The fine print of payday loans and buy now, pay later services is trapping Australians

Vulnerable Australians are at risk of serious financial hardship from payday lenders and similar services, and more needs to be done to safeguard their rights when things go wrong.

Payday loans, consumer leases, and “buy now, pay later” services such as Subsequent payment and ZipPay are not in the same legal framework as traditional credit products like auto loans or mortgages.

But a Senate standing committee on economics has heard that consumers are often unaware of the distinction between different products and their rights to each.

Paul Holmes, a senior consumer protection attorney at Legal Aid Queensland, told the financial and credit services investigation targeting Australians at risk of financial distress on Tuesday that most consumers see only one financial product and do not differentiate between different types of financing. .

“They think they have the same rights with each other if something goes wrong, but that’s not true,” Holmes said.

the National Credit Code, which regulates most credit-type financial products, only applies in cases where the lender “is engaged in providing credit”, is charged for services, and credit is provided for “personal, household, or household purposes.” or to buy, renovate or refinance an investment property.

The terms of the code also specify that “short-term, low-cost credits (less than 62 days)” are not covered.

Consumers using these services rarely consider this, Holmes said, and many don’t consider the cost of obtaining credit through one of these providers until weeks after signing.

“In this space, what we are dealing with is a cohort that is in crisis and is vulnerable; They are not going to accept that information, ”he said.

“It’s about finding a way to pay an invoice that is due in two days … the price consideration doesn’t happen here and now, it’s two weeks from now when they’ve had time to sit down and think about it. “

The law does not guarantee that ‘complaints are handled correctly’

Answer the questions of The new daily, spokesperson for the Australian Financial Complaints Authority (AFCA) expressed similar concerns.

“In our opinion, consumers of these services would not easily understand or appreciate that they are not dealing with a licensed company, since the services provided are related to credit,” the spokesperson said.

“Consumers should also not have to rely on the company voluntarily deciding to join AFCA, especially when the decision to end membership rests with the company and not with the consumer.”

If consumers have a complaint against a company that does not voluntarily join the AFCA regime, they will not be able to use AFCA free external dispute resolution process.

In a presentation made to the consultation, AFCA emphasized the importance of providing clients of these companies access to dispute resolution services and “supports the call” for mandatory AFCA memberships.

Six ‘buy now, pay later’ providers have voluntarily joined the AFCA scheme: Afterpay, ZipPay, Certegy Ezi-Pay, Oxipay, BrightePay and Openpay.

The approval process should slow down

Deakin University professor of consumer behavior Dr. Paul Harrison told the Senate committee that one way to better protect consumers is to change the approval process for applicants using these services.

“The critical issue is the speed with which consumers move through the online environment, as opposed to the traditional brick-and-mortar or face-to-face experience,” he said.

Dr. Harrison suggested introducing a ‘double sign-up’ process in which applicants would have to call the service provider at least 24 hours after initially signing a contract or that contract would expire: “this way, consumers will only commit if the product is good ”.

Dr. Harrison said that introducing a small upfront fee could have a profound effect on people’s decision to use non-traditional credit services.

“Telling people to consider the consequences before signing up doesn’t have much of an effect,” he said.

“Charging people a $ 10 upfront fee could help by showing that there are direct consequences.”