“Up there with payday loans”: calls for crackdown on payday advance applications
The rise of ‘pay-on-demand’ apps offering users advances on their wages, such as MyPayNow and BeforePay, has triggered warnings from consumer advocates who fear the emerging industry looks like payday loans and could trap vulnerable users in debt.
Calls for regulation by consumer groups come amid new revelations that the chairman of MyPayNow, one of the leading participants in the emerging industry, previously ran a payday lending company that was berated by the regulator and Aged Business Separately to reimburse nearly $ 700,000 to customers it overcharged.
“Pay-on-demand” or “payday advance credit” applications have emerged in recent years as an offshoot of the booming buy now, pay later (BNPL) industry made famous by the behemoth Afterpay. ASX-listed, now valued at $ 30 billion. Gold Coast-based MyPayNow has been aggressively advertised, including on prime-time TV, and is also the sponsor of the NRL team, the Gold Coast Titans; BeforePay is expected to be listed on ASX later this year and has top funders including Chairman Brian Hartzer, former Westpac boss and investor James Spenceley. Even the banking giant CBA has launched a largely similar product, AdvancePay.
While BNPL services like Afterpay allow users to buy goods immediately for a fee and then pay the cost of the purchase in installments, pay-on-demand services offer almost the opposite. They advance users part of their salary before their employer pays them.
But the fees charged on these advances can be significant. In the case of MyPayNow, its 5 percent charge on a weekly salary over the course of a year equals an effective annual interest rate of 260 percent.
Katherine Temple, director of policy and campaigns at the Consumer Action Law Center, said she was concerned about the blurred lines between “pay-on-demand” services and payday loans,
“The lack of regulation is a concern, they are quite candid about the fact that they don’t do credit checks,” she said. “We are concerned that people will be loaned money that they cannot afford to pay. ”
The high interest rates do not seem to have deterred users. MyPayNow chief executive Bronson Powe said the company has recorded more than 300,000 downloads of its app since launch, with 95,000 current active users.
Australian Securities and Investments Commission (ASIC) research finds MyPayNow founder and chairman Shane Powe was previously a director of Sunshine Loans, a payday lender that in 2009 agreed to repay clients $ 684,977 after charging them above a cap limiting rates, fees and charges to 48 percent per year.
In 2014, ASIC discovered that Sunshine Loans was abusing the small loan provisions. In 2014, Sunshine Loans agreed to stop using business models that ASIC said deliberately sought to avoid small loan requirements.
Shane Powe is Bronson Powe’s father and both declined to comment on the Sunshine Loans connection.
“I was not of legal age at the time,” said Bronson Powe.
Gabriel Bernarde, an analyst at short seller Viceroy Research, has been tracking MyPayNow for the past few months and said the company looks like a payday lender.
“Our research suggests there is no credit check, limited identity checks, no contact with the employer,” he said. “There appears to be no Know Your Customer or fitness for purpose check by MyPayNow. There are no checks adapted to the use. It’s hard to see the service as anything other than a payday lender.
However, Bronson Powe said MyPayNow is different from a payday lender because it only charges a fixed 5 percent fee on the money advanced.
“There are no late fees, missed payments or other associated fees,” he said. “The amount MyPayNow advances is directly related to the amount of income a consumer earns. The amount we are advancing is capped at a maximum of 25% of consumers’ net income to reduce any risk of a debt spiral. ”
Ms Temple said regulations have not caught up with the wave of new businesses in the space and called for reforms to ensure new services are accommodated within existing frameworks.
“We would like to see these payday advance credit providers regulated under responsible lending laws, which would mean that ASIC and they would also be members of AFCA [the Australian Financial Complaints Authority], “she said.” At the moment, if you had a problem with MyPayNow, the only option would be to go to court or a tribunal. ”
The Financial Rights Legal Center also monitored MyPayNow, and Policy Officer Julia Davis warned that the interest rates charged by MyPayNow were “extraordinary.”
“It’s up there with payday loans,” she said. “These guys mean they’re not sharks, but anyone would say a loan with 200% interest is outrageous, it’s shark territory.”
She said regulation of the sector was necessary.
“Anyone who sets up a business that falls through the cracks of all of our responsible lending laws is doing it on purpose, they call it innovation but they are avoiding regulation and just taking advantage of a loophole,” Ms. Davis said.