Pawn Shops, Wire Transfer Companies Pay for World Acceptance Corp’s Sins

Shares of World Acceptance Corporation (WRLD) have plunged today after the company disclosed in an 8K that the Consumer Financial Protection Bureau has requested information about its sales practices.

Getty Images Consumer Financial Protection Bureau Director Richard Cordray

Shares of World Acceptance Corporation have plunged 19% to $79.19 at 3:43 p.m.–and dragged down anything remotely connected to payday lending. Cash America International (CSH) has dropped 7.8% to $39.35, pawn-shop operator EZCorp (EZPW) has fallen 3.7% to $12.33, and wire-transfer companies Western Union (WU) and MoneyGram International (MGI) have fallen 2.6% and 5.8%, respectively.

Sterne Agee’s Henry Coffey and team explain what’s happening with World Acceptance and why they continue to rate it Neutral:

1. Because of the company’s size (largest or second largest small loan company in the country), it was inevitable that the CFPB would be looking into [World Acceptance]. The question never was “if” in our minds but “when.”

2. The inquiry does not in itself mean there are issues that have been discovered by the CFPB…

4. With approximately 30% of the company’s loans underwritten with some form of credit insurance, it would be difficult for [World Acceptance] to continue to make these loans without this product…

6. The company indicated in its 8K that it believes it is in compliance with the law.

Shares of World Acceptance Corporation has dropped 9.2% so far this year, while Cash America International has gained 2.7%, EZCorp has risen 5.5%, Western Union has fallen 6.6% and MoneyGram International has declined 15% in 2014.