Consumer advocates say some lenders are cashing in on those who face financial hardship in isolation.
The Consumer Advocacy Center believes that lenders are using people who are still awaiting government support.
Financial advisor Peter Thompson says he has spoken to people who want to buy now and then pay lenders for basic necessities.
Afterpay says it never collected the debt or sold it to a collection agency.
Financial advisor Peter Thompson responded to calls from isolated families on the verge of bankruptcy.
“Most of the people are in a state of concussion,” he said.
He said those who are desperate for money use what he describes as “fast, easy and convenient,” buy now, pay later, such as Afterpay, which you can download to your smartphone in minutes.
“People really use these foods to put food on the table,” said Mr Thompson.
State and federal governments offer income support to businesses and households.
But demand for aid remains strong as NSW continues to receive thousands of applications per day – a total of 245,000 applications since July 19.
Julia Davis, senior policy director at the Legal Center for Financial Rights, said that for some struggling to put food on the table, grants are not coming quickly enough.
“This is because they are not getting the support they need from the government,” she said.
“You know these are really tough times for anyone in New South Wales, but especially for those in Sydney who have been in strict quarantine for several weeks.
“If people don’t get the support they need from the government, they will turn to whatever option they have to feed their families.”
NSW is still working with backlog of applications, and approximately 75 percent of the total number of applications has already been approved or paid for.
Afterpay claims commissions are not a significant source of income
Gerard Brody of the Consumer Advocacy Center believes “buy now, pay later,” lenders taking advantage of government payment delays.
“These companies are really taking advantage of people’s need for quick money,” he said.
“AND [they are] not really dealing with the root causes of people getting paid on time or getting money when they need it. “
He said firms offering fast lines of credit could earn tens of millions of dollars in late payments as budget-conscious borrowers struggle to pay off payments.
“There is no doubt that buy-now-pay-later providers like Afterpay make money off late fees,” Brody said.
“They are pouring tens of millions of dollars into their coffers every year due to late payments as part of their annual report.”
Afterpay rejects this and tells ABC that fees are not the main source of income, rather, most of its revenue comes from paid merchants who accept payments from Afterpay users.
Buy now, pay later. Businesses need to comply with responsible lending obligations, but they are not bound by the same credit laws as banks as they do not charge interest on their loans.
Brody said the legal wiggle room has opened up the market for so-called payroll advance companies, which provide customers with a portion of their paychecks for a fee.
Some payroll companies are now expanding lines of credit for all regular income earners, including social benefits, Mr. Thompson said.
“These companies are targeting this demographic.
“If your bank account is regularly deposited, be it earned income or Centrelink income, you can borrow a portion of that deposited amount up front for a 5 percent fee.”
EverydayPay is an example of a payroll advance provider and offers early payroll to customers.
Its website says that “just because you get government benefits doesn’t mean you can’t access your daily payments.”
MyPayNow, another advance payment provider, accepts payments from Centrelink as proof of income if you also pay for a part-time job.
What if the loans cannot be returned?
An obvious question arises.
What happens if you end up unable to repay the loan?
Mr. Thompson said that some of these companies will try to sell your property through debt collectors.
“What we are starting to see now is that some people buy now and pay off their debts later, they are simply handed over to third-party debt collectors.
“[We] have not yet noticed how the upfront wage lending market has moved to this point.
“But we do call people who have lost their jobs, and of course the cancellation of the advance that was supposed to happen on payday then bounces off, and that’s when the fees obviously start to get pretty punitive.”
Afterpay told ABC that it never collected debts or sold debts to collection agencies.
The regulator, ASIC, does not recommend taking out a loan if you find it difficult to pay your bills and instead recommends contacting a service provider right away.
It points out that many government and some community organizations offer discounts and vouchers that can help pay for utility bills and phone bills.
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