ASIC has released its first review of the buy now pay later industry.
Buy now pay later arrangements allow consumers to defer payment for purchases from participating merchants by paying the buy now pay later provider for that purchase over time but obtaining the goods and services from the merchant immediately.
A buy now pay later arrangement usually involves a contract between the consumer and the buy now pay later provider, a contract between the consumer and the merchant, and a contract between the provider and the merchant.
Each provider in ASIC’s review charges merchants when consumers use a buy now pay later arrangement. Some providers also charge consumers for these arrangements. Arrangements are available in-store, online, and sometimes through door-to-door sales.
Under the arrangement, consumers are generally not charged interest. However, some arrangements have an establishment fee and account-keeping fees. Consumers may also be charged a fee if they miss a payment.
While ASIC found that each provider in its review contractually prevents merchants from charging consumers higher prices for using a buy now pay later arrangement it said that it had received anecdotal evidence that some merchants may have charged consumers significantly higher prices for using a buy now pay later arrangement.
While some buy now pay later providers offer fixed-term contracts up to 56 days for amounts up to $2,000, other providers offer a line of credit for amounts up to $30,000.
In its review, ASIC found that one in six consumers had either become overdrawn, delayed bill payments or borrowed additional money because of a buy now pay later arrangement.
These arrangements are not regulated under the National Credit Act and as a result, providers are not required to be licensed or to comply with the responsible lending laws that prohibit a lender from providing credit that would be ‘unsuitable’ for the consumer.
However, these arrangements are considered ‘credit facilities’ under the ASIC Act meaning that ASIC can take action where a buy now pay later provider engages in conduct that is misleading or unconscionable.
The review examined six providers, four of which are part of larger ASX-listed companies. The buy now pay later arrangements ASIC reviewed were: Afterpay, zipPay, Certegy Ezi-Pay, Oxipay, BrightePay, and Openpay.
Only one out of the six providers reviewed examined the income and existing debts held by consumers before providing their services. ASIC also received reports of instances where consumers were allowed to use a buy now pay later arrangement despite having limited or no income and substantial existing debt.
ASIC tested each of the provider’s performance in areas such as transparency, dispute resolution, and hardship. As a result, all of the providers made changes: for example, all of the providers are now members of the new Australian Financial Complaints Authority, and all of the providers are reviewing their standard form contracts for potentially unfair contract terms.
Given the potential risks to consumers, ASIC supports extending the proposed product intervention powers to all credit facilities regulated under the ASIC Act.
ASIC says it may be that buy now pay later providers should be required to comply with the National Credit Act. ASIC has not yet formed a view that this is necessary.