World Acceptance Corp. (NASDAQ:WRLD) received a civil investigative demand (CID) from the U.S. Consumer Financial Protection Bureau (CFPB) yesterday which contained “broad requests for production of documents, answers to interrogatories and written reports related to loans made by the Company and numerous other aspects of the Company’s business” to determine whether World Acceptance Corp has been violating the Consumer Financial Protection Act or the Truth in Lending Act.
The CID came to light today in a Securities and Exchange Commission filing, and World Acceptance Corp. (NASDAQ:WRLD) has seen its stock price drop almost 20% in less than two hours since then. World Acceptance had been building back towards its high of $107.98 in late 2013 before the news came out, but the risk of government action has always hung over the company.
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World Acceptance Corp “egregious and downright sleazy”: Citron
Citron Research has been bearish on World Acceptance since 2009 when its stock was at $20, saying that it “systematically abuses the economically disadvantaged with its egregious and downright sleazy lending tactics” earlier this year, rating it as a “sub-sub-sub-prime investment.”
When an article on Pro Publica detailed the alleged abuses that pushed effective interest rates into triple digits, it got even more people’s attention. The CFPB had put payday lenders out of business for taking advantage of people, and it seemed inevitable that the installment loans that World Acceptance Corp. (NASDAQ:WRLD) has been making would eventually get their attention. Shortly after the article came out, Senator Ron Wyden (D, OR) grilled CFPB representatives over the alleged World Acceptance loan practices, saying that he felt they were skirting the law to regarding payday loans.
World Acceptance Corp stock had a rocky 2013
CFPB associate director David Silberman wouldn’t comment specifically on World Acceptance Corp. (NASDAQ:WRLD), but he did say that the CFPB had taken action against the use of add-ons that raised effective interest rates to unacceptable levels in the past. This pressure caused World Acceptance stock to fall from the mid $90s to the mid $70s, but the price recovered as the company left the headlines, with another drop in November after an earnings miss.
It’s not clear why the CID comes now, and the CFPB doesn’t usually discuss the details of their investigations, but anyone invested in World Acceptance Corp. (NASDAQ:WRLD) should have realized that there was high regulatory risk. Of course, investors who are confident that the CFPB CID will come back clear can increase their position while the stock price is depressed.