The Australian Securities and Investments Commission (ASIC) released its long-awaited report on the Buy Now Pay Later (BNPL) sector on Monday, revealing that some consumers have cut down on meals due to debts, and showing that one in five consumers are missing payments.
However, the financial watchdog stopped short of recommending the sector be regulated in the same way as credit card companies, despite increasing concerns that the platform is a way for consumers to accrue debt in the same way credit cards do.
The report found some users were experiencing financial hardship, with 21 per cent of BNPL users who responded to its survey reporting they had missed a payment in the last 12 months. This added up to $43 million in late fees paid to the BNPL companies.
“From our research, we also found that some consumers who use buy now, pay later arrangements are experiencing financial hardship, such as cutting back on or going without essentials (e.g.meals) or taking out additional loans in order to make their buy now, pay later payments on time,” ASIC said.
The data undermines the BNPL sector’s key argument in their fight against regulation: that they are a budgeting tool to assist consumers through the coronavirus recession.
BNPL providers are generally not regulated under the National Credit Act, as they are not classified as credit providers and more often than not charge fees rather than charging interest.
However, ASIC has previously announced that regulatory changes will come into effect in October next year, with ‘design and distribution’ obligations designed to rein companies in on the appropriateness of their customers.
The companies will be required to identify what types of consumers their products are appropriate for, and “direct distribution” to that target market.
“These obligations will require the industry to design fit-for-purpose products that meet consumer needs,” ASIC said.
Afterpay and Zip welcome ASIC report
The largest two players in the large field were supportive of the new report.
Zip co-founder and chief operating officer Peter Gray, who has previously supported the Senate’s recommendation that BNPL companies “self-regulate”, said Zip would continue to go above and beyond its minimum requirements.
“There are different BNPL providers in Australia with different business models and different ways of engaging with consumers. Many of these models rely on late fees to make the economics work…Zip does not,” he said in a statement to the ASX.
“While we believe the Code is a very good start, Zip will continue to implement its own higher standards, particularly around customer suitability.”
Afterpay, Australia’s leading BNPL service with over 10 million global consumers, has also supported the upcoming obligations.
“The forthcoming design and distribution obligations, which focus on consumer outcomes and harms rather than imposing prescriptive compliance obligations, will play an important role in promoting good consumer outcomes,” the company said.
“It also comments that there is a significant role for industry self-regulation with broad industry support and commitment to ensure good consumer outcomes.”
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