The concept of Buy Now, Pay Later is at the centre of many emerging fintech companies that offer an innovative platform for the payment of goods and services. Although this concept has become very popular, the financial markets and ASIC have been quick to raise concerns around the regulation and obligations of these service providers.
While there are a number of issues that have come to light since the inception of Buy Now, Pay Later services, ASIC’s major concern is in relation to financial hardship and the protection of consumers.
ASIC published an extensive report which addressed the following concerns:
- consumers are struggling to make the repayments required by Buy Now, Pay Later services;
- some consumers are finding they have over-committed themselves, leading to financial difficulty;
- others do not understand the terms and conditions of the service; and
- contract terms have, in some instances, been unfair for the consumer.
Buy Now, Pay Later service providers are also facing issues in relation to being unable to secure funds owed by consumers. According to the ASIC Report, on the 30 June 2018, there was $903 million in outstanding Buy Now, Pay Later payments.
The current issues in the space are exacerbated as Buy Now, Pay Later service providers are not required, at present, to hold an Australian Credit Licence (“ACL”) and do not have the same responsibilities and obligations as ACL holders under the National Consumer and Credit Protection Act (“NCCP Act”).
ASIC’s Report demonstrates concern that many of the operators of Buy Now, Pay Later services fall outside of the NCCP Act. Although Buy Now, Pay Later arrangements are not presently required to hold an ACL, some providers, such as Afterpay and ZipMoney have voluntarily obtained ACLs. As ACL holders, these companies are required to be members of the Australian Financial Complaints Authority (“AFCA”), therefore providing consumers with greater protection and mechanisms for redress in relation to complaints.
ASIC’s Report did propose a number of recommendations that should be applicable in order to reduce consumer hardship. These include:
- consumers having access to internal and external dispute resolution schemes such as AFCA;
- the use of ASIC’s product intervention powers; and
- the development of an appropriate code of practice within the industry.
As more providers enter the market, the likelihood of further regulation of the Buy Now, Pay Later industry increases. ASIC’s report indicated that the first step would be to extend their product intervention powers to all credit facilities regulated under the Australian Securities and Investments Commission Act 2001 (“ASIC Act“) , however ASIC has publicly stated its product intervention powers will firstly target CFD and FX traders.
As a result of this, it remains to be seen whether the NCCP Act will be extended to apply to Buy Now, Pay Later providers and when ASIC will focus its powers to address the current issues in the space.
Buy Now, Pay Later entities are ever-expanding in Australia and Sophie Grace is here to help. If you are considering operating a business with similar arrangements, or want to learn more visit our Fintech page or contact us to discuss further.