Senate Begins Inquiry Into Payday Lenders, Consumer Lease Providers and Buy Now, Pay Later Services

Friday 26 October 2018 @ 9.12 a.m. | Legal Research | Trade & Commerce

On 17 October 2018, the Australian Senate referred an inquiry into credit and financial services to the Senate Economics References Committee, with a report due by 22 February 2019.

The inquiry will focus on payday lenders, debt management firms as well as Afterpay Touch Group (“Afterpay”) and its major competitor Zip Co. Further, as MortgageBusiness reports, the inquiry expects to cover:

“… whether current regulation of these service providers meets community standards and expectations and whether reform is needed to address harm being caused to consumers”.


Due to some parts of the finance sector escaping the scrutiny of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the “Hayne Royal Commission”), Deputy Opposition Senate Whip and NSW Senator Jenny McAllister proposed the new inquiry into parts of the finance sector that are often criticised by consumer advocates as being either "... unregulated or subject to much less regulation than banks ..."

The  Terms of Reference are for the Committee to inquire and report into:

Credit and financial services targeted at Australians at risk of financial hardship, with particular reference to:

(a)   the impact on individuals, communities, and the broader financial system of the operations of:

(i)      payday lenders and consumer lease providers,

(ii)     unlicensed financial service providers including ‘buy now, pay later’ providers and short term credit providers, and

(iii)    debt management firms, debt negotiators, credit repair agencies and personal budgeting services;

(b)   whether current regulation of these service providers meets community standards and expectations and whether reform is needed to address harm being caused to consumers;

(c)   the present capacity and capability of the financial counselling sector to provide financial counselling services to financially stressed and distressed members of the community; and

(d)   any other matters.

The terms of reference include “buy now, pay later” schemes such as Afterpay. Currently, these providers (also including Afterpay) are not covered by the National Credit Code (the Code is contained in Schedule 1 to the National Consumer Credit Protection Act 2009 (Cth)).

Comment on the Inquiry

Clare O'Neil, Shadow Financial Services spokeswoman, said the Opposition wanted to stop people entering a "spiral of debt" from expensive payday loans, and the inquiry would look at the financial counselling sector's capacity to service this part of the community.

Speaking to the Sydney Morning Herald (“SMH”), Ms O’Neil commented:

“I have been speaking with Australians around the country who are victims of misconduct by financial service providers … It is clear to me that there are a range of providers whose conduct was not examined by the banking royal commission who provide financial services to vulnerable Australians."

Gerard Brody, Chief Executive of the Consumer Action Law Centre, said clients frequently had problems with multiple payday loans. Debt management firms often charged exorbitant fees, he said, and were subject to no regulation. He was also quoted in the Sydney Morning Herald as saying:

"If you think the banks, insurers and superannuation funds are ripping people off, they are nothing compared with the exploitative conduct of this sector of the marketplace."

Speaking to the Australian Financial Review ("AFR"), Consumer Action Legal Centre Senior Policy Officer, Katherine Temple said that allowing Afterpay to operate outside responsible lending laws regime creates the risk of shoppers spending more than they can afford. Ms Temple commented:

"Our key concern is that buy-now-pay-later providers are not required to comply with the same important consumer protections, in particular responsible lending checks. Approvals tend to be instant and automated and we think this creates a risk of people getting in over their heads … All forms of consumer credit should be subject to the same obligations. There should be a level playing field between buy-now-pay-later providers and other credit providers."

If they were to be brought under the consumer credit regime, providers of buy-now-pay-later services would have to conduct responsible lending checks, which includes verifying consumers' income and expenses, be part of an external dispute resolution regime soon to be run by the Australian Financial Complaints Authority and offer hardship agreements to consumers experiencing financial difficulties.

Statement from Afterpay

The Afterpay service allows customers to purchase an item and pay for it over four equal instalments, due every two weeks, while there no interest is charged to consumers, there is a flat $10 fee on a missed payment and a further flat $7 a week later if the scheduled payment has still not been made.

In a statement made to the Sydney Morning Herald, Afterpay said it welcomed the opportunity to be involved, saying it promoted "responsible spending." It said the “buy now, pay later” model was being applied inconsistently in the market:

"Our model is unique in that we provide a free service to customers if payments are made on time, 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."

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