Cash Crusaders faces sword after franchisee revolt
Cash Crusaders, a dealer in second-hand goods, is in a precarious financial position after franchisees responsible for 40% of its royalty fees broke away from the group and formed a rival outfit.
A group of Cape Town franchisees walked away in late September 2023 after a falling out and renamed themselves Cash Xchange, using different colouring and signage.
However, they continue to use Cash Crusaders’ payment systems and invoices, potentially confusing consumers.
On Friday, Cash Crusaders lost the latest in a series of legal battles in which it again unsuccessfully tried to force the former franchisees to remain in the business until the two groups meet for arbitration in March or April.
The crux of the dispute are new loan initiation fees the stores charge consumers every time they extend monthly loans, a practice that Cash Crusaders had halted in 2022 after taking legal advice.
Cash Crusaders stores make money from the sale of new and second-hand goods, as well as offering loans in exchange for pawned goods.
Consumers hand in goods such as jewellery or electronics as security for a 30-day loan and are then charged a loan initiation fee in addition to interest on the debt and a service fee. Customers receive back their goods after repaying the loan.
Previously, if a customer extended the loan for an additional month, stores would again charge them a loan initiation fee, classifying the debt as a new loan rather than an extension.
An initiation fee on a R1,000 loan is R173, according to Cash Crusaders’ website.
The practice of paying initiation fees each month is costly for desperate consumers but profitable for the stores. Cash Crusaders decided to change this system, leading to the falling out.
According to the judgment,
“the decision to charge a single initiation fee regarding extensions did not augur well with some of the franchisees”.
The disgruntled franchisees argued this change was a breach of the franchise agreement and caused them to suffer “substantial financial losses”.
The stores, based in the Western Cape, warned head office in September 2023 that they would quit the franchise unless they could charge loan initiation fees each time a customer extended the debt. This was even as stores charged debt extension fees.
Just days before Cash Crusaders won an interim order in early October 2023 forcing the stores to stay in the group, store owners cancelled their franchise agreement, set up new signs at their stores, chose a new name and bought goods from new suppliers outside the franchise agreement. Their lawyer described them as having “disenfranchised” themselves.
After this, the franchisees approached the Supreme Court of Appeal to fight the October interdict forcing them to remain in the group. They remain a separate entity for now, but continue to buy some goods from Cash Crusaders.
In addition to the litigation, an arbitration process, which could take as long as six months, is set to take place later this year to try to resolve the impasse, according to legal documents.
Recently, Cash Crusaders went back to court to unsuccessfully stop the franchisees’ appeal process. It argued that if the disgruntled store owners remain separate, this would negatively affect royalty revenue and it could be forced to retrench more than 150 head office staff.
Skills that may be lost range from the CEO to trainers and operational managers, the group said in court papers.
Cash Crusaders also said it would lose “more than 40% of its royalty and marketing income ... and this is a staggering loss”.
It suggested that unless the stores comply with the franchise agreements and pay their royalties, it could soon become insolvent.
Before the dispute, Cash Crusaders had 250 outlets across the country, with 145 of these operated by franchisees.
The breakaway group is made up of about 78 franchisees, or one-third of the group’s franchise footprint.
Cash Crusaders has also stated that the falling out has opened it up to legal action as the new stores are using Cash Crusaders invoices, and consumers are misled into believing that it should honour warranties on new goods.
Attempts to contact Cash Crusaders were unsuccessful. The National Credit Regulator did not reply to requests for comment.
CASH CRUSADERS ALSO SAID IT WOULD LOSE MORE THAN 40% OF ITS ROYALTY AND MARKETING INCOME AND ‘THIS IS A STAGGERING LOSS’