Aussies struggling with Christmas debt warned of 'buy now, pay' later dangers
Australians struggling with Christmas debt are being warned of the dangers of resorting to quick-fix loans and "buy now, pay later" services, ahead of a Senate inquiry in Melbourne next week.
The inquiry will lift the lid on the practices of payday lenders, "buy now, pay later" service providers and some companies offering leases on appliances.
"We're hearing there are real problems in the way some credit providers target very low income people or people under financial stress," Jenny McAllister, Shadow Assistant Minister for Families and Communities, told 9News.
"Mostly they're operating within the law, and the purpose of the inquiry is to have a look at the laws and see if they are adequately protecting people."
Senator McAllister called for the inquiry, which has now received around 60 submissions from charities, financial counsellors and business groups.
Common complaints include high interest rates, confusing contract terms, and insufficient checks and balances on a person's ability to pay back a debt.
A submission by Financial Counselling Australia claimed a woman who was on a Centrelink Newstart allowance was given a $200 payday loan.
While she could've paid it off quickly, with two payments of $167 one week apart, she was unable to meet the deadline.
"When she came to see the financial counsellor she had paid a total of $937 and was told by the payday lender that she still had an outstanding balance of $299.50," the submission reads.
In another example, a 45-year-old woman on a Disability Support Pension was spending nearly 43 percent of her income on buy now, pay later repayments.
Katherine Temple, from the Consumer Action Law Centre, says the National Debt Helpline receives calls about payday loan issues on a daily basis.
"Pay day loans can attract interest rates of over 200 percent per annum," she said.
"And 'buy now, pay later' providers are not subject to the same lending laws as other credit providers, so there aren't the same checks and balances in place as there are for other loans."
She warned people to think twice before using such services during the Christmas period.
"It's very common for people to be worrying about money in the lead up to Christmas, and payday loans and 'buy now, pay later' might seem like a quick fix, but the reality is it can push your financial problems into the New Year."
The Senate inquiry is expected to deliver its recommendations on the sector early next year.