Consumer groups call for regulation in “unfettered” BNPL industry

Choice and Which? are among a consortium of consumer groups from nine countries calling for more regulation of the buy now, pay later (BNPL) industry.

The group of 11 consumer groups also includes Financial Counselling Australia and the Consumers Federation of Australia, along with organisations from New Zealand, Sweden, Denmark and Korea.

They have co-signed a statement calling on governments — including the Australian government — to more effectively regulate the growing BNPL sector, in order to better protect consumers.

Six key asks include: regulating BNPL in the same way as other forms of credit; prohibiting providers from targeting children or people in financial hardship; and offering consumers access to redress through independent mechanisms if something goes wrong.

The statement comes as Choice releases new research, which found 30% of Australians have used a BNPL provider in the past 12 months.

Some 21% of BNPL users have used it to pay for essential goods or services such as groceries or utilities.

About 15% of Aussie BNPL users have missed or been late on a payment. Of those, 78% said they experienced financial hardship as a result of the fees incurred.

Some said they had to take out an additional loan, or forgo household essentials in order to meet the costs.

“International consumer groups have sounded the alarm on the harm being caused by the unfettered BNPL industry,” Choice chief executive Alan Kirkland said in a statement.

“It’s time to close the loophole in the BNPL industry in Australia,” he added.

“For too long, companies have been allowed to sell unregulated loans to Australians. Failure to act will create further hardship for individuals and families who are already doing it tough.”

A self-regulated sector

The fast-growing Australian BNPL scene has been the cause of some controversy, with the emergence of various new models and use cases.

However there are also concerns that over-regulation could stifle innovation in the space, and in fintech more broadly.

Last year, a group of industry players signed up to a code of practice in what then-chief executive of FinTech Australia Rebecca Schot-Guppy called an “excellent example of self-regulation”.

Any new regulation must consider the implications for all stakeholders, she told SmartCompany at the time. If rushed, they risk hurting consumers or stifling tech advances, and therefore competition.

As technology companies continue to innovate and grow, “we can’t expect legislators to create laws at a pace that’s keeping up”, she added.

Proposed consumer protection changes

The consumer groups are calling for six key changes to ensure BNPL providers are subject to the same consumer protection laws as other credit providers.

They have called on the government to:

1. Regulate BNPL products in the same way other forms of credit are regulated, including capping fees and charges, bringing in restrictions on unsolicited marketing, and introducing obligations to help customers in financial hardship;
2. Require merchants to provide a ‘pay in full’ option first, particularly online;
3. Require BNPL providers to assess whether their product is suitable and affordable to provide credit, without risk of financial harm;
4. Prohibit BNPL providers from targeting children or people in financial hardship;
5. Create a fair and independent mechanism for redress for customers if something goes wrong; and
6. Ensure regulators monitor and publicly report on the impact of BNPL products for various groups on consumers, including labels of late payments and numbers of customers behind on payments.

“BNPL credit providers are known for targeting people with existing loans, encouraging them to use buy now, pay later loans to pay for essential goods and services, such as food, electricity bills, and rent,” Kirkland suggested.

“This is a fast path to extreme financial hardship.”