Buy now, pay later – how consumers are indebted with late fees

The crooks and charlatans in collared shirts on display at Banking Badly shocked us all. The government now wants to roll back responsible lending legislation, just two minutes after Kenneth Hayne’s royal commission into banking and financial services misconduct.

It appears to be far too burdensome for profit-driven businesses – or it could stifle innovation (once a word with real meaning, now a synonym for cutting corners). If you believe that happiness is the truth, clap along.

Financial Counselling Australia will release a heartbreaking report on a new type of credit that is causing people’s lives to be turned upside down on Monday. A third of financial counsellors said they saw clients with buy now, pay later debt just a year ago, according to an FCA survey. That number has now risen to 84 percent of everyone they encounter.

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.

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What do they refer to it as? Fintech is a new type of financial technology. When do they wish to receive it? Now. Isn’t it clever? However, the real storey is that BNPL is not an innovator. It’s a credit card with a lot of personality! Look, Mum, I can get that Pixel phone right now, walk out of the store with it, and then pay it off over the course of four months. There’s no fuss. Frequently, a cursory examination of your financial situation is conducted, and, thankfully, no interest is charged. Until you make a late payment. Then BNPL becomes so preoccupied with you that it slaps late fees on you like there’s no tomorrow. Some customers feel as if there is no tomorrow.

For years, consumer advocacy groups fought to get banks to recognise financial hardship. Because banking is regulated, banks are now required to make provisions for those who are in financial difficulty. Support from a BNPL provider is nearly impossible to come by. Afterpay, Zip, and LatitudePay all received fives from the FCA’s financial counsellors when asked to rate the hardship provisions of these companies on a scale of one to ten. Humm, another service provider, was unable to deliver.

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Making affordability assessments or credit checks is not required by law. You just show up, get a quick once-over, and presto, you’ve got one, two, three, or even more accounts. There is no doubt that these businesses should be regulated and covered by the National Credit Code in order to protect consumers from predatory lending.
I ran into credit card debt as a young mother of three on a junior journalist’s salary. I continued to roll it over with larger and larger debts until my card was cancelled by the bank. That ended up being the best thing that could have happened to me. We didn’t have what is now known as a hardship clause back then. But it’s 2021, and BNPLs have no concept of hardship.

The issue is that the BNPL profit model is based on high volumes and anticipating late payments. Afterpay, which is now more well-known as a result of its massive takeover by Square’s Jack Dorsey, said it would do more to manage late fees. These now account for 10% of total revenue, down from 20% previously. But, according to one analyst, that proportion will rise again as the company expands its operations in the United States, where Afterpay is facing criticism for the way it charges and what consumers know about the BNPL process.

Laybuy, another BNPL company, revealed that late fees accounted for nearly half of its revenue in the six months leading up to September this year. This is money made by exploiting people’s inability to pay.

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