Julian Hill (Bruce, Australian Labor Party) Share this | Link to this | Hansard source

Afterpay, Zip Pay, Openpay, Humm and Newcomer Bundle are all a new form of financial product, so-called digital layby. But they are not actually layby. Layby used to mean that the store put the goods aside, you paid them off in instalments, and only when you had actually paid for them would you pick up the goods. But nowadays you get the goods up-front at the point of sale, whether that is instore or online, and then you pay for them over a set period. Afterpay, which is the most successful of these products, requires four fortnightly payments. Payments are interest free if met on time. But, for a growing number of financially vulnerable Australians, mainly young people, this is seeing them drown in late fees, risking bankruptcy and destruction of their financial future.

These products exist in the shadows. Unbelievably, they are not regulated and are not considered a credit product under the National Credit Code. The providers have no obligation to assess whether the consumer can actually afford to purchase the product. Most of these products do not perform any form of credit check and have no idea how many competitor products the consumer may also hold. So vulnerable young people are getting deeper and deeper into debt with credit from multiple providers, yet this never triggers a credit check.

Buy now pay later—BNPL—is especially popular with young millennial women. It's now being used extensively to fund clothes, shoes, make-up, eyelashes, hair extensions and cosmetic dentistry. Yet retailers, not the end consumer, are actually the real customers of BNPL products. This whole thing is designed to push up retail sales, not to protect a consumer's financial wellbeing. Retailers love this of course. People spontaneously buy stuff that they can't afford, especially young lifestyle- and social-media-focused consumers. A quick look at Afterpay's website reveals exactly who they're targeting. I looked at the front page this afternoon. They have little tiles: 18 pictures are of scantily clad, glamorous women. There is one baby and there are two men.

In the first six months of this year, Afterpay reported that late fees made up 17.6 per cent of their statutory income, yet less than five per cent of their customers paid late fees. What that means is that a tiny proportion, less than five per cent of customers, are paying enormous late fees. For them, BNPL products are downright dangerous.

Growth in unregulated BNPL is exploding. In just two years, 2016 to 2018, the number of customers jumped from 400,000 to over two million. BNPL providers still pretend they're not flogging a credit product, yet the fine print from Afterpay—I'm picking on them although they're probably actually the best of the companies; they're the largest and best because they do agree we need regulation—states that they reserve the right to report any negative activity on your account, including late payments, missed payments, defaults and chargebacks, to credit reporting agencies. But they don't complete credit checks on their customers. This is having a bet each way. They won't check but they will wreck your credit rating.

There is now a strong correlation between the use of high-cost payday lenders and BNPL usage. One payday lender has admitted that 90 per cent of its applicants have used BNPL products in the previous 90 days. Jane is one of these victims. She is in her 20s and works in a supermarket. Recently, when Jane applied for a $1,500 personal loan, the lender discovered that she had 288 BNPL transactions from one company in just 90 days, totalling $5,600. They were all for beauty and fashion purchases. If the BNPL product had assessed Jane's credit history in a cursory way, they would have found that she had opened 11 payday loans in just 90 days, has a credit card and an active file with a debt collector. Jane could not afford to pay her food and rent, and she was totally consumed by late fees.

Once the late fees start they're a killer. The way they work is that you get a loan for $2,000; you can have 10 separate transactions under that loan; you miss one payment, maybe because your car breaks down or you're sick from work for a day, and they can't get the payment as a direct debit; you get 10 late fees and it compounds from there. That debt is sent to a debt collector, and they're not shy about sending you bankrupt for very small amounts of money. It wrecks your life. Young Australians like Jane need to be protected from this form of credit.

Nothing I've said tonight is new. The government knows about this problem and yet they have not done anything. ASIC reviewed the arrangements and concluded in January that they have no jurisdiction to regulate this conduct and to address the lending risk to consumers. There are new products entering the market every month and it is urgent that these products are regulated as credit. If it smells like credit, it feels like credit and it works like credit then we have to accept that it's credit and bring it into the regulatory framework.

These products are of course great for lots of people who use them responsibly, and they should be there with fit-for-purpose regulation. It doesn't need to be onerous like a home loan, but action is needed to rein these products in and make them safe.