Buy-now-pay-later borrowers rake in cash as families feel financial pinch

“Often, these are essential expenses like household bills and utilities, and even food. The problem with payday loans is that they tend to make the person’s situation worse.

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“Because repayments can be high, they can be left without enough money after the direct debits come out, meaning that they then turn to get another loan, hence the debt spiral.”

Financial Counselling Australia says people struggling with buy-now-pay-later debts to companies, including AfterPay, comprise a rapidly growing proportion of those in financial trouble.

Counsellors have told the peak body there’s a growing trend of families buying supermarket gift vouchers with buy-now-pay-later products and using them for food and other essentials.

A report published on Wednesday by research house RFI Global showed 38 per cent of Australian consumers would use pay-later apps for household bills, 37 per cent for groceries and 27 per cent for petrol.

“This data suggests people are increasingly relying on credit for basic expenses, which is worrying from a financial distress perspective,” Mr Brody said.

Both federal Treasurer Josh Frydenberg and Labor counterpart Jim Chalmers have pointed to the estimated $245 billion of household saving accumulated during the pandemic. But Sandy Ross, executive officer with Financial Counselling Victoria, said many Australians were in desperate financial straits.

“This is what happens when you have stagnant wages for a very long time, and you’ve got Centrelink below the poverty line,” Dr Ross told The Age.

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“We’ve got massive numbers of people who are struggling. These people are vulnerable to payday lending, and then buy-now-pay-later comes along [when] people are desperate, they’ve got no options, what are they going to do?

“They’re going to try and access whatever they can, to try and even get the most basic sort of things that they need to live.

“Financial counsellors see a disturbing expansion of the use of buy-now-pay-later in particular, for very basic needs.

“This massive and rapid growth in client clients with [buy-now-pay-later] debt problems, that trend-line has been skyrocketing in the past two years.”

Cash Converters managing director Sam Budiselik said the growth of his company’s loan book was driven by the broader economic recovery, as the loan book grew from a comparatively low base. But he doesn’t expect such strong growth to continue.

Mr Budiselik conceded households often turned to lenders to manage their budgets, but said borrowers were taking greater risks when taking on buy-now-pay-later debt than dealing with Cash Converters, which is covered by consumer credit protection laws.

“It is as a result of these stringent standards that we decline over 70 per cent of loan applications based on suitability,” Mr Budiselik said.

“Our understanding is that buy-now-pay-later and earned-wage-access providers are not held to the same standards, operating instead under exemptions to the Credit Act. Therefore, our view is that regulated credit is not the primary cause of harm.”

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But Diane Tate, chief executive of the Australian Finance Industry Association (AFIA), which represents AfterPay, Zip and six of the other biggest buy-now-pay-later providers, defended the sector’s consumer protection performance.

“What is vitally important is making sure consumers are protected when things go wrong,” Ms Tate said.

“AFIA implores consumers to seek out buy-now-pay-later providers that are buy-now-pay-later code signatories to ensure they have access to higher consumer protections, such as access to hardship arrangements, and enforceable standards in the event something goes wrong.

“Importantly, payday lending and wage advance activities are not buy-now-pay-later.”

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