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Buy Now, Pay Later
According to ASIC’s recent report into the ‘buy now, pay later’ sector, only one out of the six reviewed providers conducted credit check and income assessments before consumers could use the service. This facility, unlike the lay-by model, allows consumers immediate access to the goods with repayments made over time.
ASIC’s report also found some consumers delayed paying bills, became overdrawn, or borrowed money from family, friends or another loan provider. Over the last two years, the number of consumers who use buy now, pay later has increased five-fold to two million consumers who collectively owe A$903 million. According to the report, many of the consumers are employed part-time or are unemployed.
With a loose credit check regime, there have previously been reports of users under the age of 18 signing up under fake names to purchase alcohol. The approval process is almost instantaneous, and once given the green light users can buy things from participating merchants including online retailers. According to ASIC, consumers agree the facility has allowed them to buy more expensive items, spend more than they normally would, and make more impulsive purchases (it’s worth noting that buy now, pay later isn't only offered for low-value purchases like clothes and beauty products, although solar panels and health services can be bought using these facilities).
Typically, these providers make their money from merchant commissions and late fees in the event that repayments are missed. One of the more widely discussed companies in this space, Afterpay, revealed in its latest annual report that late fees surged 365% to A$28.4 million, contributing 20% to total revenue. The National Debt Helpline has also received increasing numbers of calls from people with Afterpay debts. Meanwhile, consumer watchdog, Choice, has labelled these providers as unethical, preying on young people who are unable to pay on time and therefore forced to pay late fees.
The rise of the sector has been built from a loophole in Australia’s credit laws. Buy now, pay later providers are not regulated like other credit providers, given no interest is charged. Many of these providers also do not need to hold an Australian credit licence and are therefore not bound by the responsible lending obligations. ASIC concludes in its findings that buy now, pay later operators should be classified as credit facility providers, and that current laws need to be reviewed to protect vulnerable members of the community from financial harm. These companies should also be regulated to ensure they do not engage in misleading or unconscionable conduct.