Thursday, December 21, 2023

Nothing illustrates the financial plight of consumers more clearly than this news

 

I was not just worried, but horrified to read this press release.


Affirm, the payment network that empowers consumers and helps merchants drive growth, today announced it has expanded its services with Walmart to bring Affirm’s transparent and flexible pay-over-time options to self-checkout kiosks at over 4,500 Walmart stores in the United States. Now, eligible shoppers can easily pay over time for their favorite electronics, apparel, toys, and more in simple monthly payments when checking themselves out in-store.

“Recent Affirm research revealed that more than half of Americans (54%) are looking for retailers to offer a buy now, pay later option at checkout. Moreover, we’ve found that 76% of consumers would either delay or not make a purchase without Affirm,” said Pat Suh, Affirm’s SVP of Revenue. “Expanding our partnership with Walmart and bringing Affirm’s transparent monthly pay-over-time options to their self-checkout kiosks in the U.S. will help even more consumers increase their purchasing power during the holiday shopping season and beyond.”


There's more at the link.

The press release speaks of "electronics, apparel, toys and more".  It's the "and more" that worries the heck out of me.  Many US consumers are tapped out right now, struggling to make ends meet every month, living paycheck to paycheck - and sometimes relying on loan sharks to cover periods when they have nothing else.  This plan from Affirm seems to me to be nothing more or less than an attempt to cash in on the payday loan business by offering such credit - and, probably, the high interest rates associated with it - at the point of sale.

The trouble is, it will almost certainly get out of control for most lower-income consumers.  Say a family buys food for the month, but doesn't have enough money to pay for it.  It's so simple for the purchaser to simply click on the "Buy now, pay later" icon and defer payments over the next four months or so.  So far, so good . . . but what about next month?  And the month after that?  Their actual disposable cash income is now less than before, because they have to make provision to pay off the Affirm loan.  What happens when they have five, or six, or seven such loans?  It'll be the easiest thing in the world to run up debt, and a nightmare to pay it off.

I think this idea may have catastrophic implications for lower-income Americans.  It seems the authorities agree - and one wonders whether they'll take action to curtail it.


A top U.S. banking regulator on Wednesday warned banks to manage the risks to consumers posed by increasingly popular "buy now, pay later" financing for retail spending, saying the service creates pitfalls for retail shoppers.

As the year-end holidays approach, the statement from the U.S. Office of the Comptroller of the Currency, an independent arm of the U.S. Treasury, was the latest sign that federal regulators are scrutinizing the increasingly popular form of consumer credit.

. . .

Consumers with fewer dollars to spend are increasingly turning to "buy now, pay later" loans, with a record number borrowing nearly $1 billion this way during the annual Cyber Monday shopping spree alone, analysts say.


Again, more at the link.

To make matters even worse, interest rates on consumer credit cards are also spiraling out of control, largely due to the ever-increasing number of cardholders who default on their payments.  The credit card companies have to make provision to cover such losses.  The interest charged to non-defaulting customers provides that.


“Consumers are just waking up to the fact that they’re financing their spending by running up their credit cards, and that the interest on those credit cards is over the top, out of control, off the hook right now,” the chief economist of High Frequency Economics told CNBC’s “Squawk Box Europe” on Wednesday.

“That’s going to lead to, I think, a retrenchment in consumer spending, as we get into the new year ... the risk is, and I agree it’s a nontrivial risk, that consumers get into trouble,” Weinberg said, noting figures from the New York Federal Reserve showing a rise in delinquencies on credit cards.

“Real incomes have just started coming back again, and not by nearly enough to cover some of the increases in the debt burdens that we’re seeing. So credit to the household sector, consumer credit cards, that’s where the downside risk is.”


More at the link.

I'm sure most of my readers understand this, but if you have friends and family who don't, please point out to them - loudly, if necessary, and in words of one syllable - that banks and credit providers ARE NOT THEIR FRIENDS.  They're in existence to make money, and they make it off us.  If they offer us what seems like a wonderfully easy way to afford what we need, it's not for our benefit at all, but for theirs.  We're the sheep they want to shear.  We're the cash cows they want to milk.  So, when you see a company like Affirm claiming that their new credit arrangement will "help even more consumers increase their purchasing power", you may rest assured that they don't mean a word of it.  Rather, they're saying - in so many words - that it'll help them rake in even more money from the hard-pressed consumer.  They wouldn't be doing it if they couldn't achieve that.

I think this is an extremely dangerous economic development.  It illustrates very clearly the deepening gulf between the rich and the "average" American.  As I pointed out just last week:


We're dangerously, frighteningly close to an Argentina-style economic collapse.


When consumers have to use credit to fund their normal, everyday household needs - the food on their plates, the soap in their bathtubs, the clothes on their kids' backs - we're in very deep trouble indeed.

You can take that to the bank.

Peter


14 comments:

  1. After Dad died I had a wad of cash I was sitting on.
    Prudence said put it in savings and ponder for a while what best to do...
    I stuck about 1/3rd of it in gold coins sitting in my bedroom safe. The collateral that the 'value' is held in, USD sitting in my savings account, is decreasing in real actual purchasing power every single day. Assets, health, and wealth (i.e. REAL wealth, gold, silver, land) are the best place to store whatever savings 'value' you may hold. Cash or investments denominated in USD's will be losing purchasing power due to the unit it is measured in. Get your ship right, ASAP. You have months, not years. Cash in those CD's and DO SOMETHING with the money, anything.

    ReplyDelete
  2. note to Anonymous
    "...(i.e. REAL wealth, gold, silver, land)"
    taxes on land are also spiraling out of control these days;
    there's questionable wealth in holding onto an asset that's highly and immediately visible to government

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  3. Like many, I charge groceries and incidentals and pay it off for cash rewards each statement. These rewards are paltry compared to the finance charges that compound out of control for the unwary. And that's credit cards, this BNPL at the POS can't be cheaper. And I have no other mouths to feed. I sympathize, hungry children are right now serious and that bill is in the uncertain future. In the meantime, predatory credit nibbles at the middle class, who keep the rich comfortable and the poor hopeful. rick

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  4. As Anon said, hard assets are your hedge against a potential collapse. Can't take your house or land away from you if you own it outright. One thing I've noticed is at Walmart (our closest place to shop)...it was convenient to grab some cash at the register during check out (quicker than heading over to the bank). No more, the option doesn't come up. It's been a year or two since this was available on my everyday purchase card despite it getting paid off each month. I found it odd so asked, "Your CC company is doing that not us." Weird. Never got a notification and nothing on my account saying otherwise.

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  5. Hemingway had something to say about this:

    “The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.
    Ernest Hemingway

    AND

    “How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually and then suddenly.” “What brought it on?” “Friends,” said Mike. “I had a lot of friends. False friends. Then I had creditors, too. Probably had more creditors than anybody in England” (You COULD substitute America here).

    We've already fried the golden goose of America's post WW2 prosperity by going off the gold standard and printing money for votes and social wars against this and that. BTW have we ever WON a War against drugs, poverty and so on? Looking at the streets of that democratic honey hole California, I think NOT.

    No doubt someone will show up soon to blame it on all our redneck scum flowing into his land of fruits and nuts. That wouldn't account for that Spanish is more common in Cali than English, eh? Don't feed stray cats, they multiply.

    Anyway, to get to my point IF folks NEED to "FINANCE their Groceries" over 4 months with Affirm. THAT is a Death Spiral as you've pointed out. FOOD or lack of affordable Food has created far more violent revolution than ideology. We are almost to the point where the "Let them eat Cake" of the French Revolution.

    AND the Powers That BE will use the distraction of a war to distract us from leading them to the arms of Madam Guillotine.

    Protect your trusted family member and Trusted friends. More important that depreciating cash in the bank when things get spicy.

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  6. Loan sharking for sure. The payday loan places are constantly on the radio and TV. Quick cash when you need it! First loan is free! Get a title loan and keep your car!
    There are several problems that drive this. One, yes the average American consumer is tapped out. Even those who make a good wage find they have far less to contribute to savings or pay down existing debt. Two, so many people seem unable to see past the end of the current day. My kid is an example. In spite of many hours of talk and demonstration, he just can't see more than 24 hours into the future. It's all here and now for him and he just can't see future ramifications of his actions today. Three, while outfits like Affirm and Zip offer a fast way to short-term finance something, they take advantage of the lack of people's ability to see past today. In two or four weeks when the next payment is due, how many go "What is this payment for?" Parents who used to be able to help their kids out here and there don't have the means to any more.
    Of course, all of this is planned and enabled by TPTB and they are laughing their collective butts off watching us deal with all of this.

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  7. Kind of falling into the "rent-to-own" category. How to pay 2 to 3 times what the purchase price is for stuff.

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  8. Doesn't seem so long ago that Congress was laser focused on the fact that your friendly ATM operator was charging you $2.50 to get your money out of their ATM. It was outrageous, it was racist, it was ... well, you fill in the blanks. This is so much worse.

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  9. I collect old firearms, and an increasing number of gun stores are pushing a similar type financing system, Credova, so that people can get the more expensive firearms that we/they crave. I won't touch them with a 15 foot pike, but I know a lot of people who are totally enamored with them.

    I "think", but I can't prove, that a lot of the inflationary pressure on some firearm categories comes from the ease of getting a Credova account. I'm also seeing a few stores and dealers who insist on all customers using Credova to make their purchases. This is the case for some of my other collecting interests; not only firearms.

    When I go to a store that insists on my using Credova to make a purchase, rather than cash or credit card, I simply walk out. I've missed out on a few bargains this way, for things such as rare books, reef tank supplies, and GW/hobby figures, among others.

    BTW, Affirm does not process anything related to firearms, according to their website and a "Giggle" search. FWIW...

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    Replies
    1. To me, the sales and rebates that manufacturers are offering says there isn't much pressure on the firearms market right now .
      Ammunition is a different story...

      Delete
  10. note to Paul M:
    "Can't take your house or land away from you if you own it outright."
    Please ask Susette Kelo.
    SCOTUS made an unconstitutional (IMHO, read: very poor) decision on this one which (hopefully) will be overturned in the very near future.

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  11. "Saint Peter don't you take me cause I can't go, I owe my soul to the company store". What's old is new again....

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  12. I have a credit card with a bank I've been with for many years - 15 months ago my rate was 6.9%; today it is 15.9%.
    The other card I have, where I've only been with that bank for 2 years, is at 23.99%.
    Cordova charges 6% - I have a friend who sells body armor who adds 3% to Credova sales, splitting the fee with his customer.

    If a store doesn't accept cash, I tell them they don't want my business and leave.

    Interestingly, there are no payday loans operations in my county; the nearest is over 50 miles away. My count is also booming, with high salaries and lots of open positions in a very rural area.
    Jonathan

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    Replies
    1. Oops, County, not count
      Jonathan

      Delete

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