Buy Now Pay Later Industry
Senator GRIFF (South Australia) (14:16): My question is to the Minister representing the Treasurer, Senator Birmingham. The buy-now pay-later industry announced, today, a voluntary code of practice. The industry has claimed that this will impose minimum standards across all providers, but the code still allows purchases up to $2,000 to be made without any checking at all if a user has any income or debts. It means $10,000 of purchases, for example, could be made without the platform understanding if it is affordable for the borrower. If a provider violates the code, the only penalty is to be named by the Finance Industry Association. Does the government believe this is adequate?
Senator BIRMINGHAM (South Australia—Minister for Finance, Vice-President of the Executive Council and Leader of the Government in the Senate) (14:17): I thank the senator for his question. My understanding is that the Australian Securities and Investments Commission undertook a review into this sector and determined that a code should be voluntary. I am advised that, indeed, an announcement of that was made by the sector, today, that the sector has indicated it is putting in place a code which, I understand, comes into effect from 5 October 2021 and that it's supported by regulatory powers that enable ASIC to intervene where it identifies significant consumer detriment and to ensure that products are designed to suit target consumers.
I understand the code has attracted support of more than 95 per cent of the market in relation to the buy-now pay-later sector and has crucial points that any late fees must be capped, that it imposes some compulsory membership obligations in the sector, that it must follow the design and distribution obligations from the ASIC review and that providers must monitor vulnerable customers.
I don't have details in relation to the precise thresholds that you have identified, but, in terms of any further safeguards applicable under the code or other measures for individuals in relation to those lower threshold of loans or purchases, I shall bring any further information back to the chamber for you.
Senator GRIFF : Buy-now pay-later services do not require credit assessments, affordability checks, income verification or to comply with lending obligations. In comparison, so-called payday lenders are regulated and must undertake comprehensive credit assessments and comply with responsible lending obligations. Why does the government regulate one type of short-term, high-cost credit but not the other?
Senator BIRMINGHAM : I would refer the senator to the findings of the ASIC review, which I think did look carefully at the differences in relation to some of these sectors. There has obviously been a rapid period of growth in relation to buy-now pay-later arrangements and with companies such as Afterpay growing and creating a significant and popular arrangement for consumers. The ASIC report highlighted that providers are improving aspects of their business practices. They are expecting membership of the Financial Complaints Authority as part of their operations and they are making information about the complaints and hardship processes more accessible to consumers, while others are now referring consumers to financial counselling services in the event consumers are facing financial difficulty. ASIC, I know, is continuing to collect data on this industry, monitoring changes in it and will continue to do so in terms of the consideration in different sectors.
Senator GRIFF : Earlier this month the UK government published a review of the by-now pay-later industry and that review found the industry targets younger and less financially literate users, allowing them to access credit without checks and to hide debts from other lenders. Some users, of course, become trapped with unaffordable debts. That government chose to reclassify the services as credit providers and regulate them accordingly. When will this government do the same?
Senator BIRMINGHAM : I'm advised the UK government's review did acknowledge that buy-now pay-later arrangements can also provide clear benefits to consumers whilst they have sought to identify and address regulatory issues in the UK consumer credit obligation. What we see is that young people in particular are using less credit, particularly a reduced use of credit cards, since the growth of buy-now pay-later services, so there is some product substitution in relation to financing options occurring. As I indicated before, ASIC will continue to review these matters, particularly the implementation of the industry code as announced today.