Cash Converters profits dive after move to stamp out high-fee payday loans
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Version 0 of 1. Cash Converters’ profits dived after it moved to stamp out its indiscriminate lending of high-interest, high-fee payday loans to low-income Australians. The company was the subject of a scathing investigation by the corporate regulator over its unscrupulous payday lending practices. The Australian Securities and Investment Commission found the company was issuing payday loans to vulnerable Australians without properly checking if they had the capacity to repay them. Cash Converters undertook to refund 118,000 small credit contracts worth $10.8m, and pay Asic $1.35m in fines. Last week a low-income mother of seven launched legal action against Cash Converters, alleging the company had improperly allowed her to take out almost 100 high-interest pawnbroking agreements and payday loans. Cash Converters’ half-year results, published last week, show its lending profits fell significantly after it began to improve its lending practices. Profits from personal loans in the six months to December fell by more than 20% compared with the same period in 2015. The company’s total net profits after tax fell by 27%. It attributed its falling lending profits to a “reduction in lending volumes from April 2016”, brought about by its focus on responsible lending. “These are the first steps in a broader reshaping of the financial services business, with a continued focus on compliance and responsible lending, while satisfying the cash needs of our customers,” the company’s statement said. “The reduction in lending volumes from April 2016 onwards have, as expected, been the main factors in the decline in revenue and profits across all financial services products and channels.” Consumer advocates said the results “say a lot” about the company’s past practices. The Consumer Action Law Centre senior policy officer, Katherine Temple, said she remained sceptical about commitments from the payday loan industry to lend responsibly. “We’ve long had concerns about Cash Converters’ lending practices and the fact that there’s been a reduction in revenue in line with an apparent strategic shift to lend responsibly says a lot, I think,” Temple said. “We just remain sceptical about the industry’s ability or willingness to lend responsibly,” she said. For the first time, Cash Converters says it’s now issuing more loans online than through its stores. It said the volume of online loans now exceeded in-store loans by $280,000. Consumer advocates fear that online loans make it less likely that applicants would be properly assessed for their ability to repay. “We’re really concerned about the growth of online payday lending by Cash Converters, we think that there’s a real risk of people being lent money that they can’t afford to repay,” she said. The growth of online lending has been accompanied by email marketing and targeted digital advertising, which Temple said put vulnerable Australians at risk. Last week the agreement struck between Asic and Cash Converters was criticised for its inadequacy. The agreement will only allow refunds for those who have taken out loans online, not in-store. Cash Converters said in a statement it was in the process of a deliberate business transformation to build a “stronger, more resilient business” that provided better outcomes for customers. That included entering the medium amount credit contract market, which it believed would deliver between $20m to $23m profit. The company said demand for online financing was increasing. “As we introduce enhanced lending protocols and policies, we are confident that it will improve compliance across the whole business, paying particular attention to our online lending practices,” the statement said. “These sweeping changes will ensure that Cash Converters is positioned to both protect and serve our customers as we strive to become the most compliant and responsible lender in the industry.” |