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Sales are booming for buy now pay later services. One of the largest operators, Afterpay, achieved more than $900 million in sales in the first half of this financial year.

The services let consumers buy products online or in store immediately and pay for them at a later date. The service is generally free of interest and other charges. Some fees may be charged if consumers don’t pay on time.

Some of the concerns raised by consumer groups about buy now pay later services include:

  • They are unregulated. This means service providers don’t need to comply with responsible lending obligations.
  • Overcommitted consumers could see their credit rating affected. This is because many service providers report their transactions to credit reporting agencies.

Consumer protections differ depending on your Ombudsman

Any buy now pay later service that participates in credit reporting or has an ACL must be a member of either the Credit and Investments Ombudsman (CIO), the Financial Ombudsman Service (FOS) or later this year, the Australian Financial Complaints Authority (AFCA).

Each Ombudsman has a different scope that can limit or broaden what they can look at. But they all may consider credit reporting complaints, like whether a payment default was listed incorrectly.

To show how different the Ombudsman protections can be, here are two real life examples for buy now pay later service providers Afterpay and ZipPay:

  • Afterpay is an ACL holder and a member of CIO. CIO may make a hardship order even when a credit facility is unregulated. But CIO is unlikely to consider complaints about responsible lending as Afterpay is unregulated.
  • ZipPay is a member of the FOS and also has an ACL. FOS may also consider hardship complaints but they are only able to make hardship orders where the credit contract is regulated.

Generally, CIO offers greater protection than FOS for consumers if there is a default judgment.

It is not clear whether AFCA will provide consumers with more protection than either of the two existing Ombudsman schemes in terms of the jurisdictional differences in the schemes, but it will be interesting to see.

If you are not sure whether the services you provide are regulated, or if you even need a credit licence, do seek legal advice. We can give you advice on credit and privacy issues and even assist you with your credit licence application. We’d be happy to help.

Author: Chris Deeble

February 2018

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