Shortly after emerging from a trading halt this morning, shares of Cash Converters International Ltd (ASX: CCV) soared 6%, before ending the day almost 10% higher.
Dating back to late 2013, the payday loans provider and second-hand goods dealer was caught up in a class action which alleged Cash Converters charged unlawful deferred establishment fees on small loans.
Whilst a verbal agreement by both parties was reached earlier in the week, the market today discovered that the company will be required to pay $20 million into a fund to be distributed to class action members.
"Class members comprise borrowers in New South Wales who took loans from Cash Converters subsidiaries and franchisees during the period 1 July, 2010 to 30 June, 2013," Cash Converters said in an announcement to the ASX.
In addition to the $20 million payment, Cash Converters will also be liable to pay legal costs capped at $3 million. Any distributions to members which remain in the fund after efforts to contact and pay them are exhausted will be returned to the company.
Cash Converters said the money will be funded from existing resources, expensed in the current financial year, and is deductible for tax purposes.
"Cash Converters is pleased to bring this litigation to a close without any admission of liability," the company said. "The settlement prevents further legal costs in the litigation, avoids the application of further executive and employee resources to the case and brings an end to the uncertainty surrounding this matter."
Should you buy Cash Converters shares?
As I noted yesterday, Cash Converters shares have been hit hard in recent times on the back of a number of internal and external headwinds.
One-off costs, media scrutiny and a distasteful capital raising have ultimately resulted in its share price significantly underperforming the broader S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), as well as peers Money3 Corporation Limited (ASX: MNY) and Thorn Group Ltd (ASX: TGA).
However, if you can stomach volatility and have a view to the long term, Cash Converters' current share price looks an attractive entry point for investors seeking income and growth.
