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