Calls to regulate debt providers taking advantage of vulnerable

Consumer groups from nine countries, including Australia, have come together to urge governments to take action against credit providers taking advantage of the most vulnerable.

Australian consumer group CHOICE has joined forces with consumer protection bodies from countries across Europe, Asia and both North and South America to urge national governments to take stronger action against debt providers exploiting loopholes.

In a statement, the group says buy now, pay later (BNPL) credit providers, such as Afterpay or Zip, target the most vulnerable in society by offering them credit they are unequipped to pay back.

Currently, BNPL credit is not subject to the same requirements as a bank loan or credit card, and the group says this is allowing BNPL companies to target the most vulnerable in society.

Read: Where to get help when you are in debt

The government has flagged BNPL for review, but as yet no firm commitments on regulation have been made.

Data compiled by CHOICE shows many Australians are struggling with this form of debt. Around 30 per cent of Aussies have used a BNPL in the past 12 months, with one in five of those using the services to pay for essential goods and services such as food, petrol or utilities.

In addition, 15 per cent who had used BNPL services have missed or were late on a payment and 78 per cent of those went on to experience financial hardship as a result of the fees incurred.

“International consumer groups have sounded the alarm on the harm being caused by the unfettered buy now, pay later industry,” says CHOICE CEO Alan Kirkland.

“We are calling for governments across the world – including the Australian government – to ensure that buy now, pay later providers are subject to the same consumer protection laws as other credit providers,” he said.

“It’s time to close the loophole in the buy now, pay later industry in Australia. For too long, companies have been allowed to sell unregulated loans to Australians. Failure to act will create further hardship for individuals and families who are already doing it tough.”

Read: Threat of ‘postcode discrimination’ skewing credit scores

The consumer groups are asking for BNPL credit to be regulated in the same way as other forms of credit. This includes measures such as caps on fees and charges, restrictions on unsolicited marketing and an obligation to help people in financial hardship.

They are also asking for BNPL credit checking to be more stringent in assessing whether taking on a debt is likely to put the customer in financial hardship, as is the case with other forms of credit application.

CHOICE says there is strong community support for better regulation of BNPL.

Read: Age Pension, super and tax reforms sought in policy overhaul

“Almost nine in 10 (87 per cent) Australians agree that BPNL companies should have to check someone’s capacity to repay a loan as part of the application process as credit cards are legally required to do,” Mr Kirkland says.

“It is critical to fix this loophole in our laws, to ensure these businesses can’t create debt traps for low-income households by providing credit that looks easy but is ultimately unaffordable. In some cases, people spend years trying to pay back debt they have signed up for in minutes.”

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

Written by Brad Lockyer

LOADING MORE ARTICLE...