Desperate shoppers who owe money on up to 800 buy now and pay later purchases are canvassing Cash Converters about borrowing high-cost cash to cover their debts.
The WA-based group, which has been reducing its reliance on riskier and disreputable payday loans in favor of longer-term loans, says it is receiving more inquiries from BNPL clients struggling to cover their obligations. .
“There is a large cohort of Australians really overloaded with BNPL, based on what we are seeing,” Cash Converters CEO Sam Budiselik said. “It’s scary.”
At the “extreme” end, he said, “we have (loan) applications coming in that list 800 BNPL transactions in 90 days of banking, and we can’t responsibly meet their needs.”
It cannot be denied that BNPL has become a major competitor in the microcredit sector in recent years.
But after being scrutinized for their lending practices over the past decade, Cash Converters and other payday or micro-lenders, along with consumer groups, want BNPL providers to be subject to the same responsible credit laws that govern them. them and the big banks.
As they do not pay interest, BNPL transactions are not classified as credit and are therefore not covered by the National Consumer Protection Credit Act.
However, Budiselik said the promotion of the BNPL sector masked late fees payable on transactions, meaning their final cost was sometimes equivalent to or more expensive than Cash Converters’ loans.
“If we’re giving people money, we need to make sure they pay those obligations and do so responsibly,” he said.
“(BNPL) needs to be regulated, it is totally out of control.”
Budiselik was speaking as Cash Converters announced a 46% drop in annual net profit to $11.2 million after a previously disclosed write-down against its pawnshop network to cover COVID-19 closures.
Excluding the impact of impairment, operating profit was 26 percent better at $19 million.
Revenue rose 22 percent to $245.9 million as demand for the company’s loans increased and shoppers returned to its 155 Australian stores for secondhand items.
Mr. Budiselik said that with unemployment at record lows, Cash Converters’ traditional customer base was “in good shape” and could still easily meet their payment obligations.
“But cost-of-living pressures are really starting to kick in, so we’re seeing more transactions in the retail side of the business, with people selling us more goods and more demand for small loans,” he said.
Cash Converters’ loan book grew 20 percent to $213.9 million for the year to June 30, and its medium-term senior loans rose 54 percent to $76.1 million to outperform loans to short term or payday for the first time.
“We’re seeing elevated demand for credit, particularly in the second half, as people are trying to break even, or have started traveling and seeing family and moving again,” Budiselik said.
Customers borrow an average of $1,200 over nine months under Cash Converters’ Small Amount Credit Agreements (SACC) to cover expenses until their next payday for school field trips or appliance repairs.
The average loan under the Medium Amount Credit Agreement (MACC) is $3,000 for 16 months.
Cash Converters declared a final dividend of 1¢ per share.