An estimated 7 million Buy Now, Pay Later users will soon see new federal government laws aimed at better protecting them from financial abuse.
Core items:
- Buy now, pay later Players could soon be faced with new regulations amid concerns that people are getting loans they can’t afford
- If they are regulated the same way as credit card issuers, people won’t be able to sign up automatically but will have to undergo a credit check
- Finance Services Secretary Stephen Jones says legislation could be passed this time next year
A new financial paper released on Monday by Finance Services Secretary Stephen Jones suggests that “buy now, pay later” gamblers could soon be subject to the same laws as credit card issuers as “unaffordable or inappropriate lending practices cause financial stress and hardship and other types.” contributing to consumer harm”.
The newspaper said there were 7 million active buy-now pay later accounts in fiscal 2021-22, resulting in $16 billion in transactions, an increase of nearly 37 percent over the previous fiscal year .
Mr Jones told ABC News that while these products – which are offered by well-known providers such as Afterpay, Zip Pay, humm and Klarna – can provide an easy alternative credit option, vulnerable and/or younger consumers are often at risk.
“Many Australians have unpayable debt,” Mr Jones said.
“And what we do know is that a lot of people are buying a lot, a lot, a lot, pay now and pay accounts later.
He said most of those accounts are held by people between the ages of 18 and 35.
“We think it makes sense to set up some credit controls.”
Consumer groups, including Financial Counseling Australia and the Consumer Action Law Centre, have long argued that buy-now, pay-later providers should comply with the same responsible lending laws as other lenders.
Despite this, a Senate inquiry into fintech conducted two years ago under the previous administration suggested not regulating it and instead having an industry code that players could voluntarily adhere to if they chose to.
“Bad handling of complaints”
But the Treasury paper makes it clear that without some controls, self-regulation is no longer an option.
It poses a number of issues, noting that there are reports of “poor complaint-handling processes” and that “a lack of hardship support for consumers results in delayed or unsatisfactory remedial action”.
It said: “The seamless sign-up to purchase pay later products amplifies other consumer harms such as fraud, overselling and financial abuse.”
It also raises other issues, including “excessive” and “disproportionate” fees and charges levied in relation to the level of consumer debt.
It finds a survey of consumers conducted by business regulator The Australian Securities and Investment Commission (ASIC) earlier this year found that 19 per cent of consumers surveyed said they were buying now, paying later, cutting back or skipping essentials to make timely repayments.
Another ASIC report, based on a detailed survey of the industry last year, found that one in five consumers missed payments.
The financial paper also notes that “poor product disclosure practices and a lack of warning requirements mean consumers don’t have enough information to make informed decisions.”
And these “unsolicited sales and advertising practices” targeting consumers encourage the use of “buy now, pay later” for essentials like groceries and utilities.
How buy now, pay later players could be regulated
The Treasury offers three options for regulatory intervention, the most stringent of which is buy-now, pay-later under the Lending Act.
“With this buy now, pay later option, providers would need to obtain and maintain an Australian Credit License (ACL),” the newspaper said.
A less stringent option would be limited regulation of buy-now-pay-later players under the Credit Act.
“This approach would require vendors who buy now, pay later, obtain and maintain an ACL, and also implement modified Responsible Lending Obligations (RLOs) under the Lending Act to determine eligibility, combined with a stricter industry code,” it said in the paper.
And the least stringent option proposed is to strengthen the current industry code, which is currently self-regulated but add an “affordability test” that would attempt to determine whether a customer would be able to service the debt.
The current industry code has been criticized by consumer groups for not being a law and being unenforceable, and any player who buys now, pays later, who fails to meet their obligations will not face penalties.
“We don’t actually want to prevent access to adequate credit products, we just want to make sure that where it’s available it’s done in a safe way,” Mr Jones said.
Laws could be passed before the end of 2023
Mr Jones said regardless of which option the government decides to take, all buy-now-pay-later players need to ask themselves whether the products they are selling are causing harm to a consumer.
He said this included questions like: Is this a suitable product? And is it affordable for the person we offer?
“And if the answer to any of those questions is ‘no,’ they should have systems in place to make sure someone doesn’t get access to any of their apps or products and they aren’t being sold,” he said.
“That seems like a pretty low bar to cross.”
Mr Jones said it could also mean that many consumers who were previously able to obtain credit via a quick and easy online automated process may no longer be eligible, meaning some industry players could lose customers and may have to exit.
“I think if vendors don’t meet minimum community standards, they have no place in the industry,” said Mr. Jones.
“The lack of proper regulation should not protect these operators.”
The industry has been given until December 23 to react to the Treasury note.
Mr Jones said after consultation they would agree on one of the regulatory options and he hoped the legislation would be passed before the end of 2023.
He said companies have been given ample time to prepare.
“It’s a slow train coming,” he said.
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