Don’t succumb to the deadly After-Pay virus
I strongly support Barefoot Investor Scott Pape and his not-so-sweet warning about payday lenders and the Buy It Now, Pay Later (BNPL) phenomenon called the After-Pay virus.
Now his excellent article in the Sunday Telegraph (March 22) is behind a pay wall (to help pay for real journalists, not fake news). He denounces the most insidious and opportunistic lending practice, loosely referred to as payday lending and “Buy Now, Pay Later” (BNPL). I call it ripping off those who want instant gratification and can the least afford to pay.
It includes well known companies like Radio Rentals, GE Money, Nimble Loans, Wallet Wizard and BNPL outfits like Afterpay. Stylish advertising and assistance from price comparison websites such as finder.com.au make it seem normal, if not desirable, to accumulate small debts which, in reality, can get out of hand.
At least Finder publishes the obligation “This declaration is a requirement of the Australian government under the National Consumer Credit Protection Act 2009
and the Hotline for financial advisers at 1800 007 007. Surely that should sound the alarm bells.
Non-banking (payday loan)
Lenders like Nimble, Wallet Wizard, Cash Converters and many more offer up to $ 2,000 for a term of 3 to 12 months.
A $ 1000 loan will cost you around $ 1360/1680 if you pay it back as specified. The lender typically collects a 20% set-up fee from you ($ 200) and charges 4% fixed interest per month, or 48% per annum. Plus, you don’t really borrow $ 1,000 – it’s only $ 800, so it’s even worse.
But what happens in the event of default? It can be as little as a day late to make a payment. Two things
As Scott says, this can lead to a whopping 407.6% per annum interest on a one month loan.
All kinds of fees / charges apply (and you accepted them because you didn’t read the fine print)
- Late payment fees
- Arrears fees
- Statement issuance fees
It can go to a debt collection agency (to put it mildly for a vicious shark), and you can rack up more costs.
- Collection costs (it is not uncommon to see 25-50% fees for small amounts), lawyer letter costs, and all court costs (these can be substantial)
- Fees for sending follow-up letters
- And sometimes repossession and “repair” costs if the goods are damaged
Many payday lenders “sell” the paper (your loan) to a larger finance company like Latitude Financial (formerly GE Consumer Finance) which receives a 100% 1 star rating (less if it could) on Product Review. These companies are known for their tough tactics to protect their “investment”.
My wise mom told me you never buy anything unless you can afford to pay for it in cash
Well, maybe a house and a car can be excluded, although there are a lot of dubious financial brokers out there as well.
First of all, a personal experience. A long time ago (mid-1970s) I had a paid job (instead of having fun writing and revising tech – a passion my current / last wife understands). A junior colleague told me about a great way to buy housewares from Waltons (ancestor of Norman Ross of Harvey Norman pedigree).
Called “Buy Now, X Interest-Free Months,” so she bought everything from the jug and toaster to furniture and laundry. “It’s only $ 10 a month for the jug and $ 20 for the Manchester …”
After the first month, she missed three of the seven payments, and the second month paid off the three she missed and postponed the other four. At the end of this month, the debt collector stepped in.
So she asked for my opinion. When I added it all up, it was clear that she had pledged $ 7,000 worth of merchandise (a lot at the time), and if she paid it off over 12 months without default it would cost her around $ 12,000 . Considering rent, food, transportation, and her inalienable nights at the pub, there was no way she could meet even half of the monthly commitments.
Bankruptcy ensued for over $ 20,000 and all property was repossessed. While $ 10 a month seems like a good idea, but it isn’t and has ruined his credit rating even today. If the bank had given her a 12 month personal loan for the same $ 7,000 she would have paid (at today’s values) $ 624 per month and a total of $ 7,490 (7% PA).
Even a bank credit card at around 20% (based on full monthly repayments) would have been manageable.
Now let’s take a look at the BNPL After-Pay virus (and we don’t just attack it)
Afterpay is a pioneer in this “fin-tech” field. Some high profile names and retailers are behind this to help boost sales in tough times. In fact, it claims to offer much more than a payment service: it is a “platform” that provides inbound activity to retailers and generates additional sales.
Fin-tech often operates in unregulated segments of the market, so at the moment it’s not doing anything wrong. Ethically, you could easily argue otherwise.
Afterpay has been successful because it can do what regulated banks and credit card companies cannot. Remember, the founder of Afterpay was a 29-year-old college student who has since cashed in. Afterpay has not made a profit to date – the number of users and the money it lends determines the value of its stock.
Afterpay is like a hold system, except you get the goods up front and the merchant pays up front (minus a high merchant fee). If you make the four equal installments every two weeks, it won’t cost you any interest.
It takes the risk that you pay and earns you huge rewards if you miss even a payment by a day.
After payment, “About 95% of payments never happen with late fees. Yet some 24.4% of his income comes from late fees and 75.6% from merchant kickbacks (Source).
Afterpay is not transparent about the kickbacks of merchants who are “confidential business”, but we understand they range from 4-10%! This is money you could have negotiated at full retail price. And that’s why Afterpay isn’t always available on sale items. Merchant credit card fees, in comparison, are around 1%!
The RBA has announced that it will conduct an in-depth review of card payment regulation in 2020, with BNPL services being part of that review.
Privacy after payment – no!
His Privacy & Terms scares them. We believe they are well above and should be kept to the absolute minimum necessary to process a transaction between you and the retailer.
- Contact information, such as your name, address, phone number, email, and other similar information.
- Financial information, such as full bank account numbers and / or credit or debit card numbers that you link to your Afterpay account or provide to us when using Afterpay services.
- Detailed personal information such as your date of birth, driver’s license number or other identifying information or documents.
- We may also obtain information about you from third parties, including our partners and related companies, as well as credit reporting agencies and identity verification services, and sources available publicly or commercially to comply with the relevant legislation (eg anti-money laundering laws).
- Access to certain personal information stored by third parties such as social media sites (eg Facebook and Twitter). The information we may receive varies by site.
- Personal information if you participate in a contest or promotion that we run (either directly or through our marketing agents or partners)
- We may assess your computer, mobile phone or other access device to identify any malicious software or activity. That’s an understatement for its app, cookies, tracking tools, and spying.
- We may also collect additional information from or about you in other ways, for example by contacting our customer support team, suppliers or service providers (whether by mail, email or telephone), your responses to market research and from interactions. with Afterpay partners or as notified to you at that time.
- And what you shop and buy
Afterpay has the right to do almost anything (by omission) with your data.
For example, it sells this data to online advertising vendors to deliver “relevant and useful” advertisements to you. This may include advertisements served on or through its websites or on the websites of other companies.
In other words, it doesn’t do anything so different from the masses of data-gathering loyalty programs – it’s just not quite as blunt about it.
Afterpay says “Don’t pay anything extra when you pay on time”. Buried in the Terms Section is
- If the payment is not processed on or before the due date, a late charge * will apply: an initial late charge of $ 10 and an additional $ 7 if the payment remains unpaid seven days after the due date. deadline.
- Late Fee * For each order less than $ 40, a maximum of $ 10 late fee per order. For each order of $ 40 or more, the total late fee is capped at 25% of the original order value or $ 68, whichever is less. See appendix 1.
- A pre-authorization on your nominated card, up to the amount of your first payment. If you can’t afford the first payment, that becomes the problem with the credit card companies.
Afterpay is a drug and although it is not as insidious as the payday loan, it is difficult to get out of it.
GadgetGuy’s Point of View – Thanks, Scott for alerting us to the After-Pay virus.
As Scott suggests, we’ll send it to Michael Sukkar MP, Assistant Treasurer (Michael.Sukkar.MP@aph.gov.au) responsible for investigating payday loans.
Michael, payday loans and BNPL are rampant cancers and an addictive drug that, like the scourge of methamphetamine, must be eliminated. A more responsible lending system through banks (not junk lending but mostly to the people who will repay it) is the answer.
As Scott Pape says: “Do your job and muzzle these bastards now!”
If you have any BNPL or After-Pay virus stories contact Scott.
www.gadgteguy.com.au, After-Pay Virus, After-Pay Virus, After-Pay Virus