Financial counsellors flag Afterpay Plus concerns

Financial advocates worry that a new, subscription-based buy now pay later product could spur more financially vulnerable Australians to take on debt. 

Afterpay Plus, the new $9.99 per month payment option from the buy now pay later (BNPL) giant, allows users to make purchases with the digital Afterpay Plus card through mobile payment options like Apple Pay, Google Pay and Samsung Pay.

Like Afterpay's original service, customers are able to pay back their purchases via four installments, but rather than being limited to retailers that accept Afterpay, the Plus option expands that to any store that accepts one of aforementioned mobile payment methods.

"As if it weren't easy enough already to get a BNPL loan, shoppers can now access an Afterpay loan at even more retailers, even more easily with the tap of a card," says Fiona Guthrie, chief executive of Financial Counselling Australia.

"These are loans, plain and simple, but with no credit checks and inadequate affordability checks. Financial counsellors are already inundated by clients struggling with BNPL debts - tempting people to take on even more debt will only make this worse."

For its part, Afterpay says that the new subscription service comes with no interest and capped late fees, as well as payment reminders and repayment schedules to help prompt users to pay their outstanding balances on time.

"Afterpay Plus maintains the same rigorous consumer protections that we've always employed," says an Afterpay spokesperson.

"We will continue to start all new Afterpay customers on a low limit. And because Afterpay Plus is only available to existing customers, subscribers to Afterpay Plus will have their same spending limits applied to help ensure safe use."

Afterpay also notes that 95% of installments were paid by their customers on time and 98% of purchases didn't incur any late fees, according to data from earlier in the year.

A growing part of the 'debt mix'  

While a relatively small proportion of Afterpay customers may be paying fees on their outstanding loans, financial counsellors are seeing the impact that all types of buy now pay later is having on some Australians.

"Without fail our financial counsellors will talk to numerous people every day who have hit a point where they're really struggling to get by, and buy now pay later is part of that," says Tom Abourizk, a senior policy officer at the Consumer Action Law Centre which receives Victorian calls to the National Debt Helpline.

"It's been a progressive thing over the last few years, but we're at a point now where almost anyone who lays out their financial situation will have buy now pay later in the mix. Often there will be numerous buy now pay later debts in there."

Part of the issue, says Abourizk, is that rather than seeking hardship support or help from a financial counsellor when struggling with bills, some people will fall further into a debt trap by turning to buy now pay later instead. 

"There are lots of alternative options if you're struggling to pay your bills, and we'd really encourage anyone in that situation to contact the National Debt Helpline which is a free, independent financial counselling service that anyone can call if they're having trouble with their debts.

"There are also hardship obligations that energy providers and telco providers have to discuss with you. And so if you're using buy now pay later for bills in the first instance, and you're struggling to afford them, that's potentially adding more fees to an already difficult situation."

Will buy now pay later be regulated? 

Earlier in the year the Financial Services Minister Stephen Jones announced the government's intention to regulate buy now pay later - at least, in part - under the credit act. But five months on, how far has regulation progressed?

"The government had set a goal of tabling legislation to parliament this year, but we're pretty confident that it's unlikely to happen at this point because we haven't seen any exposure draft legislation yet. So we're not sure if that will come this year or next, but we're hoping it moves quickly," says Abourizk.

While hopeful that it won't prove to be the case, Abourizk says that financial advocates are worried that when legislation does appear, it won't properly address the issue of income and expense verification.

"In terms of what the government has proposed, it sounds broadly like buy now pay later products will have obligations around responsible lending. But what we are really concerned about is that they will give some sort of a carve out which means providers won't have to verify any income or expenses.

"So providers would be able to ask people what their income is and what their expenses are, and that would be enough for them to conduct a lending assessment.

"There's a reason that under the credit law the obligation sits with financial services providers. They're the experts and they have licenses. So we're a little bit concerned that people could still get numerous buy now pay later products without any real assessment of their finances."

Need to talk to someone? 
National Debt Helpline: 1800 007 007 
Small Business Support Line: 1800 413 828 
Beyond Blue: 1300 22 4636 
Lifeline: 13 11 14 

Get stories like this in our newsletters.