Consumer groups have warned the UK government against following Australia’s lead in allowing the booming buy now, pay later (BNPL) industry to regulate itself, arguing that approach has been “woefully inadequate in curbing consumer harm”.
In a joint submission to a consultation process on BNPL regulation run by the UK Treasury, Australia’s Consumer Action Law Centre (Calc) and Financial Counselling Australia (FCA) said there were substantial holes in a voluntary industry code.
They urged the UK government to “design regulation that legislates consumer protections as the best way to reduce the negative impact BNPL products can have on a substantial portion of people”.
Treasury is holding the consultation process following a review that in October recommended tighter regulation in the UK despite the government’s view that there was “relatively limited evidence” of widespread consumer harm.
The industry has exploded in both Australia and the UK, although it has had difficulty turning a profit – shares in Australian-listed operators plunged up to 96% in November after a loss of $653m was declared in August by one of the big players, Zip.
On Monday, minnow Beforepay, which is chaired by former Westpac chief executive Brian Hartzer, made a horror debut on the ASX, with shares tumbling 44% from the offer price.
In their submission, Calc and FCA said they expected the lack of evidence of consumer harm in the UK was “only because the evidence has not been collected, rather than that the detriment is not occurring”.
“The empirical evidence of consumer detriment from BNPL in Australia is clear. Given the similar regulatory environments between our two countries and the similar growth in BNPL, it is likely that the experience of UK consumers will be much the same as that of Australian consumers.”
The joint submission pointed to research by the Australian Securities and Investments Commission in 2020 that found 21% of BNPL users missed a payment in the previous 12 months and 20% had cut back on or gone without essentials such as food to make their repayments on time.
FCA’s own research last year showed that “BNPL debt is growing rapidly in the case work of financial counsellors, often as an additional debt on top of other forms of credit such as credit cards and personal loans,” the organisations said.
“While it may escape legal definitions, BNPL is credit,” the FCA chief executive, Fiona Guthrie, said. “The relationship between BNPL and growing financial hardship is clear.”
The organisations said half of the BNPL operators in Australia had signed on to the industry’s inadequate code.
They said under the code providers did not have to assess whether repayments were affordable, meaning they were less likely to detect whether potential customers were vulnerable or likely to miss repayments and rack up substantial late fees.
It also lacked meaningful enforcement powers, the submission said.
“We urge the United Kingdom government to learn lessons from Australia’s experience and take steps to ensure these products have better safeguards, in a manner that puts consumers, particularly people experiencing vulnerability, first,” Tom Abourizk, a Calc policy officer, said.
