ROE All that I know about the US regulatory issues is stuff I...

ROE

All that I know about the US regulatory issues is stuff I Googled circa August 2014 when I wrote myself an analysis of CCP, so I'll simply paste that material in the postscript.

If you are a long-term investor with an ROE focus, I think you should in future years be pleased with your investment in CCP, and the dividend yield should suffice to induce you to wait.  If you top up on occasional weaknesses, so much the better.

There is always a lag between the acquisition of debts (either via CCP making loans, or buying PDLs) and the reported benefits thereof.  In the case of loans, the 20% up-front provisioning depresses EPS initially. The significant uplift in forecast PDL purchases compared to the initial forecast for FY2015  bodes well for FY2016 and later, but it should do little for FY2015.  This is why my PER-based valuation is crude - a valuation methodology that factors in the value of the PDLs and the Loan Book would be an improvement. You will notice that during the current year the forecasts of PDL purchases were increased significantly ($70m-$90m to $130-$135m), whereas forecasts for NPAT and EPS increases were modest (NPAT $36m-$38m to $37m-$38m, EPS 78c-83c to 80c-83c). To compensate, I used a fairly high PER to recognise the strength lurking in CCPs balance sheet).

Pioupiou

6. USA Debt Collection Legislation and Regulation

CCP has put its drive into the USA debt collecting market into slow gear because legislation that is hostile to debt collectors has been more aggressive applied recently. The legislation is not new, but the stronger regulatory environment is (probably as a result of the Subprime Mortgage Crisis), and this has tended to favour debtors' interests, and disfavour third-party debt collectors. Because regulators have increased their oversight of the debt collection industry, third-party debt collectors' costs have increased. Debt collectors includes collection agencies and companies that buy unpaid debts and then try to collect them. The term “debt collector” doesn't include original creditors who collect their own debts. This has probably encouraged in-house debt-collecting. Pursuant to the Fair Debt Collection Practices Act, if a debtor writes to a debt collector requesting that the latter cease to contact the debtor, that suffices to stifle normal collection processes, forcing the collector to resort to litigation, or arbitration if permitted by the credit contract.

More important than the regulatory burden on debt collectors, the general decline of extending consumer debt by banks (via credit cards) and the improved debt-to-asset position of borrowers has shrunk the supply of distressed consumer debt offered for sale – hence making PDLs expensive. CCP states the problem in its Consolidated Financial Statements for the year ended 30 June 2014 thus, “While recent evidence suggests that US PDL prices have stabilised, the reduction in supply as credit issuers adjust to the new regulatory environment is yet to reverse.” CCP has not given up on the USA, for in the same report one reads, “The US debt purchasing business remains a strategic opportunity with significant potential.”

There is growing recognition that the Fair Debt Collection Practices Act (1977), which was drafted nearly forty years ago, has not adjusted to current conditions, especially the rise of the PDL business and modern communication and computing technology, and that sternly regulating the collections industry may do more harm than good to the borrowing demographic. Legislative and regulatory changes may occur that are more amicable to the USA collections industry, but don't factor this in as a reasonable near-term possibility.

The hostile-to-debt-collectors environment in the USA may explain why in CCP's FY2014 presentation, one reads in respect to actions applicable to the USA business, “Enhanced legal collections channel to maximise returns.” Litigation does not play a significant role in CCPs Australian business.