The rise of 'pay on demand' apps offering users advances on their wages such as MyPayNow and BeforePay has sparked warnings from consumer advocates who fear the emerging sector resembles payday lending and could trap vulnerable users in debt.
The calls for regulation from consumer groups come amid fresh revelations that the chairman of MyPayNow, one of the major participants in the emerging sector, previously led a payday lending business that was reprimanded by the corporate regulator and separately agered to repay nearly $700,000 to customers it overcharged.
'Pay on demand' or 'wage advance credit' apps have emerged over the past few years as an offshoot of the booming buy now, pay later (BNPL) sector made famous by the now $30-billion valued ASX listed juggernaut Afterpay. Gold Coast based MyPayNow has been advertising aggressively including on prime time television, and is also sponsor of NRL team the Gold Coast Titans; BeforePay is slated for an ASX listing later this year and boasts prominent backers including chairman Brian Hartzer, the former Westpac boss, and investor James Spenceley. Even banking giant CBA has launched a broadly similar product, AdvancePay.
While BNPL services like Afterpay allow users to purchase goods immediately for a fee, and then pay the off the cost of the purchase in set instalments, pay on demand services offer almost the reverse. They advance users a portion of their wages before their employer pays them.
But the fees charged on these advances can be significant. In the case of MyPayNow, its 5 per cent charge on a weekly salary over the course of a year works out to an effective annual interest rate of 260 per cent.
Katherine Temple, director of policy and campaigns at the Consumer Action Law Centre said she is concerned about the blurred lines between 'pay on demand' services and payday lending,
"The lack of regulation is concerning, they are quite upfront about the fact that they are not doing credit checks," she said. "We are worried about people being lent money they can't afford to pay."
The high interest rates do not appear to have deterred users. MyPayNow chief executive Bronson Powe said the company has had over 300,000 downloads of its app since launch, with 95,000 current active users.
Australian Securities and Investments Commission (ASIC) searches reveal MyPayNow founder and chairman Shane Powe was previously a director of Sunshine Loans, a payday lender which in 2009 agreed to repay $684,977 to customers after charging them above a cap that restricted rates, fees and charges to 48 per cent a year.
In 2014 Sunshine Loans was found by ASIC to be abusing small amount lending provisions. In 2014 Sunshine Loans agreed to stop using business models which ASIC claimed deliberately sought to avoid small amount lending requirements.
Shane Powe is Bronson Powe's father and both declined to comment on the connection to Sunshine Loans.
"I was not of legal age at the time," Bronson Powe said.
Gabriel Bernarde, analyst at short seller Viceroy Research, has been tracking MyPayNow over the last few months and said the company resembles a pay day lender.
"Our research suggests there are no credit checks, limited identification checks, no employer contact," he said. "There appears to be no Know Your Customer or fit-for-purpose checks done by MyPayNow. There are no fit-for-purpose checks. It's difficult to perceive the service as anything besides a payday lender."
However Bronson Powe said MyPayNow was different to a pay day lender as it only ever charged a flat 5 per cent fee on money advanced.
"There are no late fees, missed payment fees or any other associated fees," he said. "The amount MyPayNow advances is directly related to the amount of income a consumer is earning. The amount we advance is capped at a maximum of 25 per cent of the consumers net income to reduce any risk of a debt spiral."
Ms Temple said regulation has not caught up with the rash of new businesses in the space and called for reforms to ensure new services are captured under existing frameworks.
"We would like to see these wage advance credit providers regulated under responsible lending laws which would mean ASIC and they would also be members of AFCA [the Australian Financial Complaints Authority]," she said. "At the moment if you had a problem with MyPayNow the only option would be going to court or a tribunal."
The Financial Rights Legal Centre has also monitored MyPayNow and policy officer Julia Davis warned the interest rates charged by MyPayNow were "extraordinary".
"It is up there with pay day loans," she said. "These guys want to say they are not sharks but anyone would say a loan with a 200 per cent interest rate is outrageous, that is shark territory."
She said regulation of the sector was needed.
"Anyone creating a company that falls right through the cracks of all our responsible lending laws is doing it on purpose, they are calling it innovation but they are avoiding regulation and just taking advantage of a loophole," Ms Davis said.
