Consider the following events:
- In March 2014, the Consumer Financial Protection Bureau issued a Civil Investigative Demand. The CID asks the company to provide documents related to loans it has made. According to the company, the Bureau issued the CID "with the stated purpose of investigating whether we have been or are engaging in unlawful acts or practices in connection with the marketing, offering, or extension of credit in violation of certain federal consumer financial laws and regulations." In the following February, World reports that the CFPB's investigation is still ongoing.
- In September 2014, KPMG begged out of its contract to serve as World Acceptance's accounting firm.
- On June 2nd, 2015, long-time CEO Sandy McLean retired. McLean has been with the company for 26 years. He was also the Chairman of the Board.
- On June 22nd, James Walters, Senior Vice President for the Southern Division, resigned from his position. Whereas the CEO was in his sixties, Mr. Walter is only 47.
The CEO, COO, and CFO have all left in a period spanning only 21 months.
Are these kinds of departures meaningful? While no one can say for sure, there is certainly a relationship between regulatory intervention and senior level job security. Indeed, the last time that World announced the resignation of a C-level officer, it took place only months before the CFPB's announcement of its CID. Mark Roland, the Chief Operating Officer and President, left in November 2013. Less than seven weeks prior, the SVP and Chief Financial Officer announced her decision to retire.
Could it be performance?
Is there reason to believe that these actions are not the product of impending regulatory doom, but instead because of core operations? The numbers would say that this is a possibility. Consider:
- From 2004 to 2013, contractual loan delinquency never exceeded 4.4 percent. As of the end of March, that number stood at 7 percent.
- Loan originations grew by an average (CAGR) of 14.2 % per annum from 2005 to 2013. In the last two years, the rate of growth has turned negative and is currently shrinking at a rate of 4.5 percent.
- Between 2005 and 2013, gross loans receivable increased by about 15 percent per year. But in the last year, their portfolio has shrunk.
- Even though loan delinquency is increasing on both a contractual (borrower has made a full payment in the last 60 days) and recency basis (borrower has made a payment of any amount in the last 60 days), the company has elected to charge fewer loans off.