Shareholders of payday lender Cash Converters International Ltd (ASX: CCV) will be feeling uneasy today after the company requested its shares be placed in a trading halt shortly after the market opened.
The company didn't provide any details as to why the trading halt was requested, other than the ominous fact that it is "pending the release of an announcement by the Company".
It's possible that the trading halt could relate to a class action which is reportedly being filed with the Federal Court today in relation to the company's lending practices in Queensland.
According to a report by Perth Now, the class action will seek to recover up to $30 million for Queensland-based borrowers who believe Cash Converters unfairly made borrowers pay a high brokerage fee in order to sidestep the state's laws capping interest rates for personal loans at 48% per annum. The company doesn't charge brokerage fees in other states, but in the Queensland cases charged more than a third of the principal amount borrowed.
As quoted by Perth Now, special counsel for Maurice Blackburn, Miranda Nagy, said "We will allege that when lending laws in Queensland changed in mid-2008, Cash Converters contrived to avoid the interest cap, introducing brokerage fees."
Indeed, this isn't the first time that Cash Converters has been targeted by unhappy customers. Just last month the company said that it had been ordered to pay $20 million into a fund for distribution to members of a class action in New South Wales – a cost that will be reflected in the company's upcoming financial report.
Although Cash Converters seems like a reasonable buy at its current price of 70 cents per share, investors also need to acknowledge the considerable risks associated with the investment. Payday lending is a strictly regulated industry and tougher regulations could impact its future earnings potential. The same goes for fellow payday lender Money3 Corporation Limited (ASX: MNY) which has shed nearly a third of its market value over the last five months.
Cash Converters' shares will remain in a trading halt until an announcement is made, or until the commencement of normal trading on Monday, 3 August. Watch this space for any updates you need to know about.
