Afterpay, BNPL Australia: Major Changes, New Regulations Reported by Government

Afterpay customers may be required to submit to more detailed credit checks under new regulations being considered for the buy now, pay later (BNPL) industry.

The Treasury is finalizing its review of how BNPL operators such as Afterpay, Zip, humm and Klarna can be regulated to help provide better consumer protection.

The resulting concept paper is expected to be released in the coming weeks.

A relatively new industry, BNPL is exempt from laws designed to protect borrowers using products such as credit cards and personal loans.

The loophole exists because vendors do not charge customers interest, and therefore the product they provide is not technically considered credit.

Pointing to the Treasury review earlier this year, Financial Services Minister Stephen Jones said he wanted BNPL’s services to be treated like other credit products under Australian law.

BNPL platforms allow customers to make purchases instantly, but refund the money to the supplier in installments. Most of these businesses derive their revenue from fees paid to them by merchants and from customers who miss a refund.

The industry is growing. There were at least 5.9 million active accounts in Australia between July 1 and September 30, 2021, responsible for more than $11.9 billion in transactions in the last financial year.

The Treasury background paper is expected to offer three regulatory options that should be out to industry for comment by the end of the year.

One option should involve strengthening the existing code of conduct for BNPL suppliers.

The code applies to nine BNPL member companies, including Afterpay, which is now owned by Block, and Zip. It is self-regulated by the Australian Finance Industry Association (AFIA) and is currently under review.

The strengthened code could include requiring BNPL suppliers to perform more detailed credit checks on customers before they can use their product.

The industry thinks the current code is working and should push back against strict regulation saying it would stifle the industry and deter too many customers.

The BNPL industry is said to believe that the cost of carrying out comprehensive credit checks would be too prohibitive given that the average consumer uses the services 16 times a year, with each transaction worth around $150.

When asked if the AFIA would support stricter credit checks, Managing Director Diane Tate said, “A lot of people don’t see BNPL as credit.”

“Therefore, what we need to introduce are rules that allow the product to be used by consumers in the way that best suits their needs,” she said.

“With suppliers who can perform the right level of verification to ensure the product is affordable and appropriate.”

Ms Tate said the AFIA expected the Treasury background paper to consider a regulatory regime that “recognizes the need for proportionate, scalable and targeted regulation fit for the future”.

She said the BNPL industry was already offering “high levels” of support to financially distressed or vulnerable consumers.

But a coalition of more than 100 consumer advocacy groups took a different view – saying safeguards should exist in laws and not just in a code regulated by the industry itself.

James Hunt, head of policy at Financial Counseling Australia, said BNPL’s providers were “debt selling machines”.

“So the appropriate regulatory arbiter should be our national credit laws, not the rogue industry itself that is pushing people into more debt,” he said.

“We have said from the start that the community would not accept any bank or credit card company to regulate itself.

“The same applies here.”

Mr Hunt said some BNPL players, including Afterpay, carried out “soft” credit checks, but those processes were not good enough to ensure that everyone using the services could fund payments.

Drew MacRae, senior policy and advocacy officer at the Financial Rights Legal Center, said soaring inflation meant some people were now turning to BNPL services to fund necessities such as groceries and utility bills. ‘energy.

“If you have a set of regulations that ensure responsible lending controls are in place – which some, but not all BNPL lenders currently do – that could solve some of the problems,” he said.

“I don’t see why BNPL is an outlier able to stay in a self-regulatory mode as opposed to all other credits in Australia. ”

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