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Consumer Financing 101

November 5, 2009

I have to apologize for being such a lazy blogger lately. With the economy and business so sluggish, it has been hard for me to think of anything to blog about except the state of my business. Frankly, I don’t think you need or want to hear my business problems. However, this morning something happened that just couldn’t go without comment.


For years, we have been offering a “90 Days Same As Cash” payment program. At first, we went through Wells Fargo. When CFR partnered with CitiFinancial to offer a program to CFR members, we switched. There are lots of variations to the program including 6 months and 12 months same as cash. The longer the “no payment” period, the more discount we give up.


The program has been successful for us, but with a consumer you wouldn’t expect. Invariably, our wealthiest customers, the people who you would think need the program least, take advantage of it most. I think that is because they understand how their money can work for them. It makes sense to use the merchandise for 90 days without payment. During that time, your money can earn interest. Try explaining that to someone living check to check.


We got a notice from CitiFinancial today that they are discontinuing their “90 Day Same As Cash Program.” They are replacing it with a program that offers six months of no interest. However, the consumer must pay at least 1% of their balance every month. So I guess the name changes from “90 Days Same As Cash” to “Interest Free As Long As You Make Monthly Payments.” Rolls off the tongue, doesn’t it?


I don’t think our business would be affected one way or the other if we discontinued the program; but, I had my office manager call Wells Fargo to see what they have to offer. Guess what? Wells Fargo has changed their program to one similar to CitiFinancial. Why? Because “90 Day Same As Cash Programs” no longer conform to federal consumer protection legislation passed this year.”


It seems counterintuitive that consumer protection laws don’t allow consumers to buy products without making payments for a period of time. My office manager said the Wells Fargo people explained it by saying the federal government was trying to protect consumers from getting in debt over their heads.  I suppose that is credible. . . credit was incredibly easy to get in the past few years. I think several of my dogs were preapproved for credit cards. But I think we can agree that purchases of patio furniture on a 90-day credit plan didn’t cause The Great Recession of ’08/09. If we were selling furniture using credit default swaps that would be different.


So, lets see, anyone with “Cit” in their name is either bankrupt or not extending credit as easily as before. Just another bad day at the office if you ask me. And, if slow/bad business kept me from blogging before, this news is enough to make me want to not get out of bed in the morning!


Yours in confused retailing, Bruce