BNPL - Global Call to Regulate Loop Holes

Nine international consumer groups call for urgent regulation of BNPL?

A global alliance of consumer groups is calling for regulatory loop holes to be closed amid warnings many consumers will end up in?a debt spiral as the cost of living increases.

Consumers International, an organisation that represents 10 consumer groups in 9 countries including?Australia, Denmark, Korea, Sweden, USA and UK calling for urgent action.?

The largest BNPL markets are: Australia, Germany, Sweden, USA and UK – global size is estimated at US$135-140 billion for 2021.

CONSUMER RESEARCH

New research from Australian Consumer group Choice reinforces other studies -

One in five, or 21 per cent?used BNPL for essential items like food and utilities.?

Fifteen per cent?have?missed or been late on a?payment, and

78 per cent of those people have?experienced financial hardship as a result, including?taking out an additional loan or forgoing essential items to repay BNPL.

US research has even more dire warnings – ?69% of consumers using BNPL have current debt issues or are over spending – 38.4% spending outside their budget while 28.4% maxed out or can’t get a credit card, a further 24.7% want to borrow without a credit check, another sign of debt issues – debt crisis anyone?

A BBC Panorama investigation shows how BNPL works and the key issues they create – a link in comments below – well worth 27 mins of your time.

The global consumer alliance calls for the adoption of six key actions to close regulatory loop holes.

GLOBAL STATEMENT FOR EFFECTIVE REGULATION?

1. Regulate buy now pay later products in the same way as other forms of credit under national laws.

2. Require merchants to provide an option that allows a consumer to pay for a product in full at the time of purchase. For online purchases, this should be the first option presented.

3. Obligate BNPL providers to assess whether providing credit to the consumer will risk causing financial harm.

4. Prohibit providers from marketing their products in ways that target children or people in financial hardship.

5. Enable consumers to have access to redress through fair and independent mechanisms when something goes wrong.

6. Ensure regulators monitor and report publicly on the impact of BNPL products for different groups of consumers, including levels of late payments and numbers of customers in arrears.

Fresh calls for buy now, pay later regulation as investors lose faith

SYDNEY MORNING HERALD By Colin Kruger?March 17, 2022

Consumer advocacy groups from the buy now, pay later sector’s largest markets have called for stronger regulation of the industry, with Choice citing fresh evidence of financial harm in Australia.

The Australian group is part of Consumers International which called for action on behalf of consumer organisations from nine other countries including the United States, United Kingdom, New Zealand, Belgium and South Korea.

?“We are calling for governments across the world - including the Australian government - to ensure that buy now, pay later providers are subject to the same consumer protection laws as other credit providers,” Choice chief executive Alan Kirkland said.

Choice’s latest quarterly survey of 1078 households found that 21 per cent of respondents who had used buy now, pay later in the last 12 months had used it for essential goods and services such as food and utilities.

About 15 per cent of users had missed a payment, or been late with a payment, with 78 per cent of this group experiencing financial hardship as a result. This included taking out additional loans or forgoing household essentials.

Buy now, pay later customers are not the only ones suffering from the service. Rising financial losses, from customers who are unable to pay their bills, might be catching up with the fintech phenomenon with the market now demanding a pathway to profitability from industry players.

Sezzle shares, which peaked at more than $11 last year, were trading at $1.333 on Wednesday. Shares in its merger partner Zip Co peaked above $12 last year and are currently worth $1.43.

Some experts are saying the bell of doom rang for the sector over the weekend when Affirm had to pull a securitisation offer.

Securitisation funding is the lifeblood of buy now, pay later operators. They rely on this debt funding to bridge the finance gap between paying merchants upfront for goods bought - and then waiting for their customers to pay it back.

“This is a major red flag and has 2008 images all over it, ie defaults,” payments expert Grant Halverson said.

“Markets are signalling they don’t like buy now, pay later risk – very high bad debts, with increasing interest rates and inflation, are all no-go zones for investors,” the McLean Roche boss said.

Softer traffic metrics would not be helping either. Fast growth was buy now, pay later’s main selling point and distracted from the fact that credit losses were also soaring.

A Macquarie report this week said buy now, pay later operators’ web traffic was down 12.4 per cent month-on-month in February. The major culprits were Afterpay and Klarna, down 10.7 per cent and 16.8 per cent respectively.

“We believe this is driven by cyclicality in spending behaviour particularly at the beginning of calendar years, which coincides with Australian Bureau of Statistics retail sales data,” Macquarie said.

“With tightening global regulation, geopolitical uncertainty and changes in consumer spending we see buy now, pay later as more of a complimentary customer acquisition tool rather than a profit generator going forward.”

Consumer advocates target BNPL providers in global campaign

BANKING DAY?George Lekakis17 March 2022??

A high-powered coalition of consumer advocates from nine countries are mounting an international lobbying campaign to stamp out legal loopholes that allow buy now pay later businesses to avoid being regulated as credit providers.

Financial Counselling Australia and CHOICE have joined the coalition, which also includes peak consumer advocates in markets such as the US, Sweden, Denmark, New Zealand and the UK where buy now pay later services are growing the fastest.

The international clamour for BNPL providers to be subject to credit laws and responsible lending requirements has intensified since December after the BBC’s investigative news program, Panorama, exposed shocking cases of consumer harm throughout the UK.

In February the British government announced that it would begin regulating the BNPL sector after a review commissioned by the Financial Conduct Authority found that practices of leading providers such as Klarna and Afterpay’s UK subsidiary Clearpay were contributing to the financial stress of customers.

?Moreover, regulators in the New Zealand and the US recently announced major reviews of the BNPL industry in response to evidence that service providers were fuelling unsustainable behaviours among debt-laden borrowers.?

However, the Morrison government has kept silent on whether it will allow the Australian Securities and Investments Commission to apply responsible lending requirements on providers.

CHOICE’s chief executive Alan Kirkland said he was puzzled by the federal government’s inaction on regulating the BNPL sector.

“Australia pioneered buy now pay later services but it has been a laggard moving to regulate the industry,” he said.

“I think there is a view in government that all fintechs are doing good and should be left alone to innovate.

“That is clearly not the case with buy now pay later schemes – being an innovator hasn’t stopped them from causing financial harm to Australian consumers.”

A research report that CHOICE will release this morning shows that 78 per cent of BNPL borrowers who miss a repayment suffer financial hardship when they incur late fees.?

In many cases consumers are forced to take out additional loans to service BNPL debts.

“We expect this problem to get worse as more people enter buy now pay later contracts,” Kirkland said.

“That’s because more people are using BNPL to pay for essential goods and services.”

Kirkland indicated the international campaign would also focus on getting regulators to supervise the activities of other alternative credit providers that structure their businesses to avoid credit laws.

A raft of digital payday lending businesses such as Beforepay and MyPayNow are also not captured by Australian consumer credit laws.

“Any business models designed to get around credit laws are covered by this campaign,” Kirkland said.

Fiona Guthrie, the CEO of Financial Counselling Australia, said the lack of effective credit checking across the BNPL sector was compounding the hardship of Australians who were already overburdened with debt.

“It’s a joke for the industry to suggest that buy now pay later is merely a budgeting tool,” she said.

“We’re seeing people experiencing financial hardship who were able to open multiple accounts with different buy now pay later companies even though they were already burdened with other types of personal credit.”

Guthrie said the re-emergence of payday lending through unregulated “wage advance” providers such as MyPayNow was a troubling issue given that ASIC had spent the last decade trying to reform industry.

Representatives of the consumer coalition are scheduled to hold a global?teleconference this morning that will include a briefing from Chris Woolard, the expert commissioned by the UK’s Financial Conduct Authority to review BNPL practices.?

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