Fears over buy now, pay later’s next Australian move

Alarms have been sounded that vulnerable customers could fall further into a “debt spiral” as the sector moves to target a new group.

Buy now, pay later providers’ push to offer money to Australian renters could cause “big problems” for customers and further add to spiralling debt issues, according to consumer advocates.

Consumer groups have already sounded the alarm that users could face a “debt spiral” with new offers such Afterpay moving into the pub sector.

There have also been concerns about the sector targeting a younger female audience with the service featuring heavily in women’s beauty, cosmetics and fashion.

Now new players are pushing the use of buy now, pay later for renters, including Tenanting, which offers to “instantly” pay rent on an individual’s behalf. The person must then pay it over four instalments but with the addition of a 5 per cent fee.

There are concerns vulnerable renters will fall into debt by using BNPL products. Picture: iStock

Consumer Action Law Centre chief executive Gerard Brody described the move as “highly irresponsible”.

“Rent is one of the essential costs that you have to pay every week so to go into debt to pay it, its not a helpful way to resolve that cost, as you just have to pay it again the following fortnight when the repayments are due,” he told news.com.au.

“For people needing to rely on a loan if they are finding the cost of rental payments difficult, this is not a solution and it’s not smoothing the costs out, but it’s going to create more expenses down the track.”

For someone paying $515 a week for a typical two-bedroom apartment in Greater Sydney, the addition of the 5 per cent fee from Tenanting would result in a renter paying $25.75 more a week.

Another provider RentPay offers a service called SafetyNet where people can access a week’s worth of rent, which can be paid back in four instalments, but attracts a fee of $15 for every missed payment.

Gerard Brody is CEO of the Consumer Action Law Centre. Picture: Stuart McEvoy/The Australian

Mr Brody said it was “unfortunate” that the BNPL sector remained unregulated, unlike other forms of consumer credit such as credit cards, personal loans and mortgages.

“That means that providers don’t have to be licensed, don’t have to meet standards like responsible lending obligations which require them to assess that a loan is suitable and repayments won’t cause substantial hardships,” he said.

“As a result there’s a huge gaping hole in the financial regulation regime and the government needs to assess it as a priority.”

More and more people are contacting the Consumer Action Law Centre and financial counsellors not only owing substantial amounts to BNPL providers but also dealing with a multitude of other debts, such as credit cards and payday loans, he added.

A big issue was the BNPL service was sold as a “frictionless, easy and convenient” way to pay rather than a loan and makes it more difficult for people to handle money, he noted.

“So it’s becoming a bigger problem. I think that what tends to happen is because these lenders don’t have to abide by responsible lending laws, they don’t assess the full financial situation of people and don’t necessarily know they have other debts and might struggle with this particular product,” he added.

Financial Counselling Australia has urged the government to commission an independent review into these financial products and the lack of regulation, arguing proper hardship procedures aren’t in place if people find themselves struggling.

Consumer advocates want to see the BNPL regulated like other financial products. Picture: Nikki Short/NCA NewsWire

RentPay also goes further than offering money for the weekly rent and provides a loan for a person’s bond, which attracts no interest if paid back in 21 days.

But the company told The Guardian, 80 per cent of customers did not pay it back in time.

“We see ourselves as the champion of renters, and we believe that renting should be better,” said RentPay CEO, Greg Bader.

“A lot of the things we build are around making renting easier. I don’t think we take advantage of any loopholes or push people into debt spirals. I think the flexibility we offer in the product actually helps people manage their money better.”

He added SafetyNet, which offered to pay rent, was not designed to be used as an “everyday thing” either.

RentPay CEO said they didn’t think they were taking advantage of any loopholes or pushing people into debt spirals. Picture: Getty Images

A spokesperson for Tenanting said the service provides tenants with a flexible payment option to pay rent as a better alternative to predatory payday lenders.

“We are decentralising the rental system and putting control back in the hands of the Australian public,” they said.

But many renters may not know there is government help available too.

Some state governments can provide bond loans for renters who struggle to come up with large lump sums at short notice without the requirement to pay interest, while tenants who fall into arrears can retain their home if they pay up in full before an eviction date.