For The Cash Store Financial Services Inc., handing out money isn?t making them as popular as you might think.
The publicly-traded company that provides short-term cash advances, largely to people who can?t obtain them from traditional banks, is now embroiled in a fight for its operating licence with the consumer protection branch of the Ontario government.
The dust-up comes on the heels of other issues for the Edmonton-based payday loan company. Last year, the firm had to restate financial results for two quarters, and was hit with a proposed class action lawsuit in four provinces that seeks a refund of money paid by consumers in excess of the loan principal.
Now, the registrar for payday loans in Ontario has issued a proposal to revoke the Cash Store?s licences in the province. The Edmonton-based firm said it has requested a hearing to challenge the Ontario government?s move.
In a statement late Tuesday, the Cash Store said it recently introduced line-of-credit products in Ontario, which will take the firm and related company Instaloans Inc. out of the payday loans business in the province. As a result, ?the Registrar?s proposal to revoke the Companies? payday loan licenses is not expected to cause any interruptions to the Companies? current operations.?
However, in a news release just last week, the Cash Store had said it intended to maintain its payday loan licence in Ontario ?at least until such time that the success of the new product offering has materialized as the Company anticipates.?
Since September of 2011, the Consumer Protection Branch of the Ministry of Consumer Affairs has been demanding that Cash Store deliver payday loans in cash rather than electronically, expressing concerns that debit cards make the already costly loans more expensive. But Cash Store counters that electronic distribution is ?much safer and efficient? and says it is ?unwilling to place employees and customers at risk of physical harm.?
The firm said the Ministry is also attempting to prohibit the Cash Store Inc. and Instaloans Inc. from selling products other than payday loans, ?onerous restrictions? the Cash Store says it is ?not prepared to accept.?
The Cash Store Financial, which operates 512 branches across Canada and 25 branches in the United Kingdom, and is listed in both Toronto and New York, also offers private-label debit cards and bank accounts.
In October, the firm was hit with a proposed class action lawsuit in four Canadian provinces. The suit, which has not been certified and whose claims have not been proven, alleges that the payday loans provided by Cash Store failed to meet the applicable laws governing payday lenders in Ontario, Saskatchewan, Alberta and British Columbia. The Cash Store has said it plans to ?vigorously? defend itself.
Meanwhile, ratings agency Moody?s Investors Service put the Cash Store?s ratings under review this month, citing the 2012 financial restatements and an investigation by an independent accounting firm retained by the board of directors.
The company?s share price has tumbled, falling from around $6 on the Toronto Stock Exchange in August to close at $3.59 on Wednesday, off about 10% on the day, as the company reported its latest wrangle and first quarter financial results.
While loan volume and loan fees both increased in the quarter, the Cash Store posted a net loss of $1.7-million for the period that ended Dec. 31, down from net income of $989,000 in the corresponding period a year earlier. The board of directors determined not to issue a dividend, as it had done in the fourth quarter.
The firm?s annual meeting is to be held on Thursday in Edmonton.
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