MyPayNow will make you pay later, consumer groups warn payday lenders flood the pandemic economy
Rachel Black knows she has a problem with managing money.
She has spent the past decade in a debt spiral with various payday lenders who have been accused of taking advantage of vulnerable Australians.
The 56-year-old assistant school principal, who has been on long service leave throughout much of the COVID-19 crisis, recently got caught in debt again.
This time it was with a company called Cigno, which has repeatedly been in the media spotlight and attracted the attention of financial regulator ASIC for its lending practices.
“I’m a massive over spender,” Ms Black admitted.
“I don’t stop and think. I give money away.”
Ms Black said she started using credit offered through Cigno about six months ago, starting with small “necessity” purchases that built up over time.
“I think, ‘I need dog food, I need dishwashing tablets’, and I get a Cigno loan,” she said.
“[One time] I borrowed $75, and had to pay back $101 with interest and fees.”
That is a tiny amount of debt in relation to the tens of thousands of dollars she has racked up with other lenders and credit companies over the years.
Her main issue is that the law does not prevent loans being made out to people like herself with poor credit histories.
Ms Black said when you get a loan with Cigno, you get preapproved for future loans.
“It says you’re preapproved for two more loans,” she said.
“It makes it very attractive for a lot of people.”
“Once you go to one of these lenders, all these other lenders start sending text messages asking, ‘do you want a top-up this week?’
“It’s constant — every second day I’d get messages offering me preapproved money in 15 minutes.
“That’s what needs to stop. Once people pay you [back the debt owed], don’t keep chasing them and offering them more.”
But that is the very model that makes payday lending a lucrative business, and also what leaves people like Ms Black in a constant debt trap.
“In the past, I’ve got myself in huge trouble [with other lenders] – I had to sell my home … I was taking everything and anything — three business class trips to England in a year on credit,” she said.
“I just spent and thought I could manage it, but I couldn’t. It got to the point that I couldn’t open my letterbox.”
The Consumer Action Law Centre’s director of policy and campaigns Katherine Temple said short-term lenders were structuring their businesses to avoid regulation under national credit laws.
“This means people using these products miss out on important consumer protections like affordability checks, financial hardship assistance and proper dispute resolution processes,” Ms Temple said.
CALC recently submitted a complaint to the Australian Securities and Investments Commission (ASIC) against a new “pay advance” lender, MyPayNow, which does not have an Australian Credit Licence.
However, as MyPayNow told the ABC, it does not need to.
“MyPayNow does not, and is not required to, hold an Australian Credit Licence because it is providing an exempt product,” its general manager Nic Bennetts said in a written response to emailed questions.
The exemption Mr Bennetts is referring to allows for the provision of “short-term credit”, of up to 62 days, provided the fees and charges are no more than 5 per cent of the amount loaned and the annual interest rate is no higher than 24 per cent.
“[MyPayNow’s] credit charge of 5 per cent per loan is exactly what is allowed under the exemption for short-term credit contracts,” Mr Bennetts explained.
He said the company had been in discussions with ASIC subsequent to CALC’s complaint to satisfy the regulator that it was complying with the law.
Ms Temple said CALC is still investigating whether other aspects of MyPayNow’s lending model might be in breach, but acknowledged that the company may well be operating entirely within current rules.
“They [short-term lenders] spend a lot of time and energy finding loopholes in the law so that they can hand out loans to people who are, essentially, in financial hardship and can find themselves in quite desperate situations,” she told ABC News.
“It feels like we’re playing whack-a-mole — as soon as you close one loophole or one problematic business practice, they seem to be able to find another loophole.
“We are pushing the Government to introduce an anti-avoidance provision to address some of that behaviour.”
For its part, MyPayNow rejects any suggestion it lends to people in financial hardship, pointing out that it only lends to people with evidence of regular employment income and does not lend to people whose income is from Centrelink or whose bank statements indicate “gambling, excessive borrowing or any direct reversals or overdrafts”.
“We know for certain that our product will not cause any financial hardship or we would not offer it,” Mr Bennetts argued.
“We believe our product helps customers ‘out of a jam’ and gives them the option to avoid putting things on credit cards, etc, or going to pawnbrokers which, in the end, will cost them more if the cost is measured in dollars and not artificially converted to an interest rate over time.”
Mr Bennetts said the company is not concerned by the prospect of any new regulations that may be introduced.
“If MyPayNow needs to alter its business model to ensure we remain compliant with the regulations, then by all means we will,” he responded.
Mr Bennetts also told the ABC that, while MyPayNow advertises on radio, digital and billboards, it does not market directly to former customers, unlike some other lenders.
“We do not do any form of marketing or send offers to previous clients who have used the service before,” he noted.
ASIC targets Cigno
MyPayNow is a relatively new operator in the payday lending market, having only provided loans for a few months.
For its part, without commenting on particular companies, the regulator said it watches this sector closely for signs of consumer harm, and supports legal changes that offer consumers more protections for “small amount credit contracts”.
“ASIC is focused on protecting vulnerable consumers and will act in circumstances where it sees lenders causing significant harm to consumers,” a spokesman said.
ASIC already has product intervention powers (PIP) that it can use to ban some lending models that it regards as harmful to consumers but that are not currently illegal.
The regulator is currently consulting about using these powers against Ms Black’s lender, Cigno, and its latest lending model.
Consumer advocates support the regulator being able to target the company if it is found to cause consumers significant detriment and charge exorbitant fees.
But, in a submission to ASIC, Cigno chief executive Mark Swanepoel slammed the regulator for trying to use its product intervention powers to stop the company from offering customers its service.
“The reality is that ASIC, the government regulator, have formed their view based on a very small percentage of our customers,” Mr Swanepoel wrote in the submission.
“To meet their agenda, they have in most cases used clients that have paid back nothing, been charged for defaults and are looking for an easy way to get something for nothing.
“We are fighting a large group of hypocrites — the leeches of society who steal more and more freedom and choices from everyday people behind the veil of good intentions.”
Mr Swanepoel noted 70 per cent of the company’s active database were returning clients.
“We do not hide away from what we charge for the service we provide and are extremely proud to have helped the many thousands of people we have,” he said.
Consumers vulnerable during COVID-19
Ms Temple said while unregulated lenders were a big problem, even regulated lenders such as Cash Converters and Nimble offered short-term loans that were “very expensive, with equivalent annual interest rates often exceeding 200 per cent per annum”.
“As we attempt to recover from the COVID-19 crisis, it is incredibly important that people are protected from predatory lending practices,” Ms Temple said.
“We are concerned, with payday lending in particular, about the cycle of debt that people can find themselves in.
“It’s not unusual for us to see people who have five, 10, 15 of these loans and, essentially, people get caught in a trap where they take out one loan to pay off the other loan.
“The debt spiral people often find themselves in when they take out these kinds of loans is difficult to escape.”
Financial Counselling Australia’s chief executive Fiona Guthrie also has major concerns about the industry.
She said while some may argue the industry is already heavily regulated, that is not the case in her view.
Ms Guthrie suggested one option was to restrict the amount a person could borrow on a payday loan to 10 per cent of their net income.
“You need additional safeguards and protections when you’re dealing with a product that has got so much room for danger,” she said.
MyPayNow currently offers loans of up to 25 per cent of a customer’s regular employment income.
Ms Guthrie said, currently, there was too much discretion in granting loans for lenders exempt from responsible lending protections.
“It’s left very much to the provider to make an assessment and they can come down on the side of, ‘let’s give people as much debt as possible’,” she said.
However, Mr Bennetts argues that it would be bad business for MyPayNow to lend irresponsibly.
“From a business perspective alone, if we were targeting vulnerable, lower socio-economic or disadvantaged people, our business would either be pursued by the regulators or not be around long as we would not be able to collect our funds,” he told ABC News.
As for what people who find themselves in desperate need of short-term cash should do, Ms Temple said payday lenders of all varieties were best avoided.
“Someone who’s in financial hardship will only worsen their situation by taking out a high-cost, short-term loan,” she warned.
“They’re much better speaking to a financial counsellor who can offer free and independent advice on dealing with debt to come up with a long-term sustainable solution and avoid these kinds of debt spirals.”
ASIC’s MoneySmart website offers contact details and links to the National Debt Helpline and other consumer debt assistance services around the country.