Crackdown on the buy now, pay later schemes
CASH-strapped consumers signing up to buy now, pay later schemes could be protected under proposed changes to the controversial sector.
Among the recommendations by a Labor-led Senate references committee it suggested tougher powers by the financial regulator, the Australian Securities and Investments Commission, to help keep a lid on the booming industry.
But the schemes including Afterpay and Zippay will not have to conduct credit checks before signing up customers and ensuring they can afford their debts.
The report showed the number of shoppers signing up to schemes such as Afterpay has soared from 400,000 to two million between 2015 and 2018.
And Good Shepherd Microfinance who offer no-interest loans to low-income and vulnerable Australians estimated 30 per cent of applicants using these loans were now repaying buy now, pay later debts.
ASIC found consumers using these products "found that the products allowed them to spend more than they otherwise would and to buy things they otherwise might not have."
It also showed one in six consumers admitted to struggling with meeting repayments.
In the report ASIC's senior executive leader of deposit taker, credit and insurers Michael Saadat, said the ability to intervene in the sector would result it them dealing with "potential consumer harm more directly."
A majority of buy now, pay later users - 60 per cent - are 18-34 years old and are women.
Financial comparison website RateCity's spokeswoman Sally Tindall said "any regulation should ensure anyone signing up to these services has a clear understanding of the terms and conditions".
In one worst case scenario a Good Shepherd loan applicant divulged a 90-day bank statement containing 288 buy now, pay later transactions worth $5600.
A submission by Good Shepherd stated, "This case study demonstrates the large amount of credit that can be accessed with no verification of income, credit check or assessment of capacity to repay."
Afterpay and Zippay boast about not charging customers interest, instead hitting their customers with fee penalties if they do not meet strict repayment criteria.
The Consumer Action Law Centre's chief executive officer Gerard Brody said the inquiry's recommendations was a positive step forward to keeping a close watch on debt management firms, payday lenders, 'rent-to-buy' providers, short-term credit providers and buy now pay later companies.
"These businesses, which escaped the scrutiny of the banking Royal Commission are adding to the unmanageable debt problems of many Australians," he said.
"This report provides a blueprint to stop the rip-offs and exploitation that is rife within this dark corner of the finance industry."