A long-awaited crackdown on buy now, pay later services doesn’t go far enough according to a slew of submissions from consumer groups, who are pushing for tighter restrictions over how the services operate.
Until now, these wildly popular facilities have slipped through the cracks of the National Credit Code. But 78 submissions have been made to a legislation consultation on the fintech products that allow shoppers to pay off goods over time that they buy over the counter or over the internet.
The government is in the middle of regulating buy now, pay later products like Afterpay and Zip.Credit: Louie Douvis
The issue has been that these innovative (some may say opportunistic) products are not technically credit because they charge no interest. Instead, they make money by charging penalties if consumers miss repayments and also charging merchants to offer the delay-pay option.
The government – after intensive lobbying over many years from consumer rights and welfare groups – wants to bring them under the banner of credit.
The draft legislation includes requiring all buy now, pay later (BNPL) providers to hold an Australian credit licence like any other provider of loans, from credit cards to mortgages.
This will mean they will have to comply with existing requirements under the Credit Act, including in relation to product disclosure, dispute resolution and hardship assistance. Services would need to be members of the Australian Financial Complaints Authority so that consumers have access to dispute resolution.
“BNPL providers will also be required to take steps to make sure they are lending responsibly. This requirement will operate in a way that is flexible, adaptable and proportionate to the risk of consumer harm,” Treasury says.
Though consumer and financial groups welcome many of the changes, 11 including CHOICE, Financial Counselling Australia, Indigenous Consumer Assistance Network and Consumer Action Law Centre, argue this aspect of the legislation does not provide adequate protection for users.
CHOICE’s submission reads: “If BNPL is going to be sold with only partial safe lending laws applying, the laws need to do more to ensure BNPL products are actually safer.”
It says this could be done by limiting the maximum value of BNPL loans, prohibiting securing BNPL debts over property and banning bankruptcy proceedings over BNPL debts.
CHOICE and other groups have also used submission to urge the government to finalise reforms “as a matter of priority” this year. And that seems apt.
Shortly after consultation closed on April 9, enormous BNPL player Afterpay made a big change to its product. And, arguably, it does not tighten access to credit but loosens it.
Last week, it sent a message to users saying that it would offer more time, on a case-by-case basis, to pay for their purchases. They will also be allowed to choose the day of the week to make those payments, to allow alignment with your pay cycle.
The proviso is: “We may remove access if you’ve failed to make a payment on time or where we otherwise reasonably need to do so.”
From June 18, Afterpay says it might allow users to access the two-week delay if:
- They have held an account in Australia for more than one year
- They have not had more than five payment declines within the past six months, and
- They have not requested or received financial hardship assistance in the past year.
A damning report by the Australian Securities and Investments Commission into the BNPL sector in 2020 found some users were “suffering harm”, with payments meaning they were going without essentials or turning to other forms of credit to meet them.
In 2023, Anglicare Tasmania released a report titled Buy Now, Struggle Later? based on data from its financial counselling service.
It detailed a recent spike in BNPL user seeking its services and people becoming rapidly over-committed with “spiralling debts”, particularly when they had multiple accounts.
The government declined to comment on submissions to the consultation and said a final BNPL bill will be ready for introduction to parliament later this year.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter or Instagram.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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