Finance firm of great interest to many

BY BEN HEATHER

Instant Finance chief executive Richard de Lautour does not look much like the smiling faces that feature so prominently in the company's adverts. Standing in the company's sparse South Island branch in South Christchurch, he says he is not photogenic and quickly apologises for being under-dressed, despite wearing a tie.

It is early days for the Christchurch branch which opened last month and is still using makeshift furniture leftover from its previous tenant and one-time Instant Finance competitor, GE Money.

Directly outside the office, commuters mill about a bus stop on busy Colombo St. Down the street, Instant Finance's neighbours include a party pill outlet, a second-hand furniture shop and an op shop, its window sporting a sign declaring "WINZ QUOTES ACCEPTED".

Asked about the location of the branch, de Lautour is upfront about Instant Finance's core customers.

"Many of our customers don't have credit cards and that's probably a good thing ... I don't want to sound derogatory about our customer base, but typically our customers are people that haven't historically managed their finances very well."

South Auckland accounts for about 40 per cent of Instant Finance's 26,000 customers, and de Lautour's conversation is littered with references to "low socio-economic demographics" and "in-need" families.

Aiming its high-interest loans, typically less than $2500, at the poor has earned the firm much criticism, particularly since it recruited ruby league superstar Stacey Jones as its front man.

Last year, the Advertising Standard Authority received four complaints about an Instant Finance television advert. The complaints, which were not upheld, accused the company of targeting Pacific Islander communities already plagued by debt problems.

Last month, TV3's Campbell Live ran a story confronting Stacey Jones with suggestions Instant Finance had traded on his profile to charge vulnerable people high interest rates while hiding its fees.

Like the television advertisement, website and brochures, Instant Finances' Christchurch office is plastered in Jones' likeness, including a large cutout by the door, grinning at customers as they enter.

De Lautour says the Campbell Live piece was unbalanced and backs using Jones as an aspirational figure for Instant Finance's customers.

"People felt that was targeting vulnerable people but the difficulty you have is you've got a duty ... to your shareholders to make sure your marketing is targeted."

Jones' had read the account books and understood Instant Finance was helping families in need, he says.

De Lautour insists Instant Finance is not a loan shark, repeatedly calling it a "needs-based" service for people with nowhere else to turn.

"You're in South Auckland, you're a mum with three kids and the washing machine doesn't work, what do you do?"

Most loans are for essentials, such as car repairs, replacement whiteware or weddings, although he dodges a question about whether Instant Finance has an ethical lending policy.

"We get very sensitive when we sense there is a gambling problem but it's very difficult. Often people don't tell us what the money is for. We have to make a judgment call."

Whatever the reasons for lending, there is still the matter of the interest rate. For most customers it will be a whopping 29.95 per cent.

That is higher than the rate for any credit card in New Zealand or the hire purchase rates on a two-year interest free flat-screen television.

In addition to interest, like most lenders Instant Finance charges its customers a "fee", which in itself generates half the company's revenue. For small loans these fees can significantly add to the financing costs.

Instant Finance's website does not mention interest rates and has no specific figures for fees. It does have several green buttons encouraging visitors to "apply now".

De Lautour says interest rates are not important for small short-term loans, where the weekly repayment difference between a 19 per cent and 29 per cent loan over two years is a "packet of fags a month".

Disclosing details online would mean an "interest rates war " with competitors. All fees and interest rates are made clear to customers when discussing loan applications, he says. "For a lot of our customers there is only one thing that concerns them and that's what can I get and what do I have to repay on a weekly basis."

De Lautour is unapologetic about the high interest rates, which he says is necessary to cover the cost of managing multiple high-risk loans with 120 staff and 18 branches.

"We do charge pretty high interest rates ... If you don't charge those sort of rates you'll go broke."

Despite the high cost of borrowing, de Lautour says only 5.8 per cent (1100) of Instant Finance's customers were in default for more than 90 days. There was a "misconception" that the company had an army of debt collectors knocking down doors, but in the year to March 31, it carried out repossession only 230 times, representing less than 1 per cent of all its customers. In most cases the property was eventually returned and Instant Finance rarely went as far as taking the matter to court, he says.

The high interest rates also reflects the rates Instant Finance has to pay its lender, United States-based Fortress Credit Corp, with which it has a $70 million credit facility.

When finance companies started dropping like flies in 2006, Instant Finance decided it would be wise to shed some of the $60m in public debentures in favour of bulk funding from Fortress. "By that stage, investor's confidence had, quite rightly, gone."

In July last year, Instant Finance's application to the Government's guarantee scheme was declined, prompting it to pay out the last of its debenture holders in August last year and rely completely on Fortress.

"We couldn't compete with the guy down the road who had a government guarantee."

De Lautour says he is proud Instant Finance never defaulted on payments to investors, even as other finance firms with questionable loan books were still soliciting investments.

But abandoning public investment had increased the price of funding and interest rates charged to customers.

Regardless of the criticism, the high interest rates have yet to deter the "low-wage earners and beneficiaries" that continue to flock to Instant Finance earning it a $3.3m before tax profits in the year to March 31. That might have something to do with a certain former rugby league star.

INSTANT FINANCE FACTSHas: 18 branches with 123 staff, as well as an Easy Drive second-hand car dealership in Manakau. Established: 1971 in South Auckland Total loans: 18,756 Total customers: 26,346 (some loans have multiple guarantors) Average loan: $3500 Loan range: $500 Interest rates: between 19.5 per cent and 29.55 per cent (excluding fees). Average loan term: 29.6 months Net profit: $3.3 million for year ended March 30, 2010, up 200 per cent on the 2009 result, which was hit by one-off financing costs. Funded: through a $70m funding line from United-States based Fortress Credit Corp, which can be lifted to $100m. Shareholder equity: $30.4m, including redeemable preference shares. Owned by: Biggest shareholder are the Auckland-based Nausbaum and Mitchell families, although both chief executive Richard de Lautour and lender Fortress have small stakes.All figures current as of March 31, 2010 --------------------

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