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The Impact of FCA Caps On Cash Converters

The Financial Conduct Authority (FCA) introduced new regulations and caps for payday loan lenders in 2015. One of the consequences is a squeeze on the margins of pawnbrokers such as Cash Converts who have reportedly experienced the “most challenging year” in its history. Cash Converters head office inn Cheshire reported that their pre-tax losses have taken a further hit, reaching close to £8 million.

Cash Converters have a strong global presence with over 700 stores across the world, with over 200 of those in the UK. They claim to be the world’s second biggest second-hand shop chain which specialise in pawnbroker services. They have 59 of their own stores in the UK in addition to 165 franchised stores. They also offer cash advances, payday loans and short-term loans as well as selling valuables such as jewellery and laptops.

As a provider of payday and short term loans they were unavoidable affected by the new caps. The caps included 0.8% daily interest cap as well as a cap on default fees set at £15. There was also a cap that said repayments cannot exceed double the initial loan amount; these new caps came into effect in January 2015.

Effects Of The Caps Imposed

According to the company, the newly imposed caps had “the biggest impact on the business” for the financial year to 2015. Not only did the caps impact revenues and margins but there was also the cost of amending its loans and processes to ensure compliance with the changes. These factors combined were a big factor behind the figures for the year ending June 30th 2015.

The figures showed a 68% increase in the company’s pre-tax losses reaching a staggering £7.8 million for the year from 2014-15. Their net post-tax losses also increased by an enormous 95% also hitting £7.8 million. The company said the increased losses for the year were in part due some one-off events. These included a financial services operations review which was bought on by the caps. Cash Converters consequently strengthened its bad debts policy as well as increasing its write offs and provisions to nearly £3 million. The company also said that nearly half a million was due to redundancy costs after a company restructure and £2 million down to impairment charges to goodwill.

In addition to these costs, there was also a fall in company turnover. There was a 9% decrease to £50 million with drops in turnover for financial services, retail operations and overall franchise activity.

Cash Convertors To Focus Closely On Regulation

Alongside the company accounts, the company released a report which was signed off by Martyn Jenkins, the UK General Manager of Cash Converters. In the report he spoke of the company’s toughest year to date “with increased regulatory scrutiny” in addition to “the arrival of the FCA’s rate cap on high-cost short-term credit”.

He explained that the regulatory changes shifted the company focus to ensuring they met regulatory obligations and compliance objectives. He went on to say that the “rate cap has directly impacted revenues and margin of the financial services products offered by the network.”

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