When Sharmy Walker's family cat became gravely ill, the last thing on her mind was how much it would cost to get treatment.
The shock of a $2,500 vet bill prompted Ms Walker to start using an app that promised fast money — and sent her into a debt spiral she's still trying to climb out of, three years later.
Ms Walker was browsing social media when an advertisement for a new type of product, known as pay- or wage-advance app, popped up.
All it took was a few clicks on her smartphone before she could borrow a portion of her wage, paid straight into her bank account.
"Sometimes it would be $20, sometimes $50, sometimes $100, a few times $300," said Ms Walker, a single mum supporting two daughters near Penrith in Sydney's western suburbs.
"Sometimes I was using it for extra shopping that I needed. Sometimes I was using it for sanitary supplies."
When her youngest daughter was sick and she took time off her casual job, Ms Walker was tempted to keep turning to the app to cover essentials.
The apps charge a fee per loan — generally about 5 per cent of the amount borrowed. But because the companies aren't subject to the same responsible-lending obligations as other loan providers, they don't have to ensure customers can meet their repayments without going into hardship.
Ms Walker used four different apps to borrow almost $8,500 over several years. She used one of the apps, called MyPayNow, more than 50 times. She was able to make many repayments, but missed others, and debt collectors pursued her.
"I'd have huge moments of anxiety, stress and existential dread," she said.
"I'm 37 and I've got so much debt and I need to pay it back and I don't know how to pay it back and I'm just working and working and working.
"I honestly wish I'd never, ever used them in the first place."
The 'wild west' of lending
Financial Counselling Australia CEO Fiona Guthrie labelled Ms Walker's experience "absolutely shocking". She believes the products are potentially dangerous.
"We're just concerned with cost of living [increasing] generally that more and more people will turn to [them] and think it's an easy way through but, in fact, it will often make your financial position a lot worse," Ms Guthrie said.
She said unlike other lenders, the companies did not have to check if loans were affordable as they were not required to comply with Australia's credit laws because they charged a set fee rather than interest.
"It is the wild, wild west," Ms Guthrie said.
She said while some providers were operating responsibly, the lack of regulation could entice new rogue lenders into the sector.
"Any unregulated credit is going to attract increasingly predatory players — so there'll be some who will try and do the right thing and there will be others who won't, and their business model will be designed to do that."
Another key concern for financial counsellors is whether repeat users understand they could be paying the equivalent of very high interest rates.
Ms Guthrie said a 5 per cent fee could effectively turn into a sky-high rate for someone borrowing regularly.
For example, a user who borrowed $100 each fortnight, repaying each loan before taking out the next, would pay a $5 fee 26 times in a year. That equates to $130 in fees for a fortnightly $100 wage advance.
"That's 130 per cent per annum as a nominal interest rate. No other credit provider can charge eye-watering interest rates to that level."
Consultant Grant Halverson, who has a background in banking and payments, said business was booming for pay-advance providers.
"[I've calculated] there's around $3.2 billion being advanced in 2022, so it's a sizeable segment and it's growing very rapidly," he said.
'Wage-advance' apps aren't harmful like 'predatory' payday lenders: CEO
The companies reject the "payday lending" tag — instead calling themselves pay- or wage-advance providers.
One of the biggest is the stock exchange-listed Beforepay. It lends a maximum of $2,000, which needs to be repaid within a couple of months.
CEO Jamie Twiss argues Beforepay offers a much less harmful product than traditional payday lenders or credit cards.
"Payday lending as a category, that is a horrible predatory product, that should not exist," he said.
"We advance people a relatively small amount of money — the average is $400 — for a period of three to four weeks, to tide them over until they next get paid."
He said the company did not charge compound interest, late fees or penalties, and it conducted customer checks despite not being legally required to meet responsible lending obligations.
"We look at line item bank transaction data and we calculate about 500 different attributes on each customer," he said.
"If somebody is using the product more frequently than we would like, we will start to send them tailored communications that start to point towards resources that may be helpful for them."
The company told potential investors they were targeting the 5 million Australians who were working but had little to no savings.
There's plenty of take-up: Beforepay has 200,000 active users and almost all of them are repeat users, like Sharmy.
Claims MyPayNow app pursued homeless man over $100 debt prompts complaint
A key rival in the wage-advance space is the Gold Coast-based MyPayNow, which has lent more than $1 billion since 2020.
The founder of MyPayNow is Shane Powe, who is also a director of the controversial lender Sunshine Loans.
Sunshine Loans is currently being sued by the corporate regulator ASIC for allegedly charging its customers prohibited fees, proceedings which it is defending.
ASIC records show the current CEO of MyPayNow, Bronson Powe, took over as the director and secretary of MyPayNow when Shane Powe stepped down in late 2020.
Bronson Powe and Shane Powe are members of the same family.
In an online video showcasing the company's new office, Bronson Powe said MyPayNow was an innovator that was growing fast.
The peak national body for financial counsellors has filed a complaint with ASIC against MyPayNow over its alleged treatment of a homeless Victorian man.
Ms Guthrie claims MyPayNow had threatened legal action against him over an unpaid debt of around $100.
"When the financial counsellor tried to negotiate with the company they were very difficult to negotiate with, they said, well … we're not subject to the national credit laws," she said.
Unlike other lenders, pay-advance providers aren't required to be members of the dispute resolution scheme, the Australian Financial Complaints Authority, and MyPayNow is not a member.
"It's really, really hard for financial counsellors when you don't have access to dispute resolution," Ms Guthrie said.
The ABC requested an interview with Bronson Powe and sent questions to Sunshine Loans and MyPayNow but did not receive a response.
On its website, MyPayNow says it conducts full assessments of customers' finances, using "advanced AI assessment technology", to ensure its service is affordable and suitable.
It says it only allows customers to advance up to a quarter of their wage to keep "all wage advances within the means of each individual customers' affordability".
Government under pressure to regulate growing sector
Consumer groups are pushing the federal government to urgently change credit laws to place responsible lending obligations on the pay-advance providers.
"We need to hear something from the government by the end of the year [because] this is a product which is going to expand and expand exponentially," Ms Guthrie said.
There's likely to be pushback from the providers, but Beforepay agrees the companies should be required to join the AFCA and be subject to other "sensible minimum standards."
The federal government and ASIC both say they are keeping close watch on the sector.
"We are committed to ensuring credit products are regulated, particularly those that currently fall within exceptions to the credit legislation such as Wage Advance products," Financial Services Minister Stephen Jones said in a statement.
"We will be monitoring this sector closely."
ASIC deputy chair Sarah Court said even though responsible-lending obligations did not apply to the sector, "ASIC expects them not to lend to consumers who cannot pay without hardship".
Ms Walker wants the federal government to extend responsible-lending obligations to the sector.
"Even though the interest isn't as much as say a payday loan, it's still somehow worse, in my opinion, because it's so easy," she said.
"How easy it is, that's really the worst."
