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Buy now, pay later: you say innovation, I say gateway to debt - SMH - OPINION Caitlin Fitzsimmons Sun-Herald senior writer August 27, 2020 The glorious FinTech revolution is upon us – and it is delivering new ways to get into debt. Most people have heard of Afterpay, which is like the love child of the old lay-by system and a credit card. You buy something, take it home immediately and pay it off in four instalments. But variations on the "buy now, pay later" theme are proliferating and consumer advocates warn people are running up balances on multiple apps and this will only get worse as the recession deepens. Financial counsellors are finding more and more clients with debts to multiple 'buy now, pay later' providers. Afterpay was founded in 2014 and floated on the Australian Securities Exchange two years later, making its founders and investors very rich. Its success inspired a rash of copycats, each with their own twist. There's ZipCo and Payright and Openpay and Humm, Oxipay, BrightePay, Klarna and Bundll, to name a sample. One of the most recent is Deferit to cover your household bills. The problem is not so much the apps themselves. Many are good products – slick technology makes them easy to use and they are much cheaper than credit cards with 20 per cent interest or payday lenders with 400 per cent interest. Afterpay charges a late fee of $10 and another fee of $7 if the instalment is still unpaid after seven days. Deferit charges $5.99 a month with no late fees. Clearly they are creating a service that people want. The big problem is the services are barely regulated because of a legal fiction whereby they are not considered consumer credit on the basis that they charge fees not interest. This is ludicrous. The apps literally lend you money to buy something, creating a debt that you must repay. If you don't, they can record it on your credit history and even refer you to debt collectors. And yet, it's not credit? This loophole means they don't have to do a credit check to assess someone's ability to pay. They don't have to take into account whether the consumer is already using credit cards or other "buy now, pay later" services. They are not obliged to belong to the ombudsman scheme, the Australian Financial Complaints Authority. Some do, though they could pull out at any time, but many don't. Even payday lenders – loan sharks – are obliged to do credit checks and take into account the consumer's existing debt. Most people would not go to a payday lender unless they were desperate to pay for essentials, but the ease of the experience with the "buy now, pay later" apps makes them tempting. They fill the same social niche as credit cards in that they allow impulse retail purchases, but for a younger generation and especially for young women. Yet they don't have any of the regulations aimed at preventing people racking up debts on multiple cards. The Financial Rights Legal Centre has clients who owe money to multiple "buy now, pay later" services because it's easy and they can't get credit anywhere else. A 2018 report by the Australian Securities and Investments Commission says one in six users had either become overdrawn, delayed bill payments or borrowed additional money because of a "buy now, pay later" arrangement. It was one thing when it was just Afterpay but these services are multiplying. They're at almost every shop, online and off, and they're offering larger and larger amounts of money. There is a very real risk of harm, given that the coronacession is known to be disproportionately affecting young people and women – the people who most use these services. The report from the corporate regulator says the typical "buy now, pay later" consumer is young – three in five are aged between 18 and 34. A number of the apps state on their websites that their customer base skews female. Deferit paints its focus on bills as a virtue, saying "we don't do discretionary items (like retail stuff) because we don't believe in increasing debt levels". But Julia Davis, policy and communications officer at the Financial Rights Legal Centre, says Deferit is particularly concerning because it undermines years of work to address hardship with big financial services providers, utility companies and telcos. When you call your energy company, they have a whole team of people trained to work with you to figure out what you can afford, if you need vouchers or a repayment plan, whether a debt was caused by domestic violence and should be waived. If you use Deferit to pay the same bill, you might retain your on-time payment bonus but you lose access to any hardship support because the energy company does not even know there is a problem. The National Debt Helpline recently surveyed 282 financial counsellors from every state and territory and found while most of the big banks scored seven out of 10 for their hardship procedures, "buy now, pay later" services scored five. We speak of "gateway drugs" that lead users to the harder stuff. I worry that's what this is: gateway debt. Caitlin Fitzsimmons is a senior writer focusing on social affairs, workplace issues and economics. |
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