Rebekha Sharkie (Mayo, Centre Alliance) Share this | Link to this | Hansard source

I move:

That this House:

(1) notes that:

(a) in November 2020, the Australian Securities and Investments Commission (ASIC) released a report entitled, Buy now pay later: an industry update, which set out the key observations about the Buy Now Pay Later (BNPL) industry, the experiences of consumers and recent regulatory developments;

(b) the report found that:

(i) more than 1 in 5 BNPL consumers surveyed missed a payment in the past 12 months, resulting in over $43 million in late fees for the 2018-19 financial year;

(ii) most BNPL consumers who had missed a payment had used multiple BNPL providers in the past six months;

(iii) nearly 40 per cent of BNPL consumers surveyed who had missed a payment in the past 12 months also had a payday loan or similar; and

(iv) 20 per cent of all BNPL consumers surveyed said they had cut back, or went without, essentials, like meals, to make their payments;

(c) BNPL providers have stated no more than 1 per cent of their consumers have been in financial hardship during COVID-19, and that this is inconsistent with the observations contained in the ASIC report for the 2018-19 financial year; and

(d) BNPL providers are not regulated by the National Consumer Credit Protection Act 2009 and are therefore not bound by responsible lending obligations; and

(2) calls on the Government to:

(a) respond to the report of the Senate Standing Committee on Economics entitled Credit and Financial Services Targeted at Australians at Risk of Financial Hardship tabled in the Parliament in February 2019 as a matter of urgency;

(b) introduce a bill that would amend the National Consumer Credit Protection Act 2009 to enact the recommendations of the Government's Review of Small Amount Credit Contract Laws;

(c) extend the National Consumer Credit Protection Act 2009 to BNPL providers; and

(d) ensure no changes are made to the National Consumer Credit Protection Act 2009 that would undermine or weaken responsible lending obligations as per the recommendations of Commissioner Kenneth Hayne.

The buy-now pay-later industry, I believe, is a tsunami waiting to happen. Afterpay, Zip Pay, Openpay, Payright and BrightePay are just a few of the players in the emerging buy-now pay-later sector—a sector that is not subject to the National Consumer Credit Protection Act and, therefore, not bound by responsible lending obligations. And I think that that's the real crux of the concern here.

The primary reason that the arrangements do not fall under the current definition of 'credit' in the act is because there is no interest charged. Instead, they charge the customer a late fee for any missed payments. While a late fee here or there may not seem much, we're not talking about an overdue library book. In the 2019-20 year, Afterpay earned almost $70 million in late fees, and I note that there was a 49 per cent increase on their last financial year. That's huge growth. You just have to look at the ASIC report: $4.8 million in transactions occurred in the year to June 2020. There were 1.9 million users, spending a total of $824 million.

Young people, the cohort that has suffered the highest unemployment and underemployment, are the most affected. ASIC found that, of those who missed their repayments, almost 40 per cent also held a small credit contract, such as a payday loan, and over 55 per cent had used at least two different buy-now pay-later services. In the absence—

A division having been called in the House of Representatives

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We're talking about buy-now pay-later. In the absence of reasonable and measured regulations, providers are permitted to stack debt after debt on financially vulnerable consumers like Jean. Jean sought advice from the Community Legal Centre because she was overwhelmed with her debts. Jean had a significant home loan; seven credit cards, all with high monthly repayments; a personal loan; and owed $5,000 to a buy-now pay-later provider. For several years, Jean had been in and out of work, had hardship agreements on nearly all of her credit cards and had been denied a hardship request on her personal loan. Despite all this, she received a $5,000 payment from a buy-now pay-later provider which stacked another debt onto her already very shaky financial situation. The impact goes beyond a poor credit history. It means going without food, electricity, fuel and basic everyday items. This isn't anecdotal evidence; this is borne out of the findings of the ASIC's report into the sector, which found that 20 per cent of all buy-now pay-later customers, one in five, were going without essential supplies in attempts to meet their repayments. Adam is another person. He is a young man who struggles with literacy issues and relies on a support person in his dealings with lawyers. Adam was being assisted by the Community Legal Centre in relation to responsible lending claims for a car loan and several personal loans. He was struggling to meet his repayments and became dependent on buy-now pay-later products to make ends meet. In one month, Adam's total repayments were over $500. This was untenable. His debts spiralled further out of control and he regularly uses buy-now pay-later arrangements to buy everyday essentials, such as groceries, petrol and discretionary items.

The great challenge is that the industry itself talks about a voluntary code, but that is not enough. The sector maintains that only one per cent of their customers are in financial hardship. The figure is not reflected in the ASIC report and it is not reflected in the experiences of our financial counsellors and our Community Legal Centres. There is predatory behaviour going on behind the buy-now pay-later scheme. It reminds customers. It sends them emails saying, 'Go and buy now. We'll lend you the money.' We need to act now to reduce the scarring impact on these financially vulnerable customers. I understand the government is hesitant to regulate, and I'm sure that there are many members in here who actually have shares with buy-now pay-later companies. I'm quite sure of that. That is where we are going wrong in this nation. We need to ensure that this industry runs under the same level of protections for consumers if they have a credit card. There should be no difference. We need to act and we need to act now.

Zali Steggall (Warringah, Independent) Share this | Link to this | Hansard source

I second the motion and reserve my right to speak.

Dave Sharma (Wentworth, Liberal Party) Share this | Link to this | Hansard source

I thank the member for Mayo for putting this important issue on the agenda. Buy-now pay-later schemes, for those who don't know, allow you to receive a good or a service now and pay for it later. They're a little like a modern-day lay-by scheme. Some of the most common ones in Australia are Afterpay and Zip Pay. I wish to declare here that I am a shareholder in both Afterpay and Zip Pay. I'm also a shareholder in most of their competitors—the major banks—as I expect many Australians are, through their superannuation funds.

Buy-now pay-later schemes are increasingly popular in Australia. From 2010 to 2016, credit card usage in Australia was on the increase, but since 2016 it's been in decline. Most of that decline has been taken up by buy-now pay-later schemes. As of June 2019, there were 6.1 million open buy-now-pay-later accounts in Australia. That means one-third of adults have a buy-now pay-later account. There are some 56,000 merchant agreements—that is, agreements between providers of buy-now pay-later services and merchants—and the amount of credit extended through these schemes has doubled from 2017-18 to 2018-19. To my mind, buy-now pay-later schemes provide consumers with important elements of choice. As the recent ASIC report, No. 672 of November 2020, says, 'They provide consumers with increased choice and access to payments and credit options with unique features and benefits.' I think it's important we keep that in mind. There's a reason consumers like buy-now pay-later schemes.

As the member for Mayo pointed out, the missed-fee-payment revenue for buy-now pay-later schemes was $43 million last. I agree that's of concern. That's up 38 per cent from the previous year. But over that same period the number of transactions almost doubled, from $16.8 million to $32 million, an increase of 90 per cent, and the value of all transactions went up 79 per cent, from $3.1 billion to $5.6 billion. So, in a year when late-payment fees went up by 38 per cent, the number of transactions increased by 90 per cent and the value of transactions increased by 79 per cent. By way of comparison, in 2016-17, the last year for which I could find data, $1.5 billion in credit card late fees—not interest—was charged. I think that shows you that there's a difference in scale. Credit card late payment fees are an order of magnitude higher than the missed payment fees in the buy-now pay-later schemes.

It's true that some providers in the buy-now pay-later space rely on late fees to make the economics work, but not the most profitable and not those with the biggest market share. Zip, for instance, receives less than one per cent of its revenue from late fees and relies largely upon merchant fees to make its economics work. Afterpay, which accounts for 73 per cent of the value of transactions in Australia, accounts for only 27 per cent of buy-now pay-later debt, and it has a number of mechanisms in place to avoid consumers falling into a debt trap. Consumers are suspended from using the service if they miss a payment. The average transaction value for Afterpay is $147. Consumers are unable to revolve their debt, and Afterpay, like the other responsible providers, generates 85 per cent of its revenue from merchant fees, which is what we would hope.

As the Senate Select Committee on Financial Technology and Regulatory Technology reported in its interim report in September last year, 'Innovative fintech companies are using technology to improve customer experience and outcomes and solve customer problems.' As that report identified, there is an opportunity for Australia to host a vibrant and growing fintech sector which has the potential to revolutionise financial services in Australia, increase competition in the sector and provide better outcomes for consumers.

From October 2021, design and distribution obligations will apply to buy-now pay-later schemes, and I welcome that. I think it's an important issue of customer assurance. This will require issuers of buy-now pay-later products to identify in advance a class of consumers for whom the product is appropriate and to make sure that they direct distribution to that target market. In December 2019, a little over a year ago, the Australian Finance Industry Association, the relevant industry body, announced that it would develop an industry code of practice for buy-now pay-later providers, which will in part seek to respond to the findings in the earlier ASIC report on this topic. Again, I also welcome this. I understand that the industry code of practice will be published and become effective from 1 March 2021.

Finally, ASIC also has a product intervention power under the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019. I think it's important we keep in mind these products give consumers choice, allow them to smooth their consumption and keep them away from riskier high-interest products.

Daniel Mulino (Fraser, Australian Labor Party) Share this | Link to this | Hansard source

I applaud the member for Mayo for bringing this important motion to this chamber. It is a motion that rightly seeks to resist the repeal of important responsible lending laws and that also requests that the government ensure that there is appropriate regulation of the buy-now pay-later sector.

I'll deal with some of the key recommendations in this motion in reverse order. I'll start with the responsible lending provisions that are currently under threat by this government and point out that this was one of the key recommendations arising from the Hayne royal commission. Indeed, if one looks at recommendation 1.1, one sees the royal commission recommending that the National Consumer Credit Protection Act 2009 'should not be amended to alter the obligation to assess unsuitability.' It stressed, rightly, that consumer protection lies at the heart of appropriate regulation of our financial services sector. Indeed, Commissioner Hayne's report described the NCPP laws as 'a critical legislative step in enabling good-faith trading between credit providers and consumers'.

Really, what we're seeing with attempts to weaken these laws is a bad solution in search of a problem. We agree that strong credit flows are important to the economy, but we have not seen any evidence put forward that weakening consumer credit protections is a way of ensuring credit flows in parts of the economy where it might not be as strong as it ought to be. In the House economics committee last week, the Governor of the Reserve Bank did point to the dangers of investment growth not being as strong as we would like in some areas of business investment, but that reflects a failure on the part of the government to create the right business investment environment. It is not going to be remedied by weakening consumer protection laws, particularly for those who are most vulnerable in our society. Indeed, this is something that Treasury itself indicated in its submission to the royal commission. It said that responsible lending laws were providing stability to the financial services system overall. It said that these protections were not impeding the flow of credit.

We see the cost of credit at the moment in the economy as low as it's ever been. The solution to strengthening business investment is not to reduce protections for the weakest in our society; it is an entirely different one. A very broad church wants responsible lending laws retained. A coalition of more than 200 groups and individuals, including Allan Fels, Ian Ramsay and Kevin Davis, have signed an open letter calling on this House to block proposed changes to responsible lending laws. This letter was signed by many of Australia's most eminent experts in economics and financial sector regulation. The letter says the government's plans to ease lending obligations will inflict long term damage on the community. It is important to note that APRA and ASIC were not properly con in this. Sean Hughes, ASIC's commissioner with responsibility for credit, had no input and got no heads up. APRA heard about this process through the media.

This will hurt Australians. I hear many examples of vulnerable individuals who need this protection giving heart-rending stories to me and my staff in my electorate. They need these protections to stay in place. We can look at evidence from the Consumer Action Law Centre, from CHOICE, from Financial Counselling Australia and from the Redfern Legal Centre. They say:

… we are unable to say anything positive about the Government's plans. The repeal of responsible lending obligations for almost all forms of consumer credit is the most short-sighted, poorly thought out policy proposed by a government in credit or financial services in recent memory.

The key point I want to make to start off is that we must retain appropriate regulation for vulnerable consumers in our financial sector regulation. As to other elements of this motion, I think the member for Mayo rightly points out that the BNPL sector is one that is rapidly growing. We need to look at this in the context of maintaining and strengthening consumer protection, particularly for our most vulnerable. It is of concern that so much revenue in this sector is accruing as a result of late fees. It is of concern that many people who have missed a BNPL payment were using multiple providers. I say we need to strengthen consumer protection. We do not need to weaken it, particularly given where our economy is at and given the rise of BNPL providers.

Andrew Laming (Bowman, Liberal Party) Share this | Link to this | Hansard source

I welcome the member for Mayo's motion today, which points out some very important observations that have been made in previous inquiries, particularly around buy-now pay-later arrangements around the country. You can see in this debate that we have this general tension between providing credit to more and more risky clients and making sure that it's done in a way that is fundamentally safe that gives them an opportunity to access the credit system like the rest of us. The member for Mayo provided some evidence, which is obviously already on the record, of buy-now pay-later clients missing payments, using multiple accounts and, finally, going without the essentials in order to meet those financial obligations. I recognise those concerns.

From the government's perspective, we're trying to make sure that every Australian, if they are going to access what we call credit at the margins, does it in as a safe a way as possible. We all know that we hit speed bumps along the way—paying the rego for one's vehicle can be a major shock, coming every 12 months or so—so these short-term credit arrangements provide a level of flexibility that allows someone to obtain credit over, say, a 16-day minimum through to a month or a few months to be able to meet that obligation. Clearly, that means that, by definition, they're going to have to go without at some point in the cycle, if you're looking at household expenditure, in order to meet those obligations. And, yes, there's going to be interest on top of that. Of course, if we make it too safe for people, then those people are the first who will get no credit whatsoever. That's the complexity around this matter.

I'm glad that the member for Wentworth initially laid out some of the important work that's done by Zip and Afterpay, because, in Zip's case, just one per cent of their revenue comes from late payments. I think that's a reasonable assessment of what they are doing. While it doesn't fully and forensically pull apart their revenue model, it shows that late fees are clearly not an important part of their revenue model. Also from the member for Wentworth is the incredible expansion of these services and that the late-fee and penalty component of them has not increased in any way like the amount of overall lending that's occurring. By that point, we could argue that they have been responsible by making sure that the overwhelming group to whom they are lending have had careful and prudent financial hardship provisions ready. They've also been expected to see that these clients have sufficient disposable income over the period of that lending to ensure that, if they do hit a subsequent hurdle, they can still meet those payments. Remember that these providers will, again, change the conditions of that lending if financial hardship appears. Clients always have the option to make it clear that that has occurred, and then these lenders are obliged to do that. Obviously there have been announcements in the budget about financial inclusion and the importance that SACCs play in that respect.

I think that the balance has to be right. The only balance we can really see here is with the overall lending in the sector, which is a very good indication. Before we get too alarmed by the number of late fees, we need to remember how many and what proportion of all clients are actually meeting those financial obligations. It's true that many may say, qualitatively, that they've had to go without essentials in order to make those payments. That's quite right: someone who's on a small income is almost certainly going to do it, by definition. But they went into it with their eyes wide open. They went into it knowing what the repayments were. They were forensically, one would hope, interviewed to establish exactly how they would meet those payments. Ultimately, that is the job of the entity providing the credit. The fact that most of their income is from merchant fees and not late fees is also very encouraging.

At every level there will never be a terribly clean sector, but I think as a nation we need to be mindful that every Australian deserves a right to access some form of credit that is consistent with their financial position. These groups do it in a very difficult way. I think the final point to make here is that, as long as late fees are not a substantial contribution to it, the sector should continue doing their work, with adequate prudence as they go.

Zali Steggall (Warringah, Independent) Share this | Link to this | Hansard source

I thank the member for Mayo for raising this important issue. I very gladly second her motion. The buy-now pay-later scheme is an alternative to credit that allows consumers to purchase products and then divide the payments into allotments, usually into weekly payments. The majority of providers do not charge interest, but most charge late fees if a payment is missed.

Most people have heard about Afterpay and ZipPay companies. They have enjoyed a meteoric rise on the Australian Securities Exchange. Other companies are following suit and new entrants are emerging regularly. Enabled by the rise of innovation and fintech solutions, the buy now pay later industry is expanding its reach rapidly. This year, industry revenue amounted to almost $700 million, and analysts are projecting it may grow to $1.1 billion in 2025. We know that the COVID-19 pandemic has made this even worse, pouring accelerant on the growth of the industry as consumers forgo credit cards and use online retailers more. Recent reports suggest that five per cent of all online retail sales and 20 per cent of online fashion sales are now processed through Afterpay, which is Australia's most popular buy now pay later scheme. What is worrying is that this industry is impacting our youth. This industry is targeted to youth who have a tendency to steer clear of credit cards. We know that 60 per cent of users are between 18 and 34 years old and that there are more female than male users.

Buy now pay later providers are not subject to the controls that financial institutions are subjected to under the National Credit Act and therefore there are no responsible lending provisions. Buy now pay later providers are not subject to this. That means that they do not do affordability checks before handing out credits, and we are not seeing the safeguards that are necessary. The consequences are dire. The Australian Securities and Investments Commission found that one in five buy now pay later users are missing payments; that those aged between 18 and 29—which is half of those users—cut back on essential items to make repayments; and more than 1.1 million transactions in 2019 incurred multiple missed payment fees. Even more worrisome, the report found that 15 per cent of users, and under half of those under 29, have taken out additional loans to pay for the services. It is clear that this industry should be called 'buy now pain later', in particular for the youth. I'm concerned that users of this industry are not appropriately protected or catered for.

Milton Dick (Oxley, Australian Labor Party) Share this | Link to this | Hansard source

I'm really pleased to enter the debate today and commend the members for Mayo and Warringah for bringing this item to the attention of the House. Sadly, this is not the first time that we've had this debate in this parliament. I really wish it was. The government has been delivered a litany of evidence, with case studies and evidence provided not only in the ASIC report into buy now pay later, which came down two months ago, but also in their own report into the small amount credit contacting legislation, which was promised to be delivered into this House to provide meaningful reform so that vulnerable Australians would not be ripped off.

I have sat down and talked with financial counsellors, organisations such as St Vincent de Paul and the Salvation Army, credit organisations and church groups in my community and across Australia. They have all said the same thing: this government has the power to crack down on practices which have seen vulnerable Australians ripped off. I will bring some facts to the attention of the chamber. Between April 2016 and July 2019—pre-pandemic—just over 4.7 million individual payday loans have been written, with an approximate total of $3.09 billion. That's 1.77 million households that have turned to payday loans. It's all very well for the member for Bowman to say that people have choice. They don't have choice. They don't have access to financial support.

Just when this government is ripping the rug out from under so many Australian families, we now see with ASIC's long-awaited report into buy now pay later schemes that the total amount of credit extended in the buy now pay later industry has doubled in 12 months. These transactions have increased from $16.8 million in the 2017-18 financial year to $32 million in 2018-19, representing an increase of 90 per cent. Missed payment fee revenue for all buy now pay later providers that ASIC looked at grew by 38 per cent to $43 million.

Revenue sources vary between different platforms. Late fees made up 20 per cent of Afterpay's revenue in 2018-19, with the balance from merchant fees, whereas Zip got most of its revenue from other fees charged to customers. This is good money for these companies. They are making money off the back of Australians who are turning to these schemes without adequate information or adequate protection. Among her clients, consumer advocate Rosie Fisk has observed, 'When consumers have got more than one of these products and they're trying to get on top of paying every fortnight and then the late fees as well, they really get into that financial vulnerability and go without their essential living expenses in favour of trying to pay their Afterpay or their other buy-now pay-later provider.'

The buy-now pay-later providers ASIC reviewed include Afterpay, Brighte, Humm, Openpay, Payright and Zip. Wherever you turn, there are these new kids on the block trying to rip off Australians. Users under the age of 35 accounted for 61 per cent of completed transactions in the 2018-19 financial year. But, for transactions that incurred missed payment fees, under-35s accounted for 67 per cent, and some 45 per cent of transactions that incurred a late fee were hit with more than one. These schemes are making money off the back of people who are missing payments. They are making huge sums of money. Hundreds of millions of dollars are going to the owners of these companies.

It's all very well for the member for Wentworth to say he's a shareholder. No wonder he's getting up here and defending this scheme. He's making a motza! I think it is astounding that any member of parliament, whether it be the member for Wentworth or the member for Bowman, would get into this place and somehow defend these loan sharks and defend what is happening. We know that the government is sitting on real reform. I introduced the private member's bill that Kelly O'Dwyer delivered to the House before the extreme right of the Liberal Party, the friends of payday lenders, withdrew it. But we're telling the government one thing today: we will continue to fight for these reforms for vulnerable Australians until they are passed.

Helen Haines (Indi, Independent) Share this | Link to this | Hansard source

I'd like to thank the member for Mayo for moving this motion. Her leadership on consumer protection and against predatory lending should serve as the standard in this place. We all know that feeling of wanting to buy something you can't afford and the heartsick longing as you rapidly calculate what you could sacrifice to get it and then, if reason wins over passion, walking away or closing the tab. It's this feeling that buy-now pay-later products circumvent. By paying for items over intervals, buy-now pay-later is seen to make purchases more affordable and manageable, with no upfront costs, interest or complicated paperwork. Its popularity has exploded in recent years, with companies such as Afterpay and Zip reporting astronomical growth. That was before the pandemic shuttered bricks and mortar retail and online shopping became a national pastime, including in regional Australia, where it has grown by 46 per cent year on year.

Buy-now pay-later may seem like a low-risk option for purchases under a couple of thousand dollars, but ASIC's report on the sector last month illustrates the full cost of this easy access to credit. ASIC reported that one in five buy-now pay-later users had missed a payment in the last 12 months, incurring late payment fees of up to 25 per cent of the purchase price. It's not just the immediate hip-pocket pain; late repayments can affect credit scores, jeopardising subsequent loan applications for cars or mortgages. More shocking is the fact that one in five buy-now pay-later users are cutting back on or going without essentials to meet their repayment obligations. It is simply devastating to think that people are skipping meals, not buying grocery or missing their mortgage repayments to pay off a buy-now pay-later loan.

Unlike other forms of credit, there are no responsible lending obligations on buy-now pay-later providers. They don't have to do due diligence on a consumer's financial situation or assess if the arrangement is suitable. For a credit offering with such monumental consequences this is unacceptable. The industry is developing a self-regulating code under the oversight of ASIC. The same responsible lending standards should be applied to all consumers, no matter where they get their credit.

Responsible lending laws are also under threat. The government has flagged its intention to wind back or completely remove these protections. I've received dozens of emails from constituents alarmed at this prospect and from professionals who've seen lives destroyed by unaffordable loans. Sandra Blake, a financial counsellor with 10 years local experience, currently assists small businesses with bushfire recovery financials, and she says the current laws deter lenders from offering unaffordable loans. She is concerned: 'that government is planning to remove these protections in the middle of a recession when it is more likely than ever that people will be more vulnerable to being taken advantage of by lenders'. Karen O'Brien is a rural social worker and adult educator who works each day with vulnerable people. She says: 'Any relaxing of protections will seriously harm the most at-risk members of our local community and increase bankruptcy, homelessness and stress around their finances'. And, in a joint letter, the Hume Riverina Community Legal Service and Upper Murray Family Care say: 'These laws currently prevent lenders from selling unaffordable loans and saddling people with debt they will never be able to pay off. The last thing we need is for banks and lenders to sell people bad debts'.

As the Independent federal member for Indi, I put the interests of my constituents first, not those of big banks or credit providers. That's why I cannot support these changes in their current form. They contradict the first recommendations of the banking royal commission. They will be introduced at the same time that JobKeeper ceases and JobSeeker will be cut. Over 7,300 of my constituents receive JobSeeker, and 6,016 Indi businesses have applied for JobKeeper. This will be a time of great financial uncertainty for these jobseekers and employees who rely on these payments. There are other ways we can support consumers to invest in the economy, such as keeping JobSeeker at the current rate. I'm yet to see a compelling reason for the reform. If access to credit is holding our recovery back, there are other policy levers we can pull that don't put the onus back on vulnerable consumers and risk hurting families. I will not support any legislation that would leave vulnerable people in my community saddled with bad debt. I urge the government to reconsider its reforms and commit to a fair and responsible credit environment for everyone.

David Gillespie (Lyne, National Party) Share this | Link to this | Hansard source

There being no further speakers, the debate is adjourned and the resumption of the debate will be made an order of the day for the next day of sitting.