RateCity.com.au welcomes the government’s move to regulate the booming buy now, pay later sector, and warns that any changes must prevent people from having access to multiple debts they cannot afford to reimburse.
The new Treasury document released today by Financial Services Minister Stephen Jones outlines three options for regulatory intervention in the buy now, pay later (BNPL) sector:
- Option 1: develop an industry-specific mandatory code without the need for an Australian credit license.
- Option 2: subject the BNPL sector to the credit law, but apply a more moderate set of responsible lending obligations.
- Variant 3: subject the BNPL sector to the credit law and apply rules similar to those applicable to credit cards and other loan products.
RateCity.com.au believes that regulation should require providers to make an appropriate assessment of a person’s ability to repay not only the credit they apply for, but any existing debt to which they have access, including including other BNPL accounts.
BNPL suppliers should also be required to report defaults to credit bureaus to give suppliers a more complete picture of a person’s ability to repay debts on time.
The third option is the clearest choice to achieve this. The second option may also be appropriate if the bonds assured providers to verify a person’s existing debts. All exemptions provided under Option 2 should be carefully considered to ensure that they do not become loopholes.
What BNPL regulation is needed:
- An assessment of a person’s ability to repay the full credit limit and all other debts, including other BNPL accounts.
- Mandatory reporting to credit bureaus.
- Cap on late fees.
- Blocking the accounts of people in arrears.
- Ability to close accounts easily and online.
- Providers must also be members of the Financial Complaints Authority, AFCAfor a quick and efficient resolution of disputes.
Over the past eight years, the BNPL industry has enabled millions of Australians to pay for items in instalments, helping many people budget for major purchases. However, it has also put millions of Australians in financial hot water.
A new RateCity.com.au survey of over 1,000 respondents found that 37% of people had used at least one BNPL product in the past 12 months. Of these, 41% have found themselves in some level of financial difficulty using these platforms at least once in the past year, including:
- 18% have missed paying bills, such as their mortgage, to meet BNPL payments.
- 15% had to cut back on basic necessities such as meals to meet BNPL payments.
- 13% borrowed money from friends or family to meet BNPL payments.
- 43% had access to more than one account.
BNPL regulations – what is currently in place
Currently the BNPL industry is self-regulated with an AFIA Buy Now Pay Later Code of Practice. However, the code is voluntary and although Afterpay, Brighte, Humm Group, Klarna, Latitude, Openpay, Payright and Zip Co have all signed the code, new entrants such as CBA, NAB and PayPal have not.
The code includes caps on late fees, freezing of accounts when repayments are missed, support for vulnerable customers and a requirement to prominently display key information.
However, the code does little to prevent people from running into multiple debts, a key issue identified by ASIC. It also allows platforms, in most cases, to skip credit checks when offering less than $2,000 credit to new customers and $3,000 credit to existing customers.
RateCity.com.au research director Sally Tindall said: ‘This intervention may be long overdue, but at least it is finally moving in the right direction.’
“Four years ago, ASIC published its first damning report on the havoc that buy-it-now and pay-later services can inflict on people’s finances, but to date very little has been done to prevent this. “, she said.
“It is time to introduce strong regulation to help protect the millions of Australians who regularly use buy-it-now, pay-later services, many of whom find themselves in serious financial trouble.
“Our research shows that 41% of buy now, pay later users have experienced financial hardship using these platforms, yet the industry continues to grow day by day, with no effective measures in place to protect them.
“The new regulations must ensure that all providers verify a person’s ability to repay the maximum credit they are applying for, in addition to any other credits they have access to.
“Currently, people can sign up for multiple buy-now-pay-later accounts, giving them access to credit totaling thousands of dollars, without anyone checking to see if they can repay it all.
“Regulations must also require every provider to buy now, pay later to report repayment history and hardship claims to credit bureaus to ensure the integrity of this system.
“The third option, while potentially expensive for some smaller providers, ticks these important boxes.
“Treasury’s second option might also have merit, however, that would depend on what exemptions to responsible lending obligations the government is prepared to grant.
“There is no point in creating new regulations that are preloaded with loopholes, ready to be flouted by providers and consumers from day one,” she said.
Tips to avoid getting into trouble with BNPL platforms:
- Read the terms and conditions and understand the charges you may face.
- Set yourself strict spending limits.
- Limit yourself to one platform and one purchase at a time.
- Don’t make an impulse purchase. Sit on all major purchases for at least 24 hours.
- If you run into trouble, pull the pin and call for help. Every platform should have a hardship policy to help you get out of trouble.
BNPL platforms – some of the key players in Australia
|BNPL Provider||where can you use it||Payment schedule||Maximum credit limit||Account maintenance fees||Late fee|
|After-payment||Affiliate retailers||4 installments over 6 weeks||$2,000 for new customers, $3,000 for existing customers.||No interest or account maintenance fees.||$10 per missed payment, $7 if not paid within 7 days, capped at 25% of price or $68, whichever is lower.|
|Before paying||Provides a cash advance on your salary||4 installments over 4 pay cycles||$2,000||5% set up fee||None.|
|Bundlell||Wherever Mastercard is used||Refund within 2 weeks. Extend up to 12 weeks for a fee||$1,000 to $4,000||None. Can defer payments for 14 days for $2.50.||Late charge.|
|ABC StepPay||Wherever Mastercard is used||4 installments over 6 weeks||$2,000||No interest or account maintenance fees.||$10 per missed payment, capped at $120 per year.|
|Citi Spot (not accepting new customers)||Wherever Mastercard is used||4 installments over 6 weeks, or 8 installments for purchases of $200 or more and a one-time fee of $10||$1,000||No interest or account maintenance fees.||$10 per missed payment, capped at $200.|
|CoverPay||CoverPay Affiliate Insurance Merchants||12 payments per fortnight over 10 weeks||$2,500||$7 per installment||$0 if missed payment made within 3 days, $40 if installment remains unpaid after 3 days|
|Deferit||Invoices – excludes rental, accommodation and credit agreements||4 installments per fortnight||$2,000||Monthly fee of $9.99 if there is an active installment plan. 1.5% + 20c processing fee.||No late fees.|
|Fupay||Almost everywhere||8 weekly repayments||$200 – $500||5% of the purchase price.||Not indicated.|
|hmm (little things)||BPay Affiliate Retailers and Billers||5 to 10 semi-monthly payments||$2,000||$0 or $8/month for longer payments. $2 initial fee||$6 late payment fee.|
|humm (great things)||Affiliate retailers||6 – 60 monthly payments||$30,000||$8 monthly fee. $30-$110 setup fee, $29 repeat purchase fee||$6 late payment fee.|
|Klarna||Affiliate retailers||4 fortnightly payments over 6 weeks, possibility of extension.||undisclosed||$0. Can delay payments for 2 weeks for a maximum of $4||Up to $8 late payment fee. Max $24 per purchase.|
|Latitude Pay||Affiliate retailers||10 weekly payments||$1,000||None||$10|
|laybuy||Affiliate retailers||6 weekly repayments||Based on credit check||None||$10/late payment. Additional $10 if not paid within 7 days.|
|NAB now pay later||Wherever Visa is accepted||4 installments over 6 weeks||$1,000||$0||$0|
|OpenPay||Affiliate retailers||Repayment every fortnight up to 24 months||$20,000||$0-$5 per fortnight.||$9.50 per missed payment if not paid within 2 days.|
|PayItLater||Affiliate retailers||4 weekly payments||$1,000||None||$10/late payment. Additional $10 if not paid within 7 days.|
|PayPal Pay in 4||Wherever PayPal is accepted||4 installments over 6 weeks||$2,000||None||None.|
|payo||Affiliated restaurants, cafes and bars||4 installments over 6 weeks. At least $10.||undisclosed||None||$10 late payment. Additional $10 if not paid within 14 days. Capped at $40.|
|payright||Affiliate retailers||Semi-monthly or monthly repayments up to 36 months||$20,000||Up to $89.95 setup fee plus $3.50 per month capped at $200.||Up to $12.95. Capped at the lesser of 10% of approved credit limit or $250.|
|Suncorp Pay Later||Wherever Visa is accepted||4 installments over 6 weeks||$1,000||None||$10 late fee if not paid within 2 days, capped at a late/purchase fee.|
|silver zipper||Wherever Visa is accepted||Interest free for 3 months||$1,000 – $5,000||Up to $99 setup fee. $7.95/month on amounts owing. Interest-free for the first 3 months.||$15 after 21 days of non-payment of the minimum.|
|Postal payment||Wherever Visa is accepted||Minimum $40/month||$350 – $1,000||$7.95/month on amounts owing.||$5 after 21 days of non-payment of the minimum.|
Note: excludes vendors offering BNPL on a single product or service.