How I avoided disaster when a law change pushed me out of Queensland

Greg Ellis and Sean Teahan started Cash Doctors back in 2007, after the pair noticed there weren’t enough options for short-term credit apart from payday lenders. The company offers loans up to $600, which are mostly approved within an hour.

It’s been a huge success, with revenue above $8.6 million. But the company encountered a massive problem when a legal change meant it couldn’t operate in Queensland. Coming up with a solution required an interesting approach.

Can you give a little bit of background on Cash Doctors and how you guys started up?

Greg: Six or seven years ago, Shane and I were sitting around and talking about how there weren’t really any short-term credit options. If you use your credit card, it tends to escalate over time, and you’ll be paying interest on something you bought a couple of years ago. It requires a self-discipline that many people don’t have, and other than that, there are only payday lender options. We thought we’d come up with something a little different.

So the maximum loan time for us is 45 days. We wanted to come up with a certain model geared around those who do have jobs, and so we actually end up only lending to about less than 20% who apply.

The average person is on $40,000 net, and is employed – quite different from the traditional payday lender scenario.

And how are things going right now?

Pretty well right now. We’re just at the start of some interesting stuff and we’re concentrating on getting some new platforms out that will be a fast and convenient way of getting credit written.

So describe this problem you had with this legal change. What happened there?

Sean: It was pretty much early 2008, and fairly early days in the company. We were trying to get investors on board, because in order to lend money you obviously need to have the funds to spend it. We didn’t have a background in financial services, and we didn’t have enough money to have a full management team in place.

So we were doing a lot of this ourselves and, of course, in financial industries everything is very heavily regulated. We were spending a lot of money on internal legal teams.

And around that time in 2008, the Queensland government changed how you could charge interest. It was a huge blow, and affected maybe 25% of our business.

Could you give a bit more background as to the details of the legal change?

Greg: The Queensland government came up with this solution that they thought was hitting some dodgy dealers. But we were caught in the crossfire, because we weren’t the ones they were especially targeting.

They came up with a simple policy which doesn’t appreciate what you need to do to charge on a short-term loan. Our average loan only goes for 21 days, and so you can’t recover your costs by charging just a 10% or 12% annual percentage rate.

It was basically an interest rate cap of 48%.