The bundling of expensive mobile phone and data connections with “concealed” loans is helping push people into hardship, financial mentors say, and they are pushing for phone payment plans to be covered by responsible lending laws.
Big telecommunications retailers Spark, Vodafone and 2degrees sell phones through long-term, loan-like deals pushed by salespeople hungry to earn commissions.
Ruth Smithers, chief executive of financial wellbeing service Fincap, said some phone deals on the market even involve phones that were “marked up well over recommended retail price”, which probably reflected a concealed cost of credit.
“We hear from financial mentors of these deferred payment arrangements continuing to be paid before kai is purchased, even when the phone is long broken, and a whānau has been signed up for an additional plan,” Smithers said in a submission to a government review on buy now, pay later loans.
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Telco phone deals are being sold by staff incentivized by commission, a form of pay banks phased out after criticism of a hard sell culture that was not in the interests of customers.
Jake Lilley, senior policy advisor at Fincap, said phone deals were often sold as “interest-free”, but in all other respects they were like loans.
This included allowing people to get a device immediately, or after a small number of payments, followed by long-term repayment plans, penalty fees for missing payments, with the threat of debt collectors being called in to collect arrears.
And while some car loan companies installed devices in vehicles allowing them to disable cars if borrowers missed repayments, telcos could remotely render mobile phones by denying services, Lilley said.
Deals were sold with the promise of “low” monthly repayments for three or more years.
Some deals involved weekly payments of just over $21 for three years, which was not sustainable for some people signing up for phones, Fincap said.
“This is a commitment of $3418.92 without the requirement for an affordability assessment,” Smithers said.
A loan covered by responsible lending rules would require the lender to do an affordability check.
Financial mentors have been fighting to have buy now, pay later loans covered by responsible lending laws, and Fincap has asked Commerce and Consumer Affairs Minister David Clark to do the same for mobile phone repayment plans.
Smithers was also critical of some reported sales practices.
“We hear of whānau members who have multiple arrangements like this consecutively after ending up signing up for a new phone and arrangement when taking in a yet to be paid off phone and asking for options for repair,” she said.
Loan-like deals could be even longer than three years outside the telco sector.
Layaway Depot was marketing refurbished iPhone 11 64GB phones, in a package with a portable speaker, for “low weekly payments” of $45 per week for 55 weeks, adding up to $2475.
Lilley said a mobile phone was a necessity to engage with the wider world, including the benefits system, especially for people with unstable living arrangements, moving from rental to rental.
But leaving phone payment plans outside of responsible lending undermined regulated lenders, he said.
A regulated lender like a bank could make a loan responsibly, only for the borrower to go out and stack unregulated loans on top of their debt.
Vodafone spokesperson Rich Llewellyn said its rate of arrears was extremely low, but he would not reveal exact numbers, saying they were commercially sensitive.
But telco account arrears were on the rise.
Credit reporting agency Centrix said 8.3% of accounts were in arrears in May.
Regulating mobile phone payment plans would add cost and create barriers to people being able to buy a phone, Llewellyn said.
But Vodafone recognized it had a responsibility to protecting consumers from making unaffordable purchasing decisions, he said.
“We are working on updates to our policy that details our obligations to customers, including how we work with them in hardship situations,” he said.
Spark said only that a very small number of customers experienced “suspension or other steps”, but would not reveal numbers.
Like Vodafone, Spark did credit file checks on people signing up for phone payment plans, and like Vodafone it did pay its salespeople using commission, though Spark spokesperson Cassie Arauzo said commissions were not based on selling the most expensive product.
“After a product is sold, if customers enter financial hardship they are able to apply for additional support through our hardship policy,” she said.
People needed phones, and she needed a seamless and simple sign-up process that wasn’t overly invasive or prohibitive, she said.