Financial services stocks have suffered greatly since the inception of the Consumer Financial Protection Bureau. While the office took some deserved enforcement action, it was an irresponsible body that overstepped its powers on more than one occasion.
As a result, many legitimate businesses found themselves targeted by overzealous enforcement. The additional level of compliance that financial services stocks have had to endure since the inception of the CFPB has cost enormous sums of money – money that could have been spent on growing businesses instead.
With the resignation of Richard Cordray as head of the office and a pro-business administration in power, the CFPB seems considerably weakened. He has already dropped a lawsuit and I expect many enforcement and rule-making actions to be cut short.
Here are seven actions that are likely to behave very well with the CFPB on life support.
Shares to buy: Enova (ENVA)
Enova International, Inc. (NASDAQ:ENVA) is the first of these financial services stocks.
Enova was growing its profits and cash flow at an astonishing rate before the CFPB decided to meddle in short-term consumer advances, also known as payday loans. ENVA’s stock has only been pulled by income from online lending in the 30 or so states that allow payday loans.
Since then, ENVA has successfully switched to different products in the US and UK, but if it reactivates its short-term loans, the stock could more than double from here.
It was previously $ 25 per share, but is expected to rise over time once the market aims higher again.
Shares to buy: CURO Group (CURO)
CURO Group Holdings Corp (NASDAQ:CURO) is very similar to ENVA, except that it also offers loans in the UK and Canada, and most of its loans have been made in physical stores.
Today, 50% of its income comes from long-term loans and only 14% from payday loans in the United States. at a much higher volume than it currently does.
Even with the market pullback in recent days, CURO is still up 20% on the year, which could help it maintain its momentum.
Shares to buy: Encore Capital Group (ECPG)
Encore Capital Group, Inc. (NASDAQ:ECPG) is the next category of such financial services stocks.
ECPG is a buyer of delinquent loans of all kinds, in markets in the United States and abroad. You know there are debts people default on, from credit cards to bankruptcy filings, and someone has to collect them. Encore is one of those companies.
The debt collection activity had been the subject of close scrutiny by the CFPB and the companies had therefore remained blocked on bad debts. As a result, debt sellers reduced their sales, causing Encore’s collection portfolio to shrink. Its all-time high was $ 50 and ECPG is on the verge of recovering that level, and is expected to go even higher.
Shares to buy: PRA Group (PRAA)
PRA Group, Inc. (NASDAQ:PRAA) largely reflects what I said before about other financial services stocks. More specifically, it is just like ECPG as it is also a global debt collector. However, she had experienced even more difficult times and had to sell various divisions and saw her income drop considerably because she did not have as much debt as she could collect as she struggled to find sellers.
So an incredibly profitable business has seen its net income cut in half. These profits should start to rise again with less control from the CFPB.
PRAA has already reached $ 63 per share. It is now at $ 34, so there is a lot of expectation on the upside.
Shares to buy: green point (GDOT)
Green Dot Company (NASDAQ:GDOT) is a major player in prepaid cash debit and recharge cards in the country.
Americans now charge around $ 300 billion on prepaid cards, a tenfold increase since 2009. The CFPB published a rule in 2016 to limit fees on these cards. As with all price controls, the result would simply force users to abandon the product altogether and kill the industry.
Fortunately, the rule was supposed to go into effect on April 1 and now it can be killed, as it should. GDOT recently hit its all-time high of years ago and it looks like it will erupt once the market recovers.
Stocks to buy: Wells Fargo (WFC)
Wells Fargo & Company (NYSE:WFC) was likely to see very severe, if not much worse, compliance fines due to revelations that he had opened bank accounts for people without their permission. It had already suffered $ 185 million in fines, but it was all the more likely to happen as more fraudulent accounts were discovered.
There will always be compensation for various agencies and lawyers ahead – in fact, the Federal Reserve recently cracked down on WFC.
Yet, with the dismantling of the CFPB, WFC can still save very significant fees and costs.
Shares to buy: World Acceptance Corporation (WRLD)
Global acceptance company (NASDAQ:WRLD) dodged a major bullet and is a surprise entry into this group of financial services stocks. The CFPB had amassed all kinds of information about the company’s questionable refinancing strategies for installment loans and for its credit insurance plans. Honestly, I expected fines in the hundreds of millions and that WRLD would not be allowed to continue operating.
For some reason, however, the investigation recently ended without any enforcement action.
Considering the feather he would have been in Cordray’s cap, I remain puzzled as to why this never happened. The business itself has shrunk organically, but with debt repayment and the ability to continue in business, WRLD has an advantage.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focused on consumer credit and the manager of the Liberty portfolio at www.thelibertyportfolio.com. He holds shares in ENVA, CURO, ECPG, PRAA. He has 23 years of stock market experience and has written over 1,800 articles on investing. Lawrence Meyers can be contacted at [email protected].