Desperate shoppers owing money on up to 800 buy-now, pay-later purchases are sounding out Cash Converters about borrowing high-cost cash to cover their debts.
The WA-based group, which has been reducing its reliance on riskier and reputationally fraught payday lending in favour of longer-term loans, says it is fielding more enquiries from BNPL customers struggling to cover their obligations.
“There’s a large cohort of Australians really overloaded with BNPL, based on what we are seeing,” Cash Converters chief executive Sam Budiselik said. “It’s scary.”
At the “extreme” end, he said, “we’ve got (lending) applications coming to us that list 800 BNPL transactions in 90 days of banking, and we can’t responsibly meet their needs”.
There is no denying BNPL has emerged as a major competitor to the micro-lending sector in recent years.
But having been scrutinised over their lending practices over the past decade, Cash Converters and other payday or micro lenders, together with consumer groups, want BNPL providers subjected to the same responsible lending laws that govern them and the big banks.
As they don’t pay interest, BNPL transactions are not classified as credit and therefore not covered by the National Consumer Protection Credit Act.
However, Mr Budiselik said promotion of the BNPL sector masked the overdue fees payable on transactions, meaning their ultimate cost was sometimes equivalent to or more expensive than Cash Converters’ loans.
“If we are giving people money we need to ensure they are paying down those obligations, and doing so responsibly,” he said.
“(BNPL) needs to be regulated, it’s just totally out of control.”
Mr Budiselik was speaking as Cash Converters announced a 46 per cent fall in annual net profit to $11.2 million after a previously-disclosed writedown against its network of pawn stores to cover COVID-19 closures.
Stripping out the impact of the impairment, operating profit was 26 per cent better at $19m.
Revenue gained 22 per cent to $245.9m as demand for the company’s loans increased and shoppers returned to its 155 Australian stores chasing second-hand goods.
Mr Budiselik said that with unemployment at record lows, Cash Converters’ traditional customer base was “in good shape” and still easily able to meet their repayment obligations.
“But the cost-of-living pressures really do start to bite, so we are 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 per cent to $213.9m during the year to June 30, with its priority medium term loans growing 54 per cent to $76.1m to overtake the short-term, or payday, loans for the first time.
“We are seeing elevated demand for credit, particularly in the second half, as people are trying to meet increased expenses, or they’ve started to travel and see family and are moving around again,” Mr Budiselik said.
Customers borrow an average $1200 for nine months under Cash Converters’ small amount credit contracts (SACCs) to cover expenses until their next payday for the likes of school excursions or whitegoods repairs.
The average loan under the medium amount credit contract (MACC) runs to $3000 for 16 months.
Cash Converters declared a final dividend of 1¢ a share.