Shares in former short-term lender Credit Corp have surged more than 15 per cent in early trade after the finance group booked an impressive lift in full-year profit and flagged another bumper result over the coming year.
The strong showing from the lender, which got out of the maligned payday loan sector in February — no longer providing what the industry refers to as Small Amount Credit Contracts — could be an interesting case study for other finance companies considering an exit from the heavily regulated sector.
Credit Corp chief executive Thomas Beregi said since pulling out of SACCs, the company had now insulated itself from “any sort of regulatory or stakeholder issues” and has found new ways to partner with other firms and build referrals.
“We’ve been able to grow the business using our sustainable positioning as a key marketing feature,” Mr Beregi told The Australian.
Credit Corp unveiled a full-year net profit of $45.9 million for the 12 months through June, an increase of 20 per cent year-on-year and flagged profit growth of between 13 and 18 per cent over the coming period.
Despite pulling out of SACCs loans earlier this year after the Australian Securities and Investments Commission produced a scathing report on the industry, Credit Corp’s consumer lending profit increased sixfold to $6.1m. The group’s loan book grew by 35 per cent to $135m, having served over 100,000 customers.
“We’re not unhappy with the way things have played out,” Mr Beregi said. “Broader community values have decided that this type of very short-term lending is something that needs to be heavily regulated and controlled.”
SACCs are unsecured loans of less than $2000 and less than 12 months’ duration, which ASIC still refers to as payday loans as it’s what consumers understand them to be. SACCs providers have been the subject of both an ASIC and a government review after lenders were found to be falling short of customer protections laws.
The world’s largest search engine, Google, last month implemented a ban on advertisements for loans with durations of less than 60 days.
Credit Corp, which offers loans up to $5,000 for periods up to three years, had only around 13 per cent of its loan book in SACCs before it stopped providing the product. The group is also now heavily invested in debt collecting, which Mr Beregi said was a “difficult” business, but one which Credit Crop approached with patience and reason, and often led to debtors paying a lot less than their original debts.
“The right way to go about debt collection is to try and develop a relationship with the customer and see if they can agree to something that is affordable and that they can stick to over a number of years,” he said. “A lot of people we speak to are apprehensive and have been avoiding phone calls. But once we reach an agreement with them they feel relieved that they’re finally doing something about their debt.”
Credit Crop has also never been the subject of a regulatory order or undertaking, unlike many of its competitors, and has one of the lowest rates on complaints in the industry, according to the ombudsman.
Mr Beregi said he still agrees with “all” of ASIC’s critiques of the payday lending industry.
“The high repayments are the fundamental evil, even though it’s only a small amount that’s borrowed,” he said. “The repayments are so high that they are unaffordable and so people need another loan to pay off the first loan or to meet the living expenses they deferred. We’ve seen people with 10, 15, 20 loans in a row before they collapse under the burden of the repayments.”
Credit Corp, which paid a 50c dividend and flagged an increased payout up to 57c next year, may be a decent case study for the rest of the industry, where other businesses are also moving against the payday industry.
Last year, Westpac decided to stop serving business clients who provided payday loans, including Australia’s largest payday lender, Cash Converters.
Listed lender Money3, which was affected by Westpac’s shake-up, has since decided to exit the increasingly controversial sector.
Cash Converters, which last year settled a class action brought forward by 37,500 customers claiming they had been charged excessive interest on short-term loans, posted a net loss of $21.5 million last year.
Each year, more than a million Australians are thought to take out a payday loan in what is estimated to be a $1 billion market. http://www.theaustralian.com.au/bus...h/news-story/4079f029593ebfe40acc9e1cd068135f
CCP Price at posting:
$15.15 Sentiment: None Disclosure: Not Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)