Urbis Think Tank

Credit Bill could threaten Cash Converters presence in Australia

Today the Assistant Treasurer Bill Shorten introduced the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill into Parliament. One of the effects of this Bill will be to place a cap on the maximum amount that can be charged by payday lenders. Mr Shorten mentioned in the explanatory memorandum that:

the introduction of the cap may have a significant impact on the revenue generated by individual credit providers, although this will vary depending on their business models

cash-converters1The largest payday lender in Australia is Cash Converters, with 130 stores (and 470 International stores). In their 2011 Annual Report, they indicated that these changes would indeed affect their business model and that they are likely to look outside of Australia as a result.

Cash Converters has considered and will continue to consider a wide range of steps which it can implement to reduce the adverse impact of these reforms on its revenue and profit… Other than in Australia, Cash Converters is not aware of similar restrictions in effect or proposed in jurisdictions in which Cash Converters has a substantial business presence or into which it is looking to expand. Accordingly, if the proposed reforms become law in Australia in their current form, Cash Converters may seek to shift the focus of its lending operations into other jurisdictions (or alternative products).

In media reports today, Mark Redmond from the National Financial Services Federation (NFSF) and Glen Donaldson from Cash Converters reiterated their concerns about these changes.

On average for stores the cost [on an average $300 loan repayable within one month] – and this is part of our submissions to the Government and have been for a couple of years – the cost of that product is about $76. “So what the Government is proposing is that a maximum charge on that product can be in the order of $36 and as you can see it is well below the cost.”

While this Bill will not come into effect until at least 2012, it has the potential to impact on properties that are currently leasing to Cash Converters and other payday lenders, if the company does choose to move its focus off shore.

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