Cash Converters blames Covid-19 and Government red tape for staff layoffs

Pawn business Cash Converters has laid off 80 staff. Photo / File

The country's largest pawnbroker and payday lender has shut four stores and laid off 80 staff - blaming the Covid-19 lockdown and significant increases to compliance costs because of of regulatory changes for small loan lenders.

Cash Converters closed its Birkenhead, Wairau Valley and New Lynn stores in Auckland and Christchurch's Papanui on May 31 - a day before the Government's new regulation came into force.

Changes to consumer credit law introduced a daily interest rate cap of 0.8 per cent on high-cost loans and a ban on lenders offering more credit to an applicant who has taken two high-cost loans in the past 90 days.

And mobile traders and truck shops now have to adhere to responsible lending requirements meaning they will have to assess whether someone can afford to borrow before selling any goods on credit.

Erin White, national personal finance manager at Cash Converters New Zealand, said it was the first time the business had to lay off staff in the 25 years it had operated in the country.

"Cash Converters has been operating in New Zealand for more than 25 years and during that time we have had to adapt to a variety of external factors.

"The challenging Covid-19 situation and significant increases to compliance costs brought about by regulatory changes for small-amount lenders have impacted 80 jobs across New Zealand and the closure of four stores."

The franchise business, which is 25 per cent owned by ASX-listed Cash Converters International, still has 24 stores throughout New Zealand and about 300 employees.

The four that closed were owned by the corporate. Those still open are split between 12 owned by the corporate and 12 franchised. White said no more store closures were planned.

Figures from the Ministry of Social Development show Cash Converters claimed more than $1 million in wage subsidies for 145 staff during the lockdown.

Financial data for the New Zealand business isn't publicly available but accounts for Cash Converters International show the business appeared to be growing before Covid-19 hit.

The New Zealand business contributed AU$1.844m ($1.98m) to the Australian shareholder in the six months to December 31, up from $930k in the previous corresponding period.

It also shows the Australian business lent AU$2.928 million to Cash Converters New Zealand during that period.

In 2018 the Government began to tighten the laws around lending to better protect Kiwis from getting into too much debt. The 2019 redit Contracts Legislation Amendment Act means lenders cannot charge more than 0.8 per cent interest and fees per day for a loan and the cost of credit is capped at 100 per cent meaning someone who borrows $500 will never have to pay back more than $1000, including all fees and interest.

Lenders also have to make reasonable inquiries to make sure a borrower can repay the loan without substantial hardship and keep records to show that the loans are affordable and suitable for borrowers, and fees are not unreasonable.

High-cost loans are those that charge more than 50 per cent interest a year.

Cash Converters' website says it charges 49.95 per cent a year for loans between $500 and $3000 for repayment between three to 12 months. On top of that, it charges a $145 establishment, a $4 weekly account-keeping fee and those who fail to make payments are charged a $13.95 default fee.