New regulations must close the “loopholes” Buy now, pay later
Consumer groups are asking Albania’s government to adopt the toughest regulatory model on the table for the booming $16 billion Buy Now Pay Later sector, warning that vulnerable Australians are giving up essentials to cope with mounting digital debts.
Deputy Treasurer Stephen Jones, who has been pushing for a closer look at the sector, launched a consultation on Monday on the new government’s proposed reforms that will encompass Afterpay and Zip to protect around 7 million active users.
Three options were considered, ranging from continuing Buy Now Pay Later (BNPL) self-regulation with a new “affordability test”, to fully subjecting businesses to the stricter rules for credit grantors. traditional.
A proposed middle ground would partially incorporate the BNPL into credit law, including the licensing of providers, and a rolling “mismatch test” requiring providers to assess that “a BNPL credit does not is not unsuitable for a person.
According to a options paper published by the Treasury, BNPL’s transactions reached $16 billion last year, an increase of about 37% over the previous year.
Although the industry has boomed, it has avoided the increased monitoring, compliance and reporting requirements of traditional credit products. BNPL has grown rapidly from 2015 with little regulation and has operated under a self-regulating industry code since 2021.
Nine providers have signed the code, including Afterpay, Klarna, Latitude and Zip, but there are notable providers that have not, including PayPal, Commonwealth Bank and some smaller BNPL providers.
The Industry Code is not law and is not enforceable, with the BNPL sector denying the option of giving the business regulator an enforcement role. No penalty is paid for non-compliance with the code.
Yet forthcoming ASIC data referenced by the Treasury shows that 19% of BNPL consumers surveyed have reduced or gone without essentials to make BNPL repayments on time.
23% of BNPL users experienced a financial stress indicator; and 19% experienced two or more stress indicators – levels similar to auto finance and personal loans. Nearly a third say they don’t fully understand all the fees and charges in their BNPL arrangements.
“Many people using BNPL have low and sometimes precarious incomes,” said Fiona Guthrie, managing director of Financial Counseling Australia.
“While the amounts people borrow may seem small, the impact when the debt cannot be paid is not. People have to give up other essentials to pay their BNPL debts.
“BNPL is credit, pure and simple, so it needs to be regulated in the same way as other credit products to provide people with adequate collateral.”
Deputy Treasurer Stephen Jones said the government was genuinely keen to consult on reforms but signaled at least some changes.
“Things like credit checks, things like making sure these products are marketed appropriately to the right group of people – I think that’s a minimum standard that we can expect,” he said. he told Sky News on Monday.
“But we don’t serve a cooked meal. We want to have real consultation.
Mr Jones would not set a deadline for a government decision on the three approaches, but expects a decision to be made within a year.
According to a coalition of consumer groups, only the most difficult option – treating BNPL like traditional credit – will adequately address the damage.
“The financial distress is so clear in the appeals to Consumer Action’s financial advisors,” said the organization’s chief executive, Gerard Brody.
“Often we hear of people having multiple accounts, with refunds coming out of their accounts at different times, which means they lose financial control. BNPL and payday advance services don’t help people budget, they complicate things.
Earlier this year, Financial Counseling Australia published an open letter signed by 120 organizations urging Parliament to make BNPL products safer after reports of increasing cases of financial hardship involving BNPL.
The debate over whether BNPL is a credit is over, according to Consumer Credit Legal Center WA, lead counsel Roberta Grealish.
“It’s about credit and should be regulated as other credit products are – without distinction,” she said.
“The new legislation must fill the gaps. We all know that unscrupulous vendors thrive in gray areas, so we can’t have an exclusion. Payday lenders must do responsible loan verifications and they also lend small amounts. It is difficult to argue that BNPL suppliers should not be held to the same level.
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