Alarms have been raised that vulnerable customers could fall further into a “debt spiral” as the sector moves towards a new group.
Buy now, pay later Pressure from suppliers to offer cash to Australian tenants could cause “big problems” for customers and further worsen debt problems, say consumer advocates.
Consumer groups have already sounded the alarm that users could face a “debt spiral” with new offerings such as Afterpay moving into the pub sector.
There have also been concerns about the sector targeting a younger female audience, with the service having a strong presence in beauty, cosmetics and women’s fashion.
Today, new players are pushing the use of buy now, pay later for tenants, including Tenanting, which offers to “instantly” pay rent on behalf of an individual. The person must then pay it in four instalments, but with an additional 5% fee.
Consumer Action Law Center executive director Gerard Brody called the move “highly irresponsible.”
“Rent is one of the essential costs that you have to pay every week, so going into debt to pay it is not a useful way to solve this cost, because you just have to pay it again the next fortnight. when refunds are due,” he told news.com.au.
“For people who have to rely on a loan if they find the cost of lease payments difficult, that’s not a solution and it doesn’t smooth out costs, but it will create more expense along the way.”
For someone paying $515 per week for a typical two-bedroom apartment in Greater Sydney, adding Tenanting’s 5% fee would result in a renter paying $25.75 more per week.
Another provider RentPay offers a service called SafetyNet where people can access a week’s rent, which can be paid off in four installments but incurs a $15 fee for each missed payment.
Mr Brody said it was “unfortunate” that the BNPL sector was unregulated, unlike other forms of consumer credit such as credit cards, personal loans and mortgages.
“This means providers don’t need to be licensed, don’t have to meet standards like responsible lending obligations that require them to assess that a loan is appropriate and that repayments won’t cause substantial difficulties,” he said.
“As a result, there is a huge gaping hole in the financial regulatory regime and the government needs to assess it as a matter of priority.”
More and more people are contacting the Consumer Action Law Center and financial advisors who not only owe BNPL suppliers large sums of money, but also deal with a multitude of other debts, such as credit cards and payday loans. , he added.
A big problem was that the BNPL service was being sold as a “frictionless, easy and convenient” means of payment rather than a loan and making it harder for people to manage money, he noted.
“So it becomes a bigger problem. I think what tends to happen is because these lenders aren’t bound by responsible lending laws, they don’t assess people’s complete financial situation, and they don’t necessarily know that they have other debts and may have difficulty with this particular product,” he added.
Financial Counseling Australia has urged the government to commission an independent review of these financial products and the lack of regulation, arguing that proper hardship procedures are not in place if people find themselves in difficulty.
RentPay also goes beyond offering cash for weekly rent and provides a loan for a person’s deposit, which attracts no interest if repaid within 21 days.
But the company said The Guardian80% of customers did not pay it back on time.
“We see ourselves as the tenant champion and believe renting should be better,” said Greg Bader, CEO of RentPay.
“A lot of things we build are aimed at making it easier to rent. I don’t think we’re taking advantage of loopholes or pushing people into a spiral of debt. I think the flexibility we provide in the product actually helps people manage their money better. »
He added that SafetyNet, which offered to pay rent, was also not designed to be used as an “everyday thing”.
A Tenanting spokesperson said the service provides tenants with a flexible payment option to pay rent as a better alternative to predatory payday lenders.
“We are decentralizing the rental system and putting control back in the hands of the Australian public,” they said.
But many tenants may not be aware that there is also government assistance.
Some state governments may provide bond loans to tenants struggling to find large, short-term lump sums without having to pay interest, while tenants in arrears may keep their homes if they pay in full. before an eviction date.