Financial services stocks have suffered quite a bit ever since the Consumer Financial Protection Bureau was created. While the bureau did hand out a few deserved enforcement actions, it was an unaccountable agency that overstepped its authority on more than one occasion.
As a result, many legitimate businesses found themselves targeted by overzealous enforcement. The amount of additional compliance that financial services stocks had to endure since the CFPB was created cost enormous amounts of money — money that instead could have gone to growing the businesses.
With Richard Cordray having resigned as the head of the bureau, and a pro-business administration in power, the CFPB looks to be significantly weakened. It has already dropped one lawsuit, and I expect numerous enforcement actions and rule-making to be cut short.
Here are seven stocks likely to do extremely well with the CFPB on life support.
Stocks to Buy: Enova (ENVA)
Enova International, Inc. (NASDAQ:ENVA) is the first of these financial services stocks.
Enova was growing earnings and cash flow at an astonishing rate before the CFPB decided to meddle in short-term consumer advances, also called payday loans. ENVA stock was driven by revenues from online lending only in the 30 or so states that permit payday loans.
Since that time, ENVA has successfully pivoted to different products in the U.S. and the UK, but if it turns on its short-term lending spigots again, the stock could more than double from here.
It previously reached $25 per share but should go higher than that over time once the market aims higher once again.
Stocks to Buy: CURO Group (CURO)
CURO Group Holdings Corp (NASDAQ:CURO) is very similar to ENVA, except it also offers loans in the UK and Canada, and most of its loans were made out of brick-and-mortar stores.
Today, 50% of its revenues are from longer-term installment loans and only 14% from payday loans in the U.S. That may also change, permitting CURO (formerly known as Speedy Cash) to offer its higher margin single-pay products in the U.S. at much higher volume than it currently does.
Even with the market pullback the last couple of days, CURO is still up 20% on the year, and this could help it keep up the momentum.
Stocks to Buy: Encore Capital Group (ECPG)
Encore Capital Group, Inc. (NASDAQ:ECPG) is the next category of these financial services stocks.
ECPG is a buyer of defaulted loans of all kinds, across markets in both the U.S. and abroad. You know there are debts that people default on, from credit cards to bankruptcy filings, and somebody has to collect them. Encore is one such company.
The debt collection business had been in the middle of scrutiny by the CFPB and so had the companies stuck with the bad debt. Consequently, sellers of debt cut way back on selling, so Encore’s collection portfolio was getting smaller. Its all-time high was $50 and ECPG is on its way to reclaiming that level, and should go higher still.
Stocks to Buy: PRA Group (PRAA)
PRA Group, Inc. (NASDAQ:PRAA) mirrors a lot of what I’ve already said about the other financial services stocks. Most notably, it is just like ECPG as it is also a worldwide debt collector. It had fallen on even harder times, though, and had to sell off various divisions and saw a significant decline in revenues because it didn’t have as much debt it could collect because it was having trouble finding sellers.
Thus, an incredibly profitable business has seen net income cut in half. Those profits should build back up again with lowered scrutiny from the CFPB.
PRAA once hit $63 per share. It’s now at $34, so there is plenty of upside waiting.
Stocks to Buy: Green Dot (GDOT)
Green Dot Corporation (NASDAQ:GDOT) is one of the big players in prepaid debit and cash reload cards in the country.
Americans now load about $300 billion onto prepaid cards, up tenfold since 2009. The CFPB issued a rule in 2016 designed to limit fees on these cards. As with all price controls, the result would simply force users to drop the product altogether and kill the industry.
Fortunately, the rule was supposed to take effect April 1, and now it may be killed, as it should be. GDOT recently bumped against its all-time high from years ago and looks like it will break out once the market gets its feet under it again.
Stocks to Buy: Wells Fargo (WFC)
Wells Fargo & Company (NYSE:WFC) was probably going to see some really harsh compliance fines, not to mention far worse, because of the revelations it had opened bank accounts for people without their permission. It had already endured $185 million in fines, but there was so much more likely to come its way as more fraudulent accounts were uncovered.
There will still be restitution to various agencies and lawyers coming — in fact, The Federal Reserve put the smackdown on WFC recently.
Still, with the CFPB possibly being dismantled, WFC may still save some very hefty fees and costs.
Stocks to Buy: World Acceptance Corporation (WRLD)
World Acceptance Corporation (NASDAQ:WRLD) has dodged a major bullet and is a surprise entry to this group of financial services stocks. The CFPB had amassed all kinds of information on the company’s questionable refinancing strategies for installment loans, and for its credit insurance plans. I honestly expected fines in the hundreds of millions and WRLD not being permitted to keep operating.
For whatever reason, though, the investigation was completed recently with no enforcement action.
Considering the feather it would have been in Cordray’s cap, I remain mystified as to why that never happened. The business itself has been organically shrinking, but with debt paid down, and being able to continue business, WRLD has upside.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He owns shares of ENVA, CURO, ECPG, PRAA. He has 23 years’ experience in the stock market, and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
