Buy now, pay later schemes will face Senate Inquiry

OPERATORS of buy now, pay later schemes and debt management firms — including Afterpay — will be forced to explain to Parliament how they dish out credit.

LABELLED “debt vultures” by critics, operators of buy-now-pay-later schemes will be forced to explain to Parliament how they dish out credit.

Along with debt management firms, they are about to be put under the spotlight of a Senate Inquiry.

Millions of Australians have jumped on board these schemes, which included Afterpay and Zippay, to buy goods and pay for them later.

MORE: Buy now pay later schemes used for beauty treatments and tattoo removal

MORE: Customers turning to free financial help in record numbers

But Labor Senator Jenny McAllister said they targeted low and middle income earners and financially stressed Australians.

“Financial counsellors are telling us that their clients are caught in a spiral of debt because of predatory debt management firms and other for-profit debt vultures such as “credit repair” businesses,” she said.

“The inquiry will examine whether the current regulation of debt vultures, payday lenders and “buy now, pay later” providers is adequate to protect vulnerable members of the community from financial harm.”

The hearings will begin soon before a report is handed down on February 22 next year.

Shares in Afterpay took a massive hit on Wednesday after news of the Senate Inquiry.

They fell by 18.9 per cent and closed at $11.35.
Rival company Zip Co’s shares also plunged 12.26 per cent and closed at 93 cents.

Debt buying and lending company Credit Corp’s shares also plunged 9.2 per cent and closed at $18.85.

The Consumer Action Law Centre’s chief executive officer, Gerard Brody, said the inquiry undertaken by the Senate Economics References Committee was critical to putting a stop to companies preying on the vulnerable.

The Consumer Action Law Centre’s chief executive officer Gerard Brody wants debt vultures to be stopped from preying on vulnerable consumers.

“Debt vultures advertise incessantly online and on TV promising a ‘life free from debt’,” he said.

“If you thought from watching the Royal Commission that the banks, insurers and superannuation companies have been ripping us of, they’ve got nothing on the unregulated debt management sector.”

In most cases buy now pay later schemes do not charge customers interest but slug customers with excessive charges if they failed to pay back their repayments in time.

Afterpay requires customers who buy an item using their scheme to make four equal fortnightly instalments.

If a payment fails customers will be charged a $10 late payment fee and a further $7 payment if the missed payment is still not paid.

Rival scheme Zippay allows customers up to 60 days for free.

Customers must however make $40 minimum repayments and a $6 monthly fee if monthly balances are not paid off in full.

If the minimum repayment is not paid within 21 days after the due date a $5 fee applies.

Payday lenders — who offer short term loans — also charge excess interest rates than can be as high as 400 per cent.

An Afterpay spokeswoman said they welcomed the review.

“Afterpay promotes responsible spending and offers customers a fundamentally different proposition to traditional credit products,” she said.

“We do not charge interest, our instalment periods are short, and if payments aren’t made on time we immediately suspend a customer’s account which means they will never be caught in revolving debt.”

Latest statistics from the National Debt Helpline — an independent and free service to help burdened Australians — found a record number of cash-strapped Australians are seeking assistance on problems including using Afterpay.

For the first eight months of the year the helpline received more than 120,000 calls — the highest ever for this period.

This climbed from 115,000 in the same period in 2017.

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