On display at Banking are fraudsters and charlatans wearing collared shirts. We were all astonished. Just two minutes after Kenneth Hayne’s royal investigation investigating banking and financial services malfeasance concluded, the government suddenly wants to repeal responsible lending legislation.
It appears to be far too onerous for profit-driven enterprises, and it may discourage innovation (once a word with real meaning, now a synonym for cutting corners). Clap along if you believe happiness is the truth.
On Monday, Financial Counselling Australia will issue a sad report on a new sort of credit that is upending people’s lives. According to an FCA survey, a third of financial counsellors met customers with buy now, pay later debt just a year ago. This number has now climbed to 84 percent of all people they come into contact with.
Almost two-thirds of those surveyed are unable to pay for basic necessities such as food, rent, utilities, and medical costs, including medication. Some people even pay their supermarket bills with their buy now, pay later accounts. Because of the creditor’s pressure and, in about half of the cases, because they needed to keep using the facility to buy food, clients who spoke with counsellors prioritised BNPL repayments over rent, food, and utilities.
To go food shopping on the never-never.
BNPL is the newest credit toy on the block. It’s supposed to be a self-regulatory industry. It has a code that is supposed to prevent consumer exploitation in Australia. However, it turns out that this bright, shiny toy is ripping off consumers time and time again. And politicians are so engrossed in the glitz that they fail to see how damaging it can be.
So, what do they call it? Fintech (financial technology) is a new sort of financial technology. When do they want it delivered? Now. Isn’t it ingenious? However, the actual storey is that BNPL is not a forward-thinking company. It’s a credit card with a lot of attitude! Look, Mum, I can grab that Pixel phone right now, walk out of the store with it, and pay it off in four months. There isn’t any fuss. A brief evaluation of your financial condition is frequently performed, and fortunately, no interest is charged. Until you default on a payment. Then, because BNPL is preoccupied with you, it puts late fines on you like there’s no tomorrow. Some clients believe there is no tomorrow.
Consumer advocacy groups have been fighting for years to get banks to recognise financial distress. Because banking is now regulated, banks must now make accommodations for those who are experiencing financial difficulties. It’s nearly tough to find help from a BNPL provider. When asked to rank the FCA’s financial advisers’ hardship provisions on a scale of one to ten, Afterpay, Zip, and LatitudePay all earned fives. Another service provider, Humm, was unable to meet the deadline.
It is not obliged by law to conduct affordability evaluations or credit checks. You simply walk up, get a quick rundown, and voila, you have one, two, three, or even more accounts. To protect consumers from predatory loans, these businesses should undoubtedly be regulated and covered by the National Credit Code.
As a young mother of three on a junior journalist’s wage, I got into credit card debt. I kept rolling it over with higher and larger bills until the bank terminated my card. That turned out to be the nicest thing that ever happened to me. Back then, there was no such thing as a hardship provision. However, the year is 2021, and BNPLs have no idea of adversity.
The problem is that BNPL’s profit strategy is built on high volume and anticipating late payments. Afterpay, which is better known as a result of Square’s Jack Dorsey’s big takeover, said it would do more to manage late fees. These now only account for 10% of total revenue, down from 20% earlier. However, one analyst predicts that if the firm extends its operations in the United States, where Afterpay has been chastised for the way it charges and what consumers know about the BNPL process, that proportion will grow again.
Late fees accounted for over half of Laybuy’s revenue in the six months preceding up to September this year, according to another BNPL firm. This is money made by taking advantage of people’s incapacity to pay their bills.