Q: CIBC analysts have suggested one of the reasons they downgraded this name today was potential concern of more and lower restrictions on the maximum interest that company’s like Goeasy can charge.From 35% to 30% for example.How likely do you think this potential/fear could be?
5i Research Answer:
It is always hard to pre-guess politics, but the sector is an easy target for politicians looking to score points with voters. But, there is not a lot of wiggle room left. Retail credit card companies (a more powerful lobby group) charge 21% right now and only see small charge offs. GSY has higher charge offs and deserves a higher rate than a credit card. Also, at some point, ironically lowering max rates is not good for struggling borrowers--some may be forced to go to loan sharks and/or other non-regulated forms of borrowing. But, based on what we see so far, there is probably a 50/50 chance of some minor changes to legislation still to come.