Desperate shoppers who owe money on up to 800 purchases now and pay later ask Cash Converters to borrow high-cost money to cover their debts.
The WA-based group, which has reduced its reliance on riskier, low-reputation payday loans in favor of longer-term loans, says it is responding to more inquiries from BNPL customers who are struggling to cover their obligations.
“There’s a large cohort of really over-burdened Australians from BNPL, from what we’re seeing,” Cash Converters chief executive Sam Budiselik said. “It’s frightening.”
At the ‘extreme’ end, he said, ‘we have (lending) applications coming to us that list 800 BNPL transactions in 90 banking days, and we cannot respond responsibly to their needs’
It is undeniable that the BNPL has become a major competitor in the microcredit sector in recent years.
But after coming under scrutiny over their lending practices over the past decade, Cash Converters and other payday or micro-lenders, as well as consumer groups, want BNPL providers to be subject to the same responsible lending laws that govern 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 Credit Protection Act.
However, Mr Budiselik said promoting the BNPL sector hid late fees on transactions, which meant that their final cost was sometimes equivalent to or more expensive than loans from Cash Converters.
“If we give money to people, we have to make sure that they repay those obligations and that they do so responsibly,” he said.
“(BNPL) needs to be regulated, it’s just totally out of control.”
Mr Budiselik was speaking as Cash Converters reported a 46% drop in annual net profit to $11.2 million after a previously disclosed writedown of its pawn shop network to cover COVID-19 closures.
Excluding the impact of impairment, operating profit improved 26% to $19 million.
Revenue rose 22% to $245.9 million as demand for the company’s loans increased and shoppers returned to its 155 Australian stores in search of second-hand goods.
Mr. Budiselik said that with record unemployment, Cash Converters’ traditional customer base was “in good shape” and still able to meet their repayment obligations.
“But the cost of living pressures are really starting to bite, so we’re seeing more transactions in the retail sector, with people selling us more goods and more demand for small loans,” a- he declared.
Cash Converters’ loan portfolio grew 20% to $213.9 million in the year to June 30, with its medium-term priority loans increasing 54% to $76.1 million for exceed short-term or payday loans for the first time.
“We see a high demand for credit, especially in the second half of the year, as people try to cope with increased expenses, or they have started to travel and see their families and are moving again,” Mr. Budiselik said. .
Customers borrow an average of $1,200 for nine months under Cash Converters Small Credit Agreements (SACCs) to cover expenses until their next payday, such as school 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.