Paylater Australia | Buy now pay later

Summary

The Australian corporate watchdog is considering regulating the rapidly growing 'buy now, pay later' (BNPL) industry, with Afterpay as a focal point. Since 2016, Afterpay's transactions have soared, mostly among young users earning under $40,000 annually. Jared Brody from the Consumer Action Law Centre discusses how BNPL services exploit legal loopholes, bypassing the regulations that govern traditional credit providers. While marketed as interest-free, late fees can accumulate quickly, causing financial hardship. Brody advocates for stronger regulation and a Senate inquiry to extend existing credit laws to the BNPL sector to protect consumers.

Takeaways

• 😀 The corporate watchdog is considering an intervention into Australia's buy now, pay later industry due to concerns about consumer protection.
• 😀 Afterpay saw a massive increase in transactions, from 50,000 in April 2016 to 1.9 million by June of the previous year.
• 😀 The Consumer Action Law Center supports the extension of product intervention powers to improve customer protection in this sector.
• 😀 A large portion of Afterpay users are young adults aged 18-34, with an average income of under $40,000 per year.
• 😀 Afterpay offers interest-free, fortnightly repayments, but it is not subject to the same regulations as other lenders like credit card companies or car loan providers.
• 😀 Buy now, pay later services do not require providers to assess if a consumer can afford the loan, creating potential financial risks for users.
• 😀 The legal loophole allows Afterpay to operate outside the norms of traditional credit providers by not charging interest, even though they impose late fees.
• 😀 Late fees from Afterpay account for a significant portion of its revenue, with reports indicating that a quarter of Afterpay's earnings came from these fees last year.
• 😀 The existing credit laws need to be extended to cover buy now, pay later services, as they allow consumers to accumulate significant debt (up to $30,000).
• 😀 There is no interest charged if repayments are made on time, but late fees can quickly accumulate, leading to high costs for consumers who miss payments.
• 😀 Research has shown that 1 in 6 people who use buy now, pay later services face financial harm, including late fees or the inability to pay other essential expenses like rent.

Q & A

What is the main concern regarding Australia's Buy Now, Pay Later (BNPL) industry?

The main concern is the rapid growth of BNPL services and their potential to cause financial harm to users, particularly young people who may not fully understand the risks of using these services. The corporate watchdog is considering intervention to regulate the industry.

How has the usage of Afterpay grown over time?

In April 2016, only 50,000 transactions were made using Afterpay services, but by June of the following year, this had increased dramatically to 1.9 million transactions, highlighting the rapid growth of the BNPL sector.

What demographic primarily uses Afterpay and similar services?

The majority of Afterpay users are aged between 18 and 34, with an average annual income of less than $40,000.

How do Buy Now, Pay Later services like Afterpay work?

BNPL services allow customers to purchase items and pay in installments, usually over a fortnight, claiming to be interest-free. However, they charge late fees for missed payments and are not subject to the same regulations as traditional credit providers.

Why are BNPL services like Afterpay not required to follow traditional lending laws?

BNPL providers bypass traditional lending laws because they do not charge interest on the amounts borrowed, which allows them to avoid the same regulatory requirements that apply to credit cards or personal loans.

What are the risks of using Buy Now, Pay Later services?

The primary risk is the accumulation of late fees if users miss payments. These fees can become substantial, leading to financial strain. Additionally, BNPL services can encourage consumers to take on more debt than they can afford to repay.

How do BNPL companies profit from their services?

BNPL companies generate significant revenue from late fees. For example, afterpay earned a quarter of its revenue from late payment fees in the previous year.

What is being proposed to address the issues with the Buy Now, Pay Later industry?

There are calls for a Senate inquiry into the sector, with the suggestion of extending existing credit laws to include BNPL providers. This would help protect consumers by regulating how these services operate.

What role do late fees play in the financial impact of BNPL services?

Late fees can add up quickly and create financial hardship for users. These fees are a key part of the business model for BNPL providers, and research shows that one in six BNPL users experienced harm, such as being unable to pay for basic living expenses due to these fees.

What are some of the specific harms BNPL users have experienced?

Users have reported being unable to pay for essentials like rent or having to take on additional debt to cover BNPL payments. These issues highlight the financial strain that BNPL services can cause, especially when payments are missed.