Aussies warned over new pay trend
Wage advance services are advertised as offering a quick and easy way to borrow money before your payday, some offering the advances within a minute.
The products are under no obligation to assess a person's ability to service the debt or to give financial hardship assistance.
This has led to a chorus of consumer advocacy groups to call on the Albanese government to urgently regulate the services that they say make the cost-of-living crisis worse and are sending thousands into dangerous debt spirals.
Consumer Action Law Centre chief Stephanie Tonkin said she had heard from people who had taken multiple wage advance contracts and had ended up committing their whole income to repaying the loans. Consumer advocates have warned the wage advancing products are sending thousands into debt spirals. NewsWire / Nicholas Eagar Credit: NewsWire
'These products encourage people to borrow against their future income to meet their essential living needs, and this can cause serious harm when there's no extra money in the next pay cycle, only greater debt,' Ms Tonkin said.
'The fees add up very quickly if you're stuck in a cycle of borrowing now to pay more later.'
This fresh warning comes as buy now, pay later (BNPL) products are brought under the National Consumer Credit Protection Act, a long-time campaign goal for consumer advocacy groups. Buy now, pay later products face regulation under the Credit Act from June 10. NewsWire / Gaye Gerard Credit: News Corp Australia
'We want wage advance brought under the Credit Act as a priority to give people the same consumer protections as BNPL,' Ms Tonkin said.
'It's taken years for BNPL to be regulated – we can't wait that long again.'
Consumer Credit Legal Service principal solicitor Roberta Grealish likened the proliferation of this type of financial product to a game of 'whack a mole'.
'Wage advance products now need to be brought within the Credit Act to prevent the harms that the new BNPL rules hope to address simply shifting into this space,' Ms Grealish said.
Choice campaigns director Rosie Thomas said the work to close 'lending loopholes' was not yet finished.
'Consumers will continue to be harmed until wage advance is also regulated as credit,' she said.
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