The government review panel has tabled its final report into Small Amount Credit Contracts (SACCs) and consumer leases. This will have an effect on Cash Converter’s (CCV) business, however this is difficult to qualify and we await an ASX statement from the company which the CFO advises to expect in the coming week
The review has recommended only 10% of borrowers' pay can be used to repay SACC loans and consumer leases. At present, only borrowers who are on government benefits are subject to a cap on the proportion of their income they can spend on SACC loans. The cap is set at 20% and limited to $2k during 16 weeks. The review has recommended halving the cap and extending it to all borrowers using SACC loans as well as for the first time, consumer leases.
The recommendations to include consumer leasing were broadly expected, the tightening and broadening of the cap however was less clear.
We note the Review's recommendations are open to final comments by stakeholders, with submission closing 17 May. This is a review only and still needs to be passed into law for changes to occur.
Consumer leasing businesses such as Thorn Group’s Radio Rentals will be the most impacted, while for the SACC market (CCV) efficiency will become even more important. CCV is the largest incumbent, and therefore has a competitive advantage in terms of spreading compliance costs however it does have a larger cost base given its ‘bricks and mortar’ presence when compared to some purely online competitors. However its store network is very beneficial in terms of loan origination.
Market reaction to the recommendations on the day was mildly positive for Cash Converters (shares rose 2.2%) but not for Thorn Group (down 2.2%) against the 0.5% increase in the ASX200.
The final report can be viewed here.
Director - Credit Research, Industrials and Corporates. Will has over 15 years’ experience in credit and fixed income markets, including 6 in London, working at fund managers, banks and government treasury.