Dangers lurk for discretionary retailers and householders
The Australian Securities and Investments Commission (ASIC) warns householders that predatory lenders are lying in wait for them, and concurrently, discretionary retailers face gathering storm clouds.
These two issues are inextricably linked and loom as major concerns for individuals and businesses.
After a selling blitz at huge discounts towards the end of last year and last month, many retailers are still heavily overstocked, and millions of customers and potential customers will be reining in their discretionary spending because of rising living costs and interest rates.
Accordingly, not a lot will be happening in the immediate future to reduce stores’ inventories.
Retailers, remembering delivery delays in previous years, have found themselves over stocked in recent months because goods have been coming out of China much quicker than expected. Many brought forward Boxing Day and Christmas sales offering heavy-handed discounts, and many of their highly mortgaged customers have been tempted to buy imprudently.
The result: increasing numbers of householders and business owners are considering refinancing just to be able to pay for things considered necessities – for example, mortgages, food, power, transport, and education.
The ASIC pulls no punches in expressing concern about the situation. It says cost of living pressures and rising interest rates are creating a high-risk credit push that will force many householders into considering payday loans and buy-now-pay-later services being offered by predators.
The Commission’s chairman Joe Longo puts it bluntly in a recent media statement, saying “we’re on the lookout for predatory lending practices. Other top threats to householders and businesses are cyberattacks, scams, elevated market volatility, and so-called greenwashing by investment fund managers” – that is the marketing of purportedly environmentally conscious companies that make no notable sustainability efforts.
How might all this affect you?
The Reserve Bank of Australia (RBA) a few days ago lifted the cash rate to 3.35%, its ninth successive increase. Many business analysts are tipping a further rise to 3.6% next month.
That’s because inflation had risen to 7.8% by the end of last year, the biggest increase since 1990, and the Bank’s board is holding to its oft-stated belief that inflation should not be allowed to rise more than between 2% and 3% annually.
RBA research shows that if indeed the cash rate rises to 3.6% in March, about 15% of Australia’s home loan borrowers would by then have a negative spare cash flow.
Gareth Aird who heads the Australian Economics department of the Commonwealth Bank of Australia -- the nation’s biggest home loans lender – says this month’s RBA rate increase to 3.35% is “deeply restrictive” and next month’s widely expected rise to 3.6% would be “inconsistent with a soft landing for the economy by the end of this year”.
He estimates half of CBA’s massive, fixed rate mortgage book will be rolled over this year, putting a consequent brake on discretionary spending that will hit the economy hard.
However, he also predicts that after the next couple of RBA rate hikes, the central bank will call a halt to rate increases towards the end of this year or early in 2024 to avoid a too savage curb on consumption that could trigger a surge in unemployment.
Are you looking at BNPL products?
If you’re considering involvement with any buy-now-pay-later (BNPL) products, be on your guard.
These products aren’t regulated under the Credit Act because they fall under exemptions available to certain types of credit.
They’re not subject to responsible lending standards and providers don’t need an Australian Credit Licence.
The Federal Treasury is reviewing what needs to be done to close an unintended regulatory gap that widens potential for consumer harm of a type that’s prevented by key protections available in other products regulated under the Credit Act.
It seems the most likely and realistic path along which BNPL products will develop and win respectability among some seven million account holders, will lead to at least a degree of regulation under the Credit Act.
Providers will probably need to be licenced under the Act, follow responsible lending obligations, and have their products rated after a suitability test.
ASIC already on the war path
ASIC is already suing Rent4Keeps and Layaway Depot for operating business models designed to avoid consumer protection for financially vulnerable consumers.
Sunshine Loans is also being taken to court by ASIC for charging customers prohibitive fees.
The national regulator has won a Federal Court case against Gold Coast-based short-term cash lender Cigno and BHF Solutions, for trying to operate lending businesses claiming they weren’t trying to avoid the National Credit Code and didn’t need credit licences. The High Court dismissed applications by both companies to appeal against the Federal Court’s ruling.
Last October ASIC also sued Latitude Finance and Harvey Norman Holdings for allegedly misleading advertisements promoting “no deposit”, “interest free” payment methods.
It’s not a time for complacency
Retailers with good contacts in China, who operate modern business systems, maintain skilful contact with customers, who haven’t over ordered and have therefore avoided problems afflicting other retailers, should, on ASIC chairman Aird’s advice, eschew complacency – as also should people who are not over mortgaged and have not over-spent in recent months.
Thus, it appears to Macks Advisory, it’s not only sports people who need to keep their eye on the ball. All Australians should be alert to possibly being adversely affected in some way by a US economy in much worse shape than it appears to be, and by negative consequences of capital and banking communities’ ill-advised involvement with cryptocurrency traders.
America, addicted to borrowing, has a debt soaring past $US25 trillion, as other countries watch in dread at how consequences of this could harm them.
Meanwhile, at a time when things are tough in Australia’s mortgage belt, when the immediate future of the nation’s economy depends so much on miners and farmers, it’s hard to understand seemingly senseless attacks on the mineral industry and why bizarre complexities are being introduced into industrial relations for zero gains in productivity.
But it is what it is, and will be what it will be, and we’re not suggesting there’s anything our readers can or should be doing about any of it – except to avoid complacency in coming months, the personal cost of which could be catastrophically high.
