Transcript: Money News with Ross Greenwood 2GB

12.00pm | January 24, 2019



SUBJECT/S: Senate inquiry into credit and financial services targeted at Australians at risk of financial hardship.

ROSS GREENWOOD, HOST: You might have heard about this Senate Inquiry, this has really been all about credit providers and whether some of these new types of websites around the place - like AfterPay, ZipMoney – well are they credit providers or are they service providers? It’s a really interesting distinction and the reason why it’s an interesting distinction is because a lot of people are choosing to go and use these services rather than using credit cards which, of course, have been something of an evil for people who get trapped into them. With these particular services if you don’t pay on time you do get hit with a credit charge, a late fee if you like. So that’s an issue.

Now Senator Jenny McAllister is the acting Chair of the Senate Economics References Committee that’s been quizzing all of these companies in the past few days. She was there yesterday as I would expect and she is on the line. Hello Jenny, how are you?


HOST: Good okay so, just explain are they fish nor fowl? Afterpay is it a credit provider or not?

MCALLISTER: Technically, they’re not. But for all practical purposes, if you’re a consumer and you’re taking on the debt of obligation to this firm, you’re in debt. From a consumer perspective you absolutely are in debt. And our concern has really been – my concern has been - to take a look at these products and make sure that consumers are really protected when they’re going into these arrangements.

HOST: I agree with you Jenny. It looks like a duck, it quacks like a duck, it surely must be a duck is my theory. They’re trying to argue they are not ducks – that they are not credit providers because they offer, well let’s say, almost like a lay buy service where if you don’t pay on time that you will get slugged with a fee. But yes, they will make most of their money out of the retailers who offer this service. Now the other issue is, as I understand it, they are not right now regulated or covered by the Australian Securities and Investments Commission because they are not considered as credit providers thus they very conveniently sort of slip between the cracks of legislation.

MCALLISTER:  Yeah, they are not regulated under the National Consumer Credit Protection and that is a problem. And I think it probably confers them a market advantage too, you know, so they don’t have to conduct checks on people’s incomes or debts and expenditure before they issue the loan. They don’t have to offer a hardship arrangement if people get into trouble. It’s not clear that they are always providing full information to consumers about the terms and conditions, what they are getting themselves into. There is a range of problems. To be fair to the companies, I think they acknowledge that that is not a sustainable situation. And we heard yesterday from both ZipPay and Afterpay - and they both said - that they are open to regulatory arrangements and they both accepted that, at some point, they are going to be regulated and the question is then what kind of regulation? And we heard different things from both of those companies.

HOST: Okay, so the other point also is there is no doubt that it is a highly popular service. I get it, I understand why people would be attracted by this. You can pay on a drip payment, it is linked to your card, you make your payments and, if you are on time, it’s highly convenient because you can take the goods and then pay for them relatively slowly. So I think it’s clever, I think it’s really smart, it’s why it’s going to America, it’s why the share price doubled on the stock market for Afterpay last year. I get all of that. But what does really concern me is people who get into strife and whether they have recourse as to whether they can genuinely afford that credit in the first place or not.

MCALLISTER: That’s right. And look, I think most people using this product are using it well - and that’s true for most of the credit products in the market, right? But there are, for example, 5% of AfterPay clients, one survey found 5% had a pay day loan and 7% of them had a consumer lease. Now that rings alarm bells because PayDay loans and consumer leases are overwhelmingly taken up by people who are really doing it tough and who don’t have many other financial options. So you’ve got a small part of their market that is actually a pretty vulnerable group of people. And I think for that group you can imagine circumstance where they get into trouble. And what is starting to happen is that the financial counsellors, the people who provide free advice, independent advice to these people, are bring forward stories about that, stories about a single mum…

HOST: So these are the people coming out of the Salvation Army or the Brotherhood of St Laurence whoever it may be, because they are providing a lot of these free community services.

MCALLISTER: Exactly right, so one submission to the inquiry from up in the Hunter Valley, single mother, two kids, hadn’t worked for four years, reliant on Centrelink, some health issues, she is now homeless because she hasn’t been able to pay her rent. But she has two pay day loans, four Afterpay accounts for things that her kids wanted, and now she’s got an email from a collection agency for a Buy Now Pay Later product that she can’t actually remember buying. Now she is not a suitable client for buy now pay later, plainly, and it does raise questions about the level of checking.

HOST: It’s interesting here Jenny because, as I say, most people are dealing with them without consequence and the question is whether people are being checked to see if they have those other payday lending type arrangements. This is the provision of any credit you have got to make certain that the person has a reasonable chance of being able to pay it back. These are the checks and balance you hope these companies would put in place.

MCALLISTER: That’s right, and pays it back without causing undue hardship.  And that’s really important because some of these people can pay it back but they do it at the expense of paying their electricity bill or paying their rent or buying food. And that is not an acceptable term on which to offer a loan. Most of the finance sector accepts that unquestionably. I actually think the key players in the market, like Afterpay and Zippay, would accept that unquestioningly. But right now we are reliant on firms doing the right thing, and I think we have seen enough of the finance sector to know that is not a sustainable arrangement in the long term.

HOST: Senator Jenny McAllister is the acting Chair of the Senate Economics References Committee looking at this. I think it’s a big issue and I’m not certain whether people have used Afterpay listening, but if you have, give us a call. I’ll tell you someone who has, Brad’s in Clifton Springs. G’day Brad, how’re you doing? You heard the Senator there. What do you reckon? Have you had experience of this?

CALLER: Well my partner uses it and we don’t have a problem with it. You can book airfares and all the rest of it and the Senator sort of is banging on about this and that and people shouldn’t be able to afford it. What about the banks with their ghost home loans and all the rest of it. People can’t even get a credit card, who probably want a credit card. Afterpay works if you use it the right way. 

HOST: I’ve got to say, Brad, one hundred per cent. And Jenny you would agree people using it the right way have got no problems and as you also pointed out is this better or worse than credit cards. But what you want to make certain is if people undertake an obligation that they have a reasonable chance of being able to pay it back.

MCALLISTER: That’s right. And Brad makes a perfectly sensible point. If you use it well and you are managing your finances well, great. But for a small group of people and I don’t assert it is more than a small group actually. For a small group of people I think things are going wrong and the committee is taking a look at that.

HOST: There you go Jenny McAllister acting Chair and Brad in Clifton Springs.