Ann: Credit Corp to acquire assets of Radio Rentals, page-14

JoeGambler

Concern about Radio Rentals

There was nothing wrong with the Radio Rentals franchise, the problem was its management. They were slow to exit their legacy bricks-&-mortar outlets, and their various new initiatives tended to not perform as expected. The class action against RR cost them $20m. TGA bought NCML, and sold it to CCP, because TGA did not understand the debt buying and collection business as well as they should have to compete with CCP.

Management is the key enabler

The reason why CCP came close to collapsing in 2009 was due to earlier bad management, and the reason why it survived, and later thrived was good management. CLH, NCML and PNC all had problems that were not germane to the debt-collection sector – their problems were caused by indifferent management.

As SteveSage put it, “At the end of the day, they [CCP's Management] have a favourable track record (at least in my books) so will trust them when they make these calls.”

BNPL

BNPL is a loose term that covers payment arrangements that are consumer credit contracts pursuant to the National Consumer Protection Act (NCPA), and some that are not, because the credit is advanced to the business, not to the consumer. I personally think that in future agreements to the effect that businesses cannot recoup the cost of using a BNPL service like Afterpay could be found to be illegal by a court, or made illegal by new legislation.

A similar issue relates to consumer rentals – are they rental agreements, or are they consumer credit contracts covered by the NCPA? TGA (Radio Rentals) caved into the recent class action on the issue, so we do not know what the court could have decided. I imagine that CCP would construct its standard-form contract to treat rent-to-own style contracts as consumer finance leases, and there would thus be little distinction between such business and Wallet Wizard.

Big-ticket consumer purchases

What is important to CCP is the size of each loan within the $2001 to $5000 range, with repayment typically set to be two years. The NCPA defines such contracts to be Medium Amount Credit Contracts (MACCs). ASIC, mendaciously in my opinion, regards Small Amount Credit Contracts (SACCs) to be payday loans, and to avoid the odium of the term, CCP avoids payday loans (i.e., SACCs). CCP's financial presentations always have the words, “Regulatory upside - no ‘payday loans’”. A SACC is a small account credit contract that the NCPA defines to be a loan up to $2,000 to be repaid within 16 days to two years.

CCP allows loan applicants with blemished credit records to apply for loans, but the NCPA mandates that consumer credit providers perform “responsible lending obligations”, and CCP rejects 80% of applications. What CCP wants is for the loan values to be as close to $5,000 as possible, and repaid within the maximum period allowed (2 years). This business, IMO, does not compete with the likes of BNPL players like Afterpay and Zip.

Radio Rentals had to a large degree gone down the big-ticket path, albeit by packaging things, some of which could be small. These were then financed as five-year deals, and often the repayments were made via Centrepay, which can be used to pay for “basic household requirements”, which includes: small appliances; whitegoods, and furniture. See https://www.servicesaustralia.gov.a...elink/centrepay/how-use-it/goods-and-services. Middle-aged single mothers on welfare with a brood of offspring proved to be very good and reliable customers for RR, and they tended to buy large washing machines and large fridges, plus furniture.