A Senate inquiry into the small credit sector concluded on Friday with a report detailing 20 recommended changes to protect consumers at risk of accumulating debt through the use of buy now, pay later providers, pay-day lenders and consumer lease companies.
The changes include requiring small credit providers to be members of the Australian Financial Complaints Authority, which would give clients access to an external dispute resolution scheme and ensure providers act in the best interest of their clients.
Another recommended change involves the creation of a regulatory framework for the buy now, pay later sector, which would require them to appropriately consider consumers’ personal financial situations and give consumers access to internal and external dispute resolution mechanisms, among other protections.
This stops short of requiring buy now, pay later providers to conduct costly responsible lending checks under the National Credit Act.
Prior to the publication of the Senate committee’s report on Friday, speculation of impending regulation of the buy now, pay later sector drove a $1.3 million sell-off of Afterpay shares.
The Australian Securities and Investments Commission is investigating the sell-off, but the Senate committee on Friday said it had no evidence to suggest the report was disclosed to external parties and was not undertaking an investigation.
Buy now, pay later apps, such as Afterpay, zipPay and Openpay allow consumers to pay for a portion of their purchase at participating retailers and pay the remainder over time in regular instalments.
The payment method has become hugely popular in recent years, with the number of consumers using buy now, pay later products growing from 400,000 in 2015 to approximately two million in 2018. They are popular with younger consumers in particular; as ASIC noted, over 40 per cent of users had an income under $40,000, and roughly the same percentage were students or part-time workers.
Thousands of retailers now accept buy now, pay later at checkout – both online and in-store – and many say they have seen incremental sales increases as a result.