“Often these are essential expenses such as household bills and utilities and even groceries. The problem with payday loans is that they tend to aggravate the person’s situation.
“Because the repayments can be high, after the direct debits appear, they can be left without enough money, which means they then turn around to get another loan, hence the debt spiral.”
Financial Advice Australia says people struggling with buy-now-pay-later debt to businesses, including AfterPay, make up a rapidly growing proportion of those in financial trouble.
Advisors have told the top panel that there is a growing trend for families to buy supermarket gift cards with buy-it-pay-later products and use them for groceries and other essentials.
A report published by Research on Wednesday House of RFI Global showed that 38 percent of Australian consumers would use pay later apps for household bills, 37 percent for groceries and 27 percent for petrol.
“This data suggests that people are increasingly relying on loans for basic expenses, which is worrying from a financial distress perspective,” Brody said.
Both Federal Treasurers Josh Fredenberg and Labor counterpart Jim Chalmers have pointed to the estimated $245 billion in household savings accumulated during the pandemic. But Sandy Ross, executive officer at Financial Counseling Victoria, said many Australians were in desperate financial straits.
“That’s what happens when wages stagnate for a very long time and Centrelink is below the poverty line,” said Dr. Horse Age.
“We have a huge number of people who are struggling. These people are prone to payday loans, and then along comes the buy-now-pay-later [when] People are desperate, they have no choice, what are they going to do?
“They will try to access whatever they can to get even the most basic things they need to live.
“Financial advisors in particular are seeing a worrying expansion in the use of ‘buy now pay later’ for very basic needs.
“This massive and rapid growth of customers with customers [buy-now-pay-later] Debt issues, this trendline has skyrocketed over the past two years.”
Cash Converters chief executive Sam Budiselik said the growth in his company’s loan book was due to the overall economic recovery as the loan book grew from a comparatively low base. But he doesn’t expect this strong growth to continue.
Mr Budiselik acknowledged that households often turn to lenders to help manage their budgets, but said borrowers took on greater risks taking out debt with buy-it-now, pay-after options than with cash converters, which are covered by consumer credit protection laws.
“Because of these strict standards, we reject over 70 percent of loan applications because of their suitability,” said Mr. Budiselik.
“Our understanding is that buy-now-pay-later and Access to earned wages Providers are not subject to the same standards and instead operate under exceptions to the Credit Act. Therefore, we believe that regulated loans are not the main cause of damage.”
But Diane Tate, executive director of the Australian Financial Industry Association (AFIA), which represents AfterPay, Zip and six of the other largest buy-now pay later providers, defended the sector’s consumer protection performance.
“It’s vital to ensure consumers are protected if something goes wrong,” Ms Tate said.
“AFIA urges consumers to seek out pay-now-pay-later providers who are pay-now-buy-later Code signatories to ensure they have access to higher levels of consumer protection, such as: B. Access to hardship cases and enforceable standards in case something goes wrong.
“Importantly, payday loans and wage advance activities are not bought now and paid for later.”
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