The former director of the Consumer Financial Protection Bureau, Richard Cordray, was always an ideologue. He was opposed to payday lending back when he was the attorney general of Ohio. Once he joined the CFPB, which had no oversight, he began going after financial services companies of every stripe.
To be fair, some of them deserve to be signed and punished by the Bureau. There have always been some bad actors in the financial services sectors, and Cordray is to be applauded for taking some of them to the woodshed.
However, Cordray hated payday lending, and other such consumer loans. Despite years of faulty data collection and placing unnecessary burdens on the consumer finance industry to provide that data, he instituted rules that were designed to kill the entire short- and medium-term consumer loan industry in this country.
All of the Bureau’s white papers, press releases and other rhetoric never actually proved that these products because consumers harm. On top of that, he leveled multimillion-dollar fines against several of these companies, despite the fact that they had done nothing wrong. However, because of all the power granted to the Bureau, and that normal due process is not afforded to any of these companies, they got whacked.
Now Cordray is gone, running for governor of Ohio. He is been replaced by Mike Mulvaney who sees and understands that the CFPB’s unchecked power has to be discarded. He is effectively dismantling the bureau, and that is a good thing for financial services stocks.
Here are five stocks that already have benefited, and will continue to benefit, with the dismantling of the CFPB.
Stocks Benefitting from a Gutted CFPB: World Acceptance (WRLD)
World Acceptance Corp. (NASDAQ:WRLD) escaped a death sentence when Cordray left the bureau. For years, short seller Andrew Left of Citron Research believed the company’s business practices to be deceptive and dangerous to consumers.
At first I disagreed, but as the years went by and I did more research, I came to agree with him. We both felt that it seemed inevitable that the CFPB would not only fine WRLD tens of millions of dollars, but prevent its business model from being practiced any further, driving the company out of business.
For reasons I will never understand, Cordray never pulled the trigger on World Acceptance before he left, and Mulvaney has spiked the entire investigation. While World Acceptance is struggling with organic growth, it’s business as usual.
Stocks Benefitting from a Gutted CFPB: Enova (ENVA)
Enova International Inc (NASDAQ:ENVA) is an online, state-licensed, short- and medium-term consumer lender. However, before the CFPB rolled into town, it was a phenomenally successful, incredibly profitable short-term consumer loan operation only. It is, to my knowledge, the most successful state-licensed online operator there had ever been.
Enova has moved away from short-term consumer loans into longer-term installment loans, near-prime credit and business credit.
When the UK changed its laws, the company adapted and is now a leading provider of consumer credit over there. ENVA may very likely return to its domestic short-term model as well, taking it from profitable turnaround situation, into an enormously profitable company.
Stocks Benefitting from a Gutted CFPB: Moody’s (MCO)
It’s hard to believe that companies like Moody’s Corporation (NYSE:MCO) is still trustworthy, considering how badly they botched the rating of subprime mortgage packages.
The stock has done incredibly well this past year. Part of that is due to the fact that the economy is picking up, so there’s a lot more rating to be done by Moody’s. However, my sources tell me that the CFPB was eventually going to target Moody’s and S&P.
That makes perfect sense. The CFPB already targeted mortgages and how they are underwritten. It also went after the banks. It had to make sure that the rating agencies cleaned up their act, as well. With the bureau now gutted, I think MCO is going to have smooth sailing for a very long time to come.
Stocks Benefitting from a Gutted CFPB: Bank of America (BAC)
Bank of America Corp (NYSE:BAC) has taken a very long time to recover from the financial crisis. It had all kinds of toxic mortgages, it had to eliminate its dividend, it needed Warren Buffett to invest $5 billion to help shore up its finances, and its business was in disarray. However, the bank has been making tremendous strides since then.
That being said, the CFPB was a thorn in its side, as well as the sides of many other banks. That’s because it was monkeying around with the types of fees that the bank could charge across many of its products.
Although this affected every bank, with the CFPB out of the way, Bank of America stands to benefit the most from not having as much interference with its product pricing.
Stocks Benefitting from a Gutted CFPB: FirstCash (FCFS)
FirstCash Inc. (NYSE:FCFS) recently merged with Cash America International. The former used to be a payday lender and domestic pawnshop chain. The latter was offering more broad-based consumer financial services following the merger of the company’s decided to reduce the reliance, as FirstCash had done many years ago, on short-term consumer finance.
Their goal was to become the country’s largest pawn shop operator, as well as Central America’s largest pawn shop operator.
There was concern that the CFPB would eventually turn its attention on the pawnshops, despite the fact that activists and regulators have always seemed more comfortable with pawn shops rather than payday loans. Regulatory action on domestic pawnshops now seems extremely unlikely, giving the company a further all clear than it already had.
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 does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at [email protected].