Consumer advocates target BNPL providers in global campaign

George Lekakis

CHOICE CEO  Alan Kirkland

A high-powered coalition of consumer advocates from nine countries are mounting an international lobbying campaign to stamp out legal loopholes that allow buy now pay later businesses to avoid being regulated as credit providers.

Financial Counselling Australia and CHOICE have joined the coalition, which also includes peak consumer advocates in markets such as the US, Sweden, Denmark, New Zealand and the UK where buy now pay later services are growing the fastest.

The international clamour for BNPL providers to be subject to credit laws and responsible lending requirements has intensified since December after the BBC’s investigative news program, Panorama, exposed shocking cases of consumer harm throughout the UK.

In February the British government announced that it would begin regulating the BNPL sector after a review commissioned by the Financial Conduct Authority found that practices of leading providers such as Klarna and Afterpay’s UK subsidiary Clearpay were contributing to the financial stress of customers.

Moreover, regulators in the New Zealand and the US recently announced major reviews of the BNPL industry in response to evidence that service providers were fuelling unsustainable behaviours among debt-laden borrowers. 

However, the Morrison government has kept silent on whether it will allow the Australian Securities and Investments Commission to apply responsible lending requirements on providers.

CHOICE’s chief executive Alan Kirkland said he was puzzled by the federal government’s inaction on regulating the BNPL sector.

“Australia pioneered buy now pay later services but it has been a laggard moving to regulate the industry,” he said.

“I think there is a view in government that all fintechs are doing good and should be left alone to innovate.

“That is clearly not the case with buy now pay later schemes – being an innovator hasn’t stopped them from causing financial harm to Australian consumers.”

A research report that CHOICE will release this morning shows that 78 per cent of BNPL borrowers who miss a repayment suffer financial hardship when they incur late fees. 

In many cases consumers are forced to take out additional loans to service BNPL debts.

“We expect this problem to get worse as more people enter buy now pay later contracts,” Kirkland said.

“That’s because more people are using BNPL to pay for essential goods and services.”

Kirkland indicated the international campaign would also focus on getting regulators to supervise the activities of other alternative credit providers that structure their businesses to avoid credit laws.

A raft of digital payday lending businesses such as Beforepay and MyPayNow are also not captured by Australian consumer credit laws.

“Any business models designed to get around credit laws are covered by this campaign,” Kirkland said.

Fiona Guthrie, the CEO of Financial Counselling Australia, said the lack of effective credit checking across the BNPL sector was compounding the hardship of Australians who were already overburdened with debt.

“It’s a joke for the industry to suggest that buy now pay later is merely a budgeting tool,” she said.

“We’re seeing people experiencing financial hardship who were able to open multiple accounts with different buy now pay later companies even though they were already burdened with other types of personal credit.”

Guthrie said the re-emergence of payday lending through unregulated “wage advance” providers such as MyPayNow was a troubling issue given that ASIC had spent the last decade trying to reform industry.

Representatives of the consumer coalition are scheduled to hold a global  teleconference this morning that will include a briefing from Chris Woolard, the expert commissioned by the UK’s Financial Conduct Authority to review BNPL practices.