Whitney Tilson: World Acceptance Scummiest Business in Recent Memory

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Whitney Tilson is shorting World Acceptance Corp. (NASDAQ:WRLD). World Acceptance is a Greenville, SC-headquartered branch-based lender offering small loans to the unbanked and under-banked consumer in both the U.S. and Mexico. Most of World’s loan originations and revenue come from two primary products: a small loan for less than $1,000 with a payment term of 8 to 12 months and to its more creditworthy borrowers, and a larger small loan of between $1,000 and $3,000 with a payment term of 18 to 24 months.

Whitney Tilson: World Acceptance Scummiest Business in Recent Memory


Whitney Tilson believes that the company is a predator, and has one of the most despicable business models Tilson has seen since the subprime crisis. Whitney Tilson has made some winning bullish bets lately on companies such as Spark Networks Inc (NYSE:LOV), which owns JDate.com, Spark.com and ChristianMingle.com. Whitney Tilson has also been a long time bull on Netflix, a stock which has seen its stock soar in value over the past few months, and netted Carl Icahn close to $1 billion. Below are Whitney Tilson’s comments (received by ValueWalk via email) on World Acceptance Corp. (NASDAQ:WRLD) along with a recent report on the company from the CONSUMER FINANCIAL PROTECTION BUREAU.

Whitney Tilson on World Acceptance Corp. (NASDAQ:WRLD)

I confidently predict that ProPublica will win another Pulitzer for this series of articles on installment lender World Acceptance (WRLD) (disclosure: I’m short the stock). It’s an extraordinary piece of journalism that thoroughly exposes a truly predatory company. Reading the details about what the company does makes me sick, especially how they target members of the military. I haven’t seen anything this scummy since the worst of the subprime mortgage lenders at the peak of the housing bubble.

 Whitney Tilson

For more on the investment angle (beware: nearly 40% of the float is short), here’s a write-up of WRLD on ValueInvestorsClub.com from last September: www.valueinvestorsclub.com/value2/Idea/ViewIdea/78821, and Citron Research has been covering the story from quite some time. Their take on the ProPublica story is here: www.citronresearch.com/world-acceptance-what-happens-if-credit-insurance-disappears. Citron’s earlier articles from 2009 are here:www.citronresearch.com/world-acceptance-corp-nasdaqwrld-their-business-model-is-a-borderline-legal-ponzi-scheme-whose-day-of-reckoning-has-finally-come, here:www.citronresearch.com/world-acceptance-corp-wrld-part-deux, and here:www.citronresearch.com/bad-news-for-world-acceptance-corp-the-state-by-state-loophole-business-is-now-going-out-of-business


1) Here’s an excellent summary posted on a message board:

The investigative research group ProPublica, which won the Pulitzer for its reporting on subprime CDOs (among other Pulitzers), is out with a tour de force of investigative journalism documenting the massive ongoing fraud at WRLD (see:www.marketplace.org/topics/wealth-poverty/beyond-payday-loans). They’ve essentially given the CFPB grounds for a devastating enforcement action against WRLD. Recall that the CFPB’s first two enforcement actions were against Capital One and Discover for deceptive sales of credit insurance.

The article details how employees are trained to fraudulently require the customers purchase optional credit insurance, and how WRLD’s POS system won’t even allow customers to opt-out of credit insurance. Talk about deception! I believe 50%+ of WRLD’s net income comes from credit insurance. Perhaps even more damning, the article also exposes how WRLD’s loan book is a giant ponzi-accounting fiction. According to employees, 30% of loans are late each month, but employees are “drilled” to repeatedly refinance loans to “buy time.” But, WRLD says only 2.5% of its loans are delinquent, and it trades at over 3x book value.

Comments on Deceptive Sales of Credit Insurance:

  • ·         “Former World employees say they were instructed not to tell customers the insurance is voluntary.”
  • ·         “World can legally understate the true cost of credit because of loopholes in federal law that allow lenders to package nearly useless insurance products with their loans and omit their cost when calculating the annual rate.”
  • ·         “As part of her loan, Sutton purchased credit life insurance, credit disability insurance, automobile insurance and non-recording insurance. She, like other borrowers ProPublica interviewed, cannot tell you what any of them are for: “They talk so fast when you get that loan. They go right through it, real gibberish.””
  • ·         “Every new person who came in, we always hit and maximized with the insurance,” said Matthew Thacker, who worked as an assistant manager at a World branch in Tifton, Ga., from 2006 to 2007. “That was money that went back to the company.””
  • ·         “When insurance products are optional — meaning the borrower can deny coverage but still get the loan — borrowers must sign a form saying they understand that. “We were told not to point that out,” said Thacker, the former Tifton, Ga., assistant manager.”
  • ·         “You were supposed to tell the customer you could not do the loan without them purchasing all of the insurance products, and you never said ‘purchase,’ ” Buys recalled. “You said they are ‘included with the loan’ and focused on how wonderful they are.””
  • ·         A regional supervisor threatened to discipline a sales person for advising customers that the insurance was voluntary.
  • ·         World’s systems don’t let a customer to decline the optional insurance: “But World soon made it harder to remove the insurance premiums, Buys said. She couldn’t remove them herself but instead had to submit a form, along with a letter from the customer, to World’s central office. That office, she said, sometimes required borrowers to purchase the insurance in order to get the loans.”

Repeat Refinancing of Delinquent Borrowers:

  • ·         “In every World office, employees say, there were loan files that had grown inches thick after dozens of renewals.”  “That’s [World’s] favorite phrase: ‘Pay and renew, pay and renew, pay and renew,'” Simmons said. “It was drilled into us.”   It’s a tempting offer: Instead of just scrambling for the money to make that month’s payment, the borrower gets some money back. And the renewal pushes the loan’s next due date 30 days into the future, buying time.”
  • ·         “For Sutton, making her monthly payments was always a struggle. She remembered that when she called World to let them know she was going to be late with a payment, they insisted that she come in and renew the loan instead.”
  • ·         WRLD’s credit quality is a fiction, a substantial number of customers can’t repay and are repeatedly refinanced.  “At World, a normal month begins with about 30 percent of customers late on their payments, former employees recalled.”

Threatening customers in Violation of FTC rules:

  • ·         “If the phone calls don’t work, the next step is to visit the customer at home: “chasing,” in the company lingo. “If somebody hung up on us, we would go chase their house,” said Kristin from Texas.  The experience can be intimidating for customers, especially when coupled with threats to seize their possessions, but the former employees said they dreaded it, too. “That was the scariest part,” recalled Thacker, a former Marine, who as part of his job at World often found himself driving, in the evening, deep into the Georgia countryside to knock on a borrower’s door.”  “Visits to the borrower’s workplace are also common. The visits and calls at work often continue even after borrowers ask the company to stop, according to complaints from World customers to the Federal Trade Commission. Some borrowers complained the company’s harassment risked getting them fired.”
  • ·         WRLD also threatened to collect personal possessions pledged as collateral even though the FTC bars pledging “household goods” such as a TV and furniture.

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