Australia’s corporate watchdog joins calls for stricter regulation of buy now, pay later products

Australia's corporate watchdog has backed regulating buy now, pay later schemes including Afterpay and Zip in the same way as other credit products amid growing concerns about harms experienced by consumers.

In its submission made public on Thursday to a Treasury consultation on how to improve regulation of the providers, the Australian Securities and Investments Commission said it supported regulating BNPL products under the National Credit Act and the national credit code.

Asic was among a number of consumer advocates, major banks and industry associations that wrote in favour of the strictest of three regulation options offered by the government. BNPL providers are now self-regulated under an voluntary industry code.

"This is the first time that Asic has made it clear that it thinks that buy now, pay later should be regulated like other forms of credit," said Alan Kirkland, the chief executive of the consumer group Choice, which has long advocated for BNPL schemes to be treated like traditional credit products.

"We've got to remember that some buy now, pay later providers are lending up to $30,000, so these are not small debts.

A number of providers - including Zip, Afterpay and PayPal - wrote in support of improving regulation to an extent but disagreed BNPL should be treated as a traditional credit product.

Zip, which offers loans up to $2,000, backs the middle-ground option of requiring BNPL providers to hold an Australian credit licence and conduct affordability checks.

But Asic said in its submission there was little evidence to support more relaxed lending obligations for BNPL, given the level of harm the loans could expose consumers to.

Of concern, Asic wrote, was customers being charged missed payment fees, people missing out on essentials or falling behind on bills to afford BNPL repayments, and businesses adding a surcharge to goods to cover the cost of offering BNPL.

A joint submission from 22 consumer groups detailed a number of cases of Australians who have fallen into harmful cycles of BNPL debt.

This included Anthony, a teenager living in the outer suburbs of Melbourne, who owed $5,000 across three different accounts after buying some "big-ticket items" as well as groceries.

In November the chairman of Asic, Joe Longo, warned Australians were being driven towards fringe credit products, including BNPL, amid the cost-of-living crisis.

In 2020 Asic found up to 30% of adult Australians had an open BNPL account. In the past two financial years the value of BNPL transactions had tripled to more than $9bn, according to the Reserve Bank of Australia.

In its submission, Asic wrote that growth suggested BNPL was now a mainstream form of credit, and for some the preferred form.

According to a submission to the consultation made by the payments expert Grant Halverson, there were now more than 30 BNPL providers vying for customers.

Of real concern though, he wrote, were the BNPL "copycats" emerging amid inadequate regulation.

This included providers that let Australians pay for rent, bond and home deposits in instalments, others that help people pay for bills - such as utilities, childcare and telco - in instalments, and even one provider that lets customers "eat now, pay later" on pub meals.

"The simplest way to fix that is to have consistent laws with little or no loopholes that apply to all credit products," Choice's Kirkland said.

"If that isn't done, the government will be back here in a few years' time having to once again run a lengthy consultation process working out how to protect consumers."