Report misses the mark on buy now pay later regulation

The Senate Select Committee on Financial Technology and Regulatory Technology has published its Interim Report. Consumer groups say the Interim Report has missed the mark on its recommendation encouraging self-regulation in ‘innovative’ financial services.

Among its findings the Committee recommends that the Australian Government establish a “…culture of innovation and competition in financial services by supporting self-regulation where innovative products emerge, whilst ensuring strong consumer protection.”

The Report refers to buy now pay later services as one example of ‘innovation’ in the sector. While the popularity of buy now pay later has greatly increased in recent years in reality it is just another form of credit.

Under the current legal framework, buy now pay later services do not have to make any assessment of whether users have the capacity to repay loans. This legal loophole is causing Australians harm. There is a pressing need for these credit providers to comply with consumer protections in our national credit laws, as required for other credit products.

Buy now pay later debts are a regular cause for concern brought up by Australians who seek assistance from Consumer Action Law Centre and Financial Rights Legal Centre, via the National Debt Helpline. Both Centres express disappointment at the Committee’s interim recommendation to allow these products to continue to operate without proper safeguards in place.

“Just putting a credit product on an app doesn’t make it innovative or good for people’s financial wellbeing,” said Katherine Temple, Director Policy & Campaigns, Consumer Action.

“This recommendation is clearly at odds with the Financial Services Royal Commission Final Report, which stated that self-regulation has range of limitations including inadequate standards, lack of compliance, weak monitoring and enforcement and no consequences for breaches.

“These lessons cannot be forgotten,” she said.

“Most innovation in the financial services sector to date has been focussed on exploiting loopholes in existing laws or simply having a savvy marketing strategy that makes a product look new or different. Buy now, pay later is one example, but there are many others.

“We want innovative companies in Australia that are willing to comply with consumer protection laws and enhance people’s financial wellbeing.

“Having strong laws increases consumer confidence and levels the playing field for industry. Self-regulation alone has proven to be ineffective time and time again,” she said.

The Report also recommends continuing to allow the FinTech sector to use the unsafe practice of screen-scraping following calls from consumer groups to ban the practice. Screen scraping is the process by which screen display data is obtained by lenders and involves a customer handing over their banking log-in credentials (including their username and password. The practice has been banned in the EU and the UK.

Financial Rights’ Policy and Advocacy Officer Drew MacRae said:

“It is a fundamentally nonsensical position for the Government and industry to warn Australians not to hand over our banking passwords on the one hand and then on the other give the greenlight to FinTechs to demand those same passwords. This opens up consumers to misuse, identify theft and forces Australians to breach the terms and conditions of their banking services.

“Allowing this practice to continue will lead to two digital economies: one where digital-haves use the safer Consumer Data Right regime and another where digital have-nots are forced to use unsafe screen scraping practices. And it will be the increasing numbers of financially vulnerable Australians who will suffer the results.”


Media contact: Mark Pearce, Media and Communications Adviser | Consumer Action Law Centre | 0413 299 567 |

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