Finance company Solvar is changing its credit risk profile, raising the minimum credit acceptance criteria for new customers and focusing growth on its prime and low-risk Australian loan book. Solvar (formerly Money3) is predominantly a lender to buyers of used cars, especially to “under-banked” consumers. It promotes its role in “providing consumers greater mobility to improve their lives and employment prospects”. How far it plans to move away from this market segment was not spelled out in its December half-year financial report, but chief executive Scott Baldwin said the company has a focus on its loan book quality and enhancing risk and governance capabilities. Solvar reported a 5.9 per cent increase in revenue to A$109.7 million in the six months to December, compared with the previous corresponding period. The loan book grew 3.5 per cent to $941.5 million over the six months to December. The Australian loan book grew 8.2 per cent to $769.7 million, while the New Zealand book shrank by 13.5 per cent to $171.8 million. Originations fell 13.6 per cent to $232.8 million, compared with the previous corresponding period. The bottom line was hit by higher bad debt expenses, employee costs and finance costs. All up, expenses rose 35.3 per cent to $90.8 million. Profit fell 49 per cent from $26.9 million in the December half 2022 to $13.2 million in the latest half. The New Zealand business reported a pre-tax loss of $254,000. This time last year the company said it was continuing to pursue growth, confident its borrowers could manage their commitments. The result was that the bad debt expense rose 36 per cent to $19.8 million and the movement in allowance for credit losses doubled to $4 million. After seeing earnings cut by half, the focus is now on improving its risk settings and putting the brakes on loan growth. Another reason for the change of approach may be that Solvar is in trouble with its regulators. ASIC commenced proceedings against Solvar in the Federal Court last year, alleging that its subsidiary Money3 Loans breached its responsible lending obligations. ASIC filed its evidence in December. According to ASIC’s statement of claim, between 2019 and 2021 Money3 failed to properly assess whether certain borrowers could meet their repayment obligations before entering into loan contracts for the purchase of second-hand vehicles. The consumers were either receiving Centrelink payments or were on low incomes, which is the situation for a substantial proportion of Money3 customers. It alleges that Money3 did not make reasonable inquiries or take reasonable steps to verify the consumer’s financial situation, including their likely expenses, and that instead it applied a number of arbitrary expense amounts from an internal guide. Solvar said yesterday that it intends to defend the action and that Money3 takes its responsible lending obligations seriously. And last month, the Commerce Commission of New Zealand announced that it would file civil proceedings in relation to the Credit Contracts Act and Consumer Finance Act 2003 against Solvar’s New Zealand subsidiary Go Car Finance.