Sharon * feels sick when she sees television commercials for on-demand products.
* Name changed for more confidentiality.
“They show how easy it is [to access an advance on your wage]: ‘click a button and here is your money’! “It’s your money, you just get it a little earlier!” “”, she says.
“But what people don’t understand is that it can get out of hand very quickly.”
She saw it with her own eyes when her son Tom *, in his early 20s, came to ask for help. He was using a pay-on-demand app to access part of his monthly salary earlier to fund his gambling and cover a patchwork of other loans he had taken out.
“He used these apps when he got into real trouble,” she says.
He would ask for some of his pay sooner, spend it almost immediately, run short on his next payday, and then start the cycle again.
With each claim adding to the growing stress, Sharon says, “You can’t spill blood from a stone.”
What are pay-on-demand apps?
These products are fairly new to Australia, but they are already very popular.
They are marketed as a quick fix for anyone facing an unexpected bill or expense; a simple way to advance your pay. But Rob Benton, a financial advisor at Uniting NSW, who works on the National Debt Helpline, doesn’t see it that way.
“You don’t have access to your salary; you have access to a loan, ”he says.
Mr. Benton says many of his financially struggling clients often don’t recognize it as debt.
It is important to note that there are key differences between this type of debt and more conventional types of debt (including payday loans, who have been in Australia for some time).
First, you usually don’t need to do a credit check. Rather, most applications require proof that you are regularly employed and meet a minimum income requirement. They then automatically set a limit to the amount you can access each payroll cycle.
And second: the majority of pay-on-demand apps don’t charge interest on late payments, instead opting for a flat fee (usually around 5%) on each advance.
Nevertheless these terms and conditions often vary whether the service is offered by your employer or a bank.
Why this can be a problem
“For occasional use, this seems like an acceptable expense,” Mr. Benton said. “But these products can be the start of a slippery slope.”
Getting regular advances on your paycheck creates a situation where you are always late, he notes, and – as the huge job losses during the pandemic have shown – no one’s continued income is ever gone. 100% guaranteed.
Rosylyn Russell, professor at RMIT’s School of Economics, Finance and Marketing and Research Director at Good Shepherd, a non-profit organization that provides services and support to financially insecure Australians, is also hesitant.
“For many low-income employees, it’s really hard to make ends meet. And so what worries me is that they need money for daily expenses, rather than [one-off occasions]. “
She says Good Shepherd has seen more and more people seek help during COVID, often after taking out a number of small loans (including buy now-pay later products) from businesses that make it “simple” and “brilliant”.
“I can certainly understand the temptation… [When you’re in a difficult situation] you’re just completely focused on solving this problem you’re in right now, ”she says.
“But the next month arrives and there are more bills and more expenses.
But isn’t getting money fast a good thing?
In theory, yes! But Mr Benton and Ms Russell suggest thinking about what you could trade for that convenience.
Many pay-on-demand apps are currently exempt from responsible lending laws, which means you don’t have some of the usual legal protections either.
Katherine Temple, Director of Policy and Campaigns at the Consumer Action Law Center, explains:
“Responsible lending laws require that lenders, like payday lenders or the banks that distribute credit cards, verify someone’s income and expenses, and make sure they can make repayments without endure significant hardship. And they also need to verify that information. “
She also notes that you are not guaranteed to have an external dispute resolution process if things go wrong.
Large companies have refuted suggestions that their products are contributing to financial hardship. Some apps offer budgeting features to help you manage your money, and a few explicitly state that they look at people’s bank statements for indications of problem gambling or other loans.
Sharon is currently trying to get answers as to how her son slipped through these stitches.
What are the other options?
If you’re in a really tough spot and considering using a pay-on-demand app, Benton says it’s worth exploring your other options first. This could include checking interest free loans and / or discuss with your utility companies about late payments.
But, he says, “the best decision you can make is to call the National Debt Helpline on 1800 007 007”.
“Consult a free financial advisor and take a look at your situation.
When Tom got into trouble, he turned to his family as well as professional rehabilitation services for his gambling addiction – and Sharon is delighted he did.
“Thank goodness he came to me and told me exactly what was going on.
“We feel very lucky. And I know he feels very lucky too.”
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