Some Tasmanians are spending up to 30 per cent of their fortnightly income on late fees and repayments for Buy Now Pay Later loans which are then sending them further into debt, the No Interest Loans Scheme Tasmania is reporting.
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Treasurer Josh Frydenberg announced on Wednesday that consultation on regulations of the sector - which accounts for 20 per cent of online sales in Australia - would begin next year, but not until after the federal election.
The lack of regulation has seen the number of players in the sector increase rapidly in the past two years following Afterpay's initial market dominance.
NILS Tasmania has become alarmed at the increase in Tasmanians needing financial support due to becoming weighed down by late fees, some with "pages and pages" of repayments on their bank statements.
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NILS Tasmania chief executive officer John Hooper said that individual statements were showing some people paying hundreds of dollars per fortnight into the schemes, taking up almost a third of their income.
He said this was then creating further financial issues.
"If you suddenly can't make that first repayment, then the spiral into debt can happen because they're trying to draw more payments, and late fees, bank arrears fees start, then the next fortnight repayment comes around, a failed direct debit from banks cause more fees," Mr Hooper said.
"From last year and this year, we've seen it growing. That's coincided with these companies promoting themselves more, being everywhere across retail outlets.
"If you can pay on time then it can be effective. But it's those people who don't manage to meet repayments on time and then start accruing debts that we worry about."
Buy Now Pay Later schemes are generally four to six fortnightly payments usually with no money upfront, with customers provided a credit limit that increases the more the schemes are used.
Late fees then apply if repayments are missed, at a flat rate, which can apply across all individual debts.
The various schemes - with names like Sezzle, PayItLater and Fupay - have no mechanism of cross-checking whether a customer has accrued debts with other schemes, which Mr Hooper said was a problem.
While welcoming the federal government's commitment to bring in regulation, he said issues with the schemes had been known about for years.
"One of the issues the federal government is grappling with now is that these companies have gotten enormous because of the take-up due it not being regulated already," Mr Hooper said.
"Regulation is needed now before more vulnerable people are ripped off."
Federal regulatory agencies - such as the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, and the Reserve Bank - will report back to the government late next year on how to move forward with regulations.
A lack of regulation means there's no oversight of the fees charged to use Buy Now Pay Later schemes, or an assessment of market conditions and competition.
"When it comes to new services like Buy Now Pay Later and digital wallets, the reforms will see consumers and businesses alike benefit from more appropriate regulatory oversight on fees, transparency and competition in the market," a government summary reads.