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Afterpay and buy now, pay later industry faces tougher regulation

ASIC wants to extend its product intervention power to Afterpay. The Afterpay-led buy now, pay later industry is under pressure to introduce safeguards to protect consumers or risk facing regulation by the corporate regulator and even the national credit laws.In a report released on Wednesday, the Australian Securities and Investments Commission said as a first step its proposed product intervention power should be extended to buy now, pay later providers.ASIC's new product intervention powers, once it becomes the law, will allow the regulator to issue an order to stop the sale of a credit product or impose various conditions if there is consumer detriment.However, it said it will also consider bringing Afterpay and other providers under the national credit laws."As a further step, it may be that buy now pay later providers should be required to comply with the National Credit Act. ASIC as not yet formed a view that this is necessary," it said.Related QuotesView full quoteASX AnnouncementsExpandIf Afterpay is required to comply with the National Credit Act this means it will have to conduct responsible lending checks on consumers to verify their financial position before they can start using the service.Afterpay does not currently have to comply with the National Credit Act because it doesn't charge consumers for providing the credit, even though it charges consumers late fees.

ASIC said it will consider regulatory options in cases where consumers may be charged by retailers for using the buy now pay later service.It also flagged it remains an "open question" whether safeguards, such as limiting late fees or preventing another purchase before paying for a missed payment, are adequate.In particular, the regulator said it was concerned a consumer who has missed payments with one provider can still get credit with another provider.The sector has grown dramatically. In the 2018 financial year two million consumers used the service, compared to 400,000 consumers two years ago.After reviewing six buy now pay later providers - Afterpay, zipPay, Certegy Ezi-Pay, Oxipay, BrightePay and Openpay - ASIC found one in six buy now, pay later users became either overdrawn, delayed bill payments or borrowed additional money because of a buy now, pay later arrangement.ASIC's study also found most users believed the service allow them to buy more expensive items, spend more than they normally would or make more spontaneous purchases.ASIC senior executive leader Michael Saadat said as with other forms of credit, the buy now pay later can result in consumers being over committed."We can already see these arrangements are leading to people spending more," he said."So the question is, where is this going, what are the knock-on effects?"We want to make sure consumers are using the service wisely and not get into a position where they are struggling," he said.He said if the providers put in appropriate safeguards, that means further regulation may not be required.Separately, a Labor-led Senate committee is looking into the buy now pay later sector.