Bundling expensive cellphones and data connections with ‘hidden’ loans is helping to push people into distress, say financial mentors, and they’re pushing for pay-by-phone plans to be covered by data protection laws. responsible lending.
Major telecoms retailers Spark, Vodafone and 2degrees are selling phones under long-term loan deals pushed by commission-hungry salespeople.
Ruth Smithers, chief executive of financial wellness service Fincap, said some phone deals on the market even involved phones “marked up well above the recommended retail price”, which likely reflected a hidden cost of credit.
“We hear from financial mentors that these deferred payment arrangements continue to be paid before kai is purchased, even when the phone has been down for a long time, and a whānau has been subscribed to an additional plan,” said said Smithers in a submission to a government review. on buy now, pay later loans.
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Telco phone deals are sold by commission-incentivized staff, a form of pay-as-you-go banks being phased out after criticism of a push-sell culture that was not in the interests of customers.
Jake Lilley, senior policy adviser at Fincap, said phone deals were often sold as “interest-free”, but in all other respects they looked like loans.
This included allowing people to get a device immediately, or after a small number of payments, followed by long-term repayment plans, penalties for missing payments, with the threat of debt collectors being called in to collect arrears.
And while some car loan companies were installing devices in vehicles that allowed them to disable cars if borrowers missed repayments, telecom operators could remotely turn down cellphones refusing service, Lilley said.
The transactions were sold with the promise of “low” monthly repayments for three years or more.
Some transactions involved weekly payments of just over $21 for three years, which was unsustainable for some people signing up over the phone, Fincap said.
“This is a commitment of $3,418.92 without the requirement for an affordability assessment,” Smithers said.
A loan covered by responsible lending rules would require the lender to perform an affordability check.
Financial mentors have fought to buy now, pay back later for loans covered by responsible lending laws, and Fincap has asked Trade and Consumer Affairs Minister David Clark to do the same for loan repayment plans. mobile phones.
Smithers also criticized some reported sales practices.
“We hear of whānau members who have multiple arrangements like this back to back after they end up signing up for a new phone and a new arrangement when they pick up a phone that hasn’t been paid for yet and ask for payment options. repair,” she said.
Loan-type agreements could even last for more than three years outside the telecommunications sector.
Layaway Depot was marketing refurbished iPhone 11 64GB phones, in packaging with a portable speaker, for “low weekly payments” of $45 per week for 55 weeks, or up to $2,475.
Lilley said a cellphone was a necessity for engaging around the world, including the benefits system, especially for people with unstable living conditions moving from renting to renting.
But leaving pay-by-phone plans out of responsible lending has undermined regulated lenders, he said.
A regulated lender like a bank might responsibly lend, only for the borrower to go out and pile unregulated loans on top of their debt.
Vodafone spokesman Rich Llewellyn said its arrears rate was extremely low, but he would not reveal exact figures, saying they were commercially sensitive.
But telco account arrears were on the rise.
Credit bureau Centrix said 8.3% of accounts were overdue in May.
Regulating mobile phone payment plans would increase costs and create barriers for people to buy a phone, Llewellyn said.
But Vodafone recognized it had a responsibility to protect consumers from unaffordable buying decisions, he said.
“We are working on updates to our policy which detail our obligations to customers, including how we work with them in difficult situations,” he said.
Spark only said that a very small number of customers had experienced “suspension or other measures”, but would not reveal numbers.
Like Vodafone, Spark checked the credit records of people signing up for pay-by-phone plans, and like Vodafone, it paid its salespeople using commissions, although Spark spokeswoman Cassie Arauzo said stated that the commissions were not based on the sale of the most expensive product.
“After a product is sold, if customers experience financial hardship, they can apply for further assistance through our hardship policy,” she said.
People needed phones, and she needed a seamless and simple sign-up process that wasn’t too intrusive or prohibitive, she said.