s three to four times the rate of normal used car loans.

What’s worse is that according to The Center for Responsible Lending, 30 percent of these cars end up becoming repossessed and resold. CNN Money reported that some of these dealers repossess their cars when the borrower is just one day late.


Try: “Cancel Anytime” car dealerships


Dealerships like DriveTime’s “Cancel Anytime” lease allow individuals to pay as little as $895 as down payment for a vehicle, and drive the car home that same day. Customers make low bi-weekly payments without any commitment, and should they become unable to continue payment, can simply return the car. The best part? They are always welcome to re-lease again in the future.


It is wise to save up enough money so you can offer a high down payment in order to qualify to finance a vehicle. If you’re feeling extremely desperate, the most immediate options available to you include selling your stuff, creating a crowdfunding profile page, and asking friends and family for cash. Don’t settle for ill-advised loan methods when it comes to something as important as your life.

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BBB Alert: Scammers use BBB's Name in Fake Loan Scheme


BBB’s Name Used to Entice Consumer to Pay an Advance Fee for a Personal Loan

(4-17-14) Better Business Bureau (BBB) serving Nebraska, South Dakota, The Kansas Plains and Southwest Iowa is warning cash-strapped consumers to beware of online lenders that require advance fees.

“Desperate times are leading people to the Internet to apply for loans and many are falling deeper into debt after getting tangled up with fictitious lenders who have little regard for the law,” said BBB President and CEO Jim Hegarty. “Consumers nationwide continue to be victimized by sophisticated loan scams that demand up-front fees for personal loans that are never delivered.”

An Arkansas City, KS woman, who has a history of searching for loans online, recently received a phone call from United Personal Only. She was informed that “they already had her bank account number on record and she qualified for a $5,000 loan that could be repaid at the rate of $141 per month.” The caller stated that United Personal Only is located in Houston, TX and is “listed with the BBB.”

Then, the consumer was told that she would need to pay $300 in advance to demonstrate that she was able to pay the loan back “because the BBB likes people to show that they can make payments on time.”

As instructed, the woman went to a Walmart and put $300 on a re-loadable pre-paid card called a Green Dot MoneyPak. She thought that she was setting up an account that would be used to transfer her loan payments. She was unfamiliar with how a Green Dot MoneyPak works and did not know that when she gave the caller the numbers on her card, the money could be accessed immediately. Such Green Dot transactions are extremely difficult to trace. Other phony loan companies have used Western Union or MoneyGram to obtain the payments.

After releasing the numbers, the woman was notified that United Personal Only needed more money for “insurance.” That’s when she contacted BBB. Although she closed her bank account, she is receiving numerous loan applications through emails and up to 6 phone calls per day from other online loan companies.

BBB investigators believe that United Personal Only is a fictitious business. It uses the same phone number as another company, United Personal Loans, which also appears to be fictitious. They claim to be located at 10970 West Hammer Road in Houston, but BBB has learned that this address is invalid.

“When setting up this phony company, the scammers probably used the name West Hammer Road because it sounds like Westheimer Road which is an actual street in Houston,” said Hegarty. “The address is meant to sound legitimate, when it is not.

“The bottom line is that it is illegal for companies to promise you a loan and ask you to pay fees in advance,” added Hegarty. “Also, if you are handing over your personal information to get a loan without doing your research, you could be setting yourself up to have your account drained by offshore scammers.”

If looking for a personal loan, BBB has the following advice:

Be wary of applying for online loans through unfamiliar businesses or websites. Many of these online application sites are run by scammers or by people who sell your information to scammers.Understand that requiring fees be paid as a condition of receiving a loan is illegal.Do not do business with anyone who cannot give you an address that you can confirm as legitimate.Read any contract carefully and make sure you understand all requirements before entering into any agreement.Official-looking loan documents and sophisticated looking websites are easy to copy or fake. Just because a business appears legitimate, doesn’t mean it is.Check for a BBB Business Review by going to www.bbb.org or call 800-649-6814.

# # #

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Fitch Affirms GoldenTree Loan Opportunities VII, Limited at 'AAAsf'

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Fitch Ratings has affirmed the class A notes issued by GoldenTree Loan Opportunities VII, Limited (GoldenTree VII) at ‘AAAsf’. The Rating Outlook remains Stable.


The rating affirmation on the class A notes is based on the stable performance of the underlying portfolio since the transaction’s closing in May 2013 and the stable credit enhancement available to the notes. As of the March 11, 2014 trustee report, the transaction continues to pass all of its coverage tests and collateral quality tests, and there have been no defaults in the underlying portfolio to date.

The performing loan portfolio par amount plus principal cash is approximately $655.6 million, compared to the effective date target par balance of $650 million, resulting in an increase in credit enhancement for the class A notes. The weighted average spread (WAS) is reported to be 4.67%, relative to a trigger of 4.00% and the weighted average rating factor of the portfolio remains at ‘B/B-’. The trustee reports 0.73% ‘CCC’ assets versus a maximum allowance of 7.5%, based upon Moody’s ratings. Fitch currently considers 9.1% of the portfolio (excluding cash) to be rated in the ‘CCC’ category, decreased from 10.7% at the closing of the transaction, based on Fitch’s Issuer Default Rating (IDR) Equivalency Map. The portfolio is diversified with 121 obligors, and invested in 99.75% senior secured loans and 0.25% second lien loans. Additionally, approximately 89.4% of the portfolio has strong recovery prospects or a Fitch-assigned Recovery Rating of ‘RR2′ or higher.

The Stable Outlook reflects the expectation that the class A note has a sufficient level of credit protection to withstand potential deterioration in the credit quality of the portfolio, based on the results of the Fitch sensitivity analysis described below.


The rating of the notes may be sensitive to the following: asset defaults, portfolio migration, coverage test breaches, or breach of concentration limitations or portfolio quality covenants. Fitch conducted rating sensitivity analysis on the closing date of GoldenTree VII, incorporating increased levels of defaults and reduced levels of recovery rates, among other sensitivities.

This review was conducted under the framework described in the report ‘Global Rating Criteria for Corporate CDOs’ using the Portfolio Credit Model (PCM) for projecting future default and recovery levels for the underlying portfolio. Given the stable performance of the transaction since closing, Fitch has not updated the cash flow modeling analysis. The WAS has improved since closing, while the weighted average life (WAL) and PCM outputs are in line with the levels at closing. The current portfolio’s ‘AAAsf’ Rating Default Rate (RDR) and Rating Recovery Rate (RRR) outputs from PCM are 54.6% and 39.4%, respectively, versus an RDR of 59.4% and RRR of 36.7% for the indicative portfolio at closing.

Initial Key Rating Drivers and Rating Sensitivity are further described in the New Issue Report published on May 30, 2013. A comparison of the transaction’s Representations, Warranties, and Enforcement Mechanisms (RW&Es) to those of typical RW&Es for that asset class is also available by accessing the reports and links indicated below.

GoldenTree VII is an arbitrage, cash flow collateralized loan obligation (CLO) that closed on May 2, 2013 and is managed by GoldenTree Asset Management LP. The transaction remains in its reinvestment period, which is scheduled to end in April 2017.

Fitch has affirmed the following rating:

GoldenTree Loan Opportunities VII, Limited

–Class A at ‘AAAsf’; Outlook Stable.

Additional information is available at ‘www.fitchratings.com‘.

Applicable Criteria and Related Research:

–’Global Structured Finance Rating Criteria’ (May 24, 2013);

–’Global Rating Criteria for Corporate CDOs’ (Aug. 8, 2013);

–’Counterparty Criteria for Structured Finance and Covered Bonds’ (May 13, 2013);

–’GoldenTree Loan Opportunities VII, Limited/LLC New Issue Report’ (May 30, 2013);

–’GoldenTree Loan Opportunities VII, Limited/LLC Representations and Warranties New Issue Appendix’ (May 20, 2013).

Applicable Criteria and Related Research:

GoldenTree Loan Opportunities VII, Limited/LLC


GoldenTree Loan Opportunities VII, Limited/LLC — Appendix


Counterparty Criteria for Structured Finance and Covered Bonds


Global Rating Criteria for Corporate CDOs


Additional Disclosure

Solicitation Status



Security Upgrades & DowngradesFinanceFitch Ratings

Fitch Ratings, Inc.

Primary Analyst

Shashi Srikantan, +1-212-908-0353


Fitch Ratings, Inc.

One State Street Plaza

New York, NY 10004


Committee Chairperson

Alina Pak, +1-312-368-3184

Senior Director


Media Relations

Alyssa Castelli, +1-212-908-0540


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First Cash Reports First Quarter Earnings Per Share of $0.78; Core Revenues From Retail Sales and Pawn Fees Increase 20%

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More here: First Cash Reports First Quarter Earnings Per Share of $0.78; Core Revenues From Retail Sales and Pawn Fees Increase 20%

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