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There was a mutiny among the pawnshops last week when 78 of Cash Crusaders’ 150 non-corporate franchises cancelled their franchise agreements and started trading as Cash Xchange.

A dispute between Cash Crusaders Franchising and its franchisees ended up in court last Friday when Western Cape High Court handed down judgment on an application lodged by Cash Crusaders against the rebels.

Lawfare erupted over Cash Crusaders’ decision to change its suspensive security purchase (SSB) transaction system, often known as ‘pawn transactions’, which are governed by the National Credit Act. Franchises rely on pawn transactions as one of the three main income streams of a franchise. The others are the sale of new goods, like in-house branded tech, and the buying and selling of your unused stuff.

At the end of the 30-day SSB transaction period, consumers often sought to extend their loan with the franchisee, with the extension regarded as a new rather than an extended loan, which entitled the franchisee to charge a further initiation fee on each loan extension.

After ‘legal advice’, Cash Crusaders now wants its franchises to charge only a ‘single initiation fee as opposed to multiple initiation fees on extensions of these ‘pawn’ transactions’. In September 2022, an application was made to the Western Cape High Court for declaratory relief over the interpretation of the NCA and whether it permitted repetitive charges of initiation fees.

Cash Crusaders opposed technicalities, and the rogue franchises hit back with a claim that Cash Crusaders breached the franchise agreement first when it introduced the changes to the SSB transactions.

This again resulted in Cash Crusaders filing an urgent motion in September last year, requesting a temporary interdict preventing these franchisees from terminating their franchise agreements. The court interdicted the franchisees from cancelling the franchise agreements and told them to abide by their franchise agreements.

Plenty more back-and-forth orders were filed until Judge James Lekhuleni on Friday dismissed the Cash Crusaders application to stop the franchises from going solo, with costs, because in his view the 78 franchisees would suffer overwhelming harm if the application was granted.

The judge said the harm that Cash Crusaders will suffer is lessened by the fact that this matter will be heard in due course before the arbitrator and also mitigated by the fact the franchisees have committed to buying stock from Cash Crusaders.

The franchisees stated that as part of the ‘de-identification process’, they had already placed orders with third-party suppliers and that the merchandise was either in the stores or on its way.

Judge Lekhuleni said that the franchisees are liable for the payment of such stock and will be prohibited from spending more money on purchasing stock from Cash Crusaders, as required by the franchise agreement if the application was executed.

The judge said that the franchisees would also not be able to sell the stock to customers if the order is executed because the stock from third-party suppliers does not conform to Cash Crusader’s requirements.

In short, if the application from Cash Crusaders is allowed, the franchises won’t be allowed to sell stock that doesn’t come from Cash Crusaders, and without making money and buying from Cash Crusaders they are in breach of their agreements.

This sounds very much like a ‘carry on, but stop’ situation, let’s see how it ends.

[source:moneyweb]