Unfortunately for its shareholders, the Thorn Group Ltd (ASX: TGA) share price has been one of the market's worst performers so far in 2017.
Year-to-date the company behind the Radio Rentals and Rentlo Reinvented brands has seen its shares fall by a remarkable 31%.
A significant portion of this decline came yesterday after media reports stated that the company's Radio Rentals business faces a class action on behalf of thousands of customers who were allegedly ripped off while leasing household goods.
According to the ABC, law firm Maurice Blackburn has said that the case could affect upwards of 200,000 consumers with a damage bill estimated to be up to $50 million.
The class action is based on the company's "Rent, Try, $1 Buy" offer. The idea behind the offer is that consumers can rent items like fridges or televisions and then potentially pay just $1 to buy the item outright at the end of the rental agreement.
However, according to the report, consumers can sometimes end up paying as much as four times the retail value of the item and still not own the product when the lease ends.
Maurice Blackburn has alleged that Radio Rentals targeted vulnerable people and treated customers unfairly and unconscionably. As a result, the law firm believes the company should pay them compensation.
The company responded to reports yesterday stating that it has not been served with any statement of claim, but should any proceedings be commenced they would be "defended vigorously".
Considering Thorn recently reduced its full-year profit guidance to between $24 million and $26 million due to penalties that are likely to be imposed from another investigation into its lending practices, this potential class action could not have come at a worse time.
Should the class action go ahead I wouldn't be surprised to see another downward revision to its full-year profit guidance.
In light of this I would avoid Thorn at all costs and focus on other shares in the industry such as Money3 Corporation Limited (ASX: MNY) and FlexiGroup Limited (ASX: FXL).
