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ASIC Recommends Buy Now Pay Later Reform

Thursday, August 30, 2018 - Posted by Michael McCulloch

In our January 2018 edition of debt collection news we posted an article AfterPay and zipPay Post-Christmas Warning which indicated that Westpac was warning their brokers that these payment schemes must be assessed as a liability when assessing a persons capacity to service a mortgage.

This month the Australian Securties & Investments Commission (ASIC) has come out and released a report "Design and Distribution Obligations and Product Intervention Power"which recommends broadening their powers to cover the buy now, pay later sector which is not currently regulated by the National Credit Code. In the report ASIC noted:

  • providers may carry out limited inquiries of the consumers' financial situation prior to providing credit (noting the responsibile lending obligations do not apply);
  • some providers are funding high cost purchases (up to $30,000) over long repayment period;
  • consumers may lack understanding of what fees and charges are payable and when; and
  • vulnerable consumers may be using these products.

ASIC went on to say in the report that as those in the buy now, pay later sector do not charge fees or interest so therefore do not meet the definition of "credit" under the Code:

  • do not meet the definition of credit within the National Credit Code. Some providers extend funds without charging fees or interest and as such do not meet the definition of 'credit' under the Code;
  • meet the definition of credit but are exempt under s6(5) of the National Credit Code. Some providers rely on the continuing credit contract exemption under s6(5) of the Code as the only fee they charge is an establishment and/or account fee that does not vary according to the amount of credit provided and is set at a maximum of $200 in the first year and $125 every year thereafter; or
  • meet the definition of credit but are exempt under s6(1) of the National Credit Code: Some providers rely on the short term credit exemption under s6(1) of the Code which requires that the term not exceed 62 days and fees and charges not exceed 5% of the amount of credit.

A review however of the AfterPay website shows that late fees may be payable where an instalment was not paid by the due date:



With AfterPay reporting that late fee income increased 365% ($28.4 million) in their Annual Report, Consumer Action Centre's Senior Policy Officer, Katherine Temple, said in a statement, "Our financial counsellors report that we are receiving increasing numbers of calls from people with buy-now-pay-later debts, including Afterpay. Most people calling us for help who have Afterpay debts are juggling numerous other debts, such as credit cards, payday loans and utility bills."

We will continue to monitor for updates regarding the outcome of the report by ASIC and will post these as and when they become available.


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