Afterpay, payday lenders and ‘debt’ vultures face Senate inquiry
“Our model is unique in that we provide free service to customers if payments are made on time, we do not charge interest, our payment periods are short, and if payments are not made on time, we suspend a customer’s account immediately, which means they’ll never get caught up in revolving debt, ”Afterpay said.
Shadow Financial Services spokeswoman Clare O’Neil said the opposition wanted to prevent people from entering a “debt spiral” over expensive payday loans, and that the investigation would examine the capacity of the financial advisory sector to serve this part of the community.
“It is clear to me that there is a range of providers whose conduct has not been reviewed by the Royal Banking Commission who provide financial services to vulnerable Australians,” Ms. O’Neil said.
Gerard Brody, managing director of the Consumer Action Law Center, said clients frequently have problems with several payday loans. Debt management companies often charged exorbitant fees, he said, and were unregulated.
“If you think the banks, insurers and pension funds are scamming people, they are nothing compared to the operating conduct of this sector of the market,” Mr. Brody said.
Mr Brody said it seemed like more customers were reaching out to the national debt hotline about Afterpay.
Rob Bryant, president of the National Credit Providers Association, said he had advocated for the investigation to be conducted by a committee made up of both houses of Parliament so that it has more “firepower”. He said complaints from consumer groups about payday loans have often confused issues that actually apply to consumer leasing.
“We welcome the Senate investigation,” he said.
Fiona Guthrie, managing director of Financial Counseling Australia, said payday lenders and debt negotiation providers were a major cause of problems for clients seeking help from a financial advisor. These tended to affect low-income clients the most, she said.
Customers of buy-now and on-pay services like Afterpay were also starting to express some concerns to financial advisers about this type of credit, Ms Guthrie said.
“If the royal commission has shown us anything, it is that we should not have harmful financial products,” she said.
The investigation comes as the Coalition is accused of sitting on legislation supposed to tighten regulations on the industry.
The Turnbull and Morrison governments have made little progress since the Small Credit Agreements and Consumer Lease Reforms Bill was first reported in 2015. The legislation would introduce a cap on leases equal to the base price of the property plus 4% per month and only allow leases and short-term loans to represent 10% of a client’s net income.
Former Deputy Treasurer Josh Frydenberg first published the terms of reference for a review of the legislation in August 2015. For more than 1,000 days, five ministers have been in charge.
Stuart Robert, the new minister in charge of the sector, has been contacted for comment.
Greens Treasury spokesman Peter Whish-Wilson said he welcomed the inquiry but questioned whether Labor was sincere about the reform after opposition leader Bill Shorten watered down regulations when he was financial services minister.
“We certainly support an investigation and we will make sure it goes beyond politics and puts in place solid reforms,” he said.