As the leading company in the payday lending business, Advance America (NYSE:AEA) has been the target of many attacks made upon the industry. While Cash America (NYSE:CSH), EZ Corp (NASDAQ:EZPW), and First Cash Financial (NASDAQ:FCFS) all had to contend with new FDIC regulations, changes in state laws, and the animus of consumer advocacy groups, it was Advance America that was singled out for lawsuits and news headlines. That's made for a challenging year.

In the first quarter this year, despite having to change its business model, Advance America was still able to grow total revenues by 10%, though the provision for doubtful accounts rose by 17% over the previous year. Earnings grew 4% to $0.25 per share, and while business was affected by federal and state changes, the quarter represented continued demand for the company's products.

In the second quarter, Advance America felt the impact of changing its business model and closing down operations in several states, and its stock went into retreat. Revenues rose less than 4% for the quarter, while earnings grew 20% to $0.16 per share, illustrating the profitability of payday lending. As the president and CEO of Advance America Ken Compton noted, "This was a challenging quarter, but one that also underscored the overall strength of our business model." The 25% one-day tumble in the stock price indeed seemed overwrought.

The third quarter had Advance America reporting similar financial numbers -- earnings up 13% and revenues up 3% -- but it was obvious that investor confidence was different. If you excluded the states where the industry assault was hottest, revenues had actually grown 11% over the prior year. The payday lender had introduced a new product to re-enter the Pennsylvania market, and though that drew the wrath of regulators, it allowed the company to advance its previous profitability in the state almost at once.

Considering the attacks that have been made against Advance America and the payday lending industry, it looks like the year has been kinder to the company than one might have supposed 12 months ago. Advance America has demonstrated that its business model is sound and that it can respond to challenges in both the marketplace and in government policy.

Looking ahead, I'd say that even in the face of continued -- in some cases withering -- assaults on payday lenders, Advance America is one that should be able to hold its own. There is a need for the services these companies offer, as banks and other traditional lending institutions have abandoned people with short-term money needs.

And it seems our Motley Fool CAPS community members are in agreement with that. Just take a look at how the overall sentiment stacks up:

CAPS Rating

4 Stars

Total Bulls


Total Bear


Bull Ratio


Bear Ratio


Obviously, the CAPS community agrees with Motley Fool Inside Value lead analyst Philip Durell, who picked Advance America as a value stock investment last October. Bulls like Patrick6k say, "Advance America Inc. is at the forefront of its craft.... People ... seem to be fixated on keeping up with the Joneses."

Payday lending is a needed business in a society where people don't always or aren't always able to live below their means, let alone within them. Banks, credit unions, and other financial institutions have left people in need of short-term cash advances with few alternatives, other than perhaps a loan shark. While critics might say that Advance America and competitors like Dollar Financial (NASDAQ:DLLR) and QC Holdings (NASDAQ:QCCO) are simply legalized loan sharks, those who use them find their services convenient and essential.

Get an advanced view with these related Foolish articles:

The Motley Fool Inside Value portfolio is beating the market by over 6%. A 30-day guest pass lets you see all of the market-beating selections.

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.