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Cash Converters gets speeding ticket

It hasn’t been a good month for low-doc lending and second-hand goods trader Cash Converters International (ASX: CCV).

The stock has been a popular one amongst a number of small-cap fund managers and up until this month it looked like a good call with the shares touching an all-time high of $1.57 in April. It’s been all downhill since then with the company yesterday receiving a “please explain” from the stock exchange’s compliance arm as the company’s share price raced down to close at $1.02.

The concern for investors is the Consumer Credit Legislation Bill which came into force in March this year and brought with it certain regulatory changes. According to management, this has hurt Cash Converters’ near-term profitability as customers adjust to the changes, but longer-term management still sees a positive growth outlook.

Foolish takeaway

With the potential for further regulation of the ‘micro-lending’ sector, investors may find it safer to instead focus on companies that provide rental and purchase solutions to customers.

Silver Chef (ASX: SIV) is one such company. It has been a stellar performer in the past 12 months with its share price rocketing 116%. Silver Chef focuses on the long-term rental equipment market, particularly to the hospitality industry. FlexiGroup (ASX: FXL) meanwhile has key partner agreements with a number of national stores including Harvey Norman (ASX: HVN) for the provision of purchase finance.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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