The new consumer credit law covering small amount credit contracts and consumer leases is having an impact months before it takes effect, with Cash Converters announcing that it will exit the SACC market.
The company released its December half results yesterday, which includes the A$110 million asset impairment flagged last week.
The company said the decision to write down the value of its SACC business reflects its assessment of the likely impact of the Financial Sector Reform Act 2022, when it takes effect in June.
The company’s view is that: “The key impact resulting from these changes is the extension of the protected earnings amount requirement to all borrowers. This limits the amount of credit that can be extended to an individual borrower under a small amount credit contract.”
Under the old law the protected earnings amount rule said that if a consumer received at least 50 per cent of their gross income from social security payments, 80 per cent of their income was protected and could not be used to repay a SACC.
The new law extends the protected earnings amount to all consumers. It prohibits licensees from entering into a SACC if the repayments under the contract would not meet the requirements prescribed by regulations.
Regulations released last week require that the total amount of repayments under a SACC or a consumer lease for household goods be equal to or less than 10 per cent of the “available income” the consumer is reasonably expected to receive during the repayment period.
Cash Converters modelled the regulatory impact of the new protected earnings amount on its existing SACC product and concluded there would be a 44.3 per cent reduction in volume in its personal finance business and a 68.7 per cent reduction in its corporate store segment.
It said it would “transition away from SACC product”.
SACCs accounted for $82 million of the company’s $255.9 million loan book and grew 19 per cent during the December half.
Cash Converters is developing new products to fill the gap. It launched a pay advance loan during the half and has a new line of credit in pilot.
As a result of the impairment, the company reported a loss of $105.5 million for the half.
Revenue grew 24 per cent to $142.4 million, compared with the previous corresponding period, thanks to increased loan volumes and better store trading.
The loan book grew 33 per cent to $255.9 million. Operating profit after tax rose 36 per cent to $10.5 million.
Cash Converters chief executive Sam Budiselik said: “With the withdrawal of COVID-related stimulus, demand for all loan products continues to increase. The month of December 2022 saw record high application volumes for small loans and medium loans.”
The company wrote off $23.6 million of bad debts – 9.2 per cent of the value of the loan book. After recoveries, the net bad debt expense was $20.2 million – up from $11.7 million in the previous corresponding period.
Last week the company announced that it has entered into an enforceable undertaking with AUSTRAC, which will involve a remediation program to overhaul its anti-money laundering and counter-terrorism financing program.
An AUSTRAC investigation raised concerns that the company’s AML/CTF program was not properly implemented and did not include sufficient detail on important components, such as transaction monitoring and customer due diligence.