Are you currently using Afterpay to purchase that new laptop from JB Hi Fi? Want a new Full HD Smart TV but don’t have the cash? Buy-now-pay-later services are the increasingly popular way for Australians to purchase products without paying the full amount upfront. Buy-now-pay-later services have grown from over 400,000 users in 2016 to over 2 million in 2018 and are targeted at younger users. A huge percentage are millennial and Gen-Z users, But because these services don’t sit under the National Credit Act, ASIC, the consumer watchdog for finance and credit, holds little power if anything goes wrong. With huge growth in the industry of buy-now-pay-later services, there’s bound to be problems occur especially for vulnerable consumers or those already with significant debt.
Luckily, AISC recently investigated the industry and has released a plan to review current buy-now-pay-later services. So, how does this review affect you as a user? Will you still be able to purchase that diamond ring for your to-be fiancé? Yes, of course. The review is a positive step forward in the ever-evolving age of the financial services industry. Let us give you the lowdown.
What is a Buy-Now-Pay-Later Arrangement?
A buy-now-pay-later arrangement is when you can purchase a product such as that all-important fancy laptop from JB Hi Fi, take it home immediately (because that’s why you wanted it, right?) and pay it off over an agreed period in instalments. For example, if you take your laptop home on Afterpay, you divide the total cost by four and pay instalments every two weeks for a period of two months. Simple right? You get the product, JB Hi Fi get paid and Afterpay get the commission.
Common buy-now-pay-later services currently offered in Australia are Afterpay, Zip Pay, Certegy Ezi-Pay, Oxipay, BrightePay and Openpay.
Of the 2 million Australians in 2017-18 using buy-now-pay-later services. 60% were aged 18 to 34, 2 in 5 users earned under $40,000 a year. Buy-now-pay later services make it easier for a full-time student to buy a laptop, but also makes it easier to over-commit and which may cause issues in the future when trying to repay the debt.
ASIC’s Deemed Risks of Buy-Now-Pay-Later Services
Now, you’re probably thinking the retail assistant knows their job and payment services offered including buy-now-pay-later options. Well, think again. Most retail employees aren’t trained on how the service works. Further, 62% of consumers use a buy-now-pay-later service when buying products online which do not provide you with significant warnings to what you’re getting into. So make sure you read the contract and understand the terms and conditions before you agree.
ASIC found the following risks when completing their investigation into buy-now-pay-later agreements:
- Easy for you to over-commit and take on debt you can’t pay back
- Products were inflated to take advantage of the service, i.e., that laptop may cost you $1,850 instead of the original $1,500
- Potentially unfair terms in their contracts, and
- Multi purchases with different service providers can see over commitment, i.e., you can purchase a laptop through Afterpay and then purchase a new Full HD Smart TV through Openpay, allowing you to double your debt
You Do Have Options
There are currently options in place for you to help manage your overwhelming debt racked up by these services. These are called ‘safeguards’ and can vary depending on which service you’re involved with. If you’re having trouble, you may be able to contact your buy-now-pay-later service provider and discuss:
- Capping or limiting the missed payment fees that can be charged, and
- Prohibiting you from purchasing that new Full HD Smart TV if you’ve missed payments on your laptop
Outcomes of the ASIC Review
As a result of ASIC’s review, ASIC will be able to assert their power in these issues and be able to intervene with a contract if it is necessary. Buy-now-pay-later providers have also made improvements which will benefit users. What improvements, you ask? They’re reviewing their standard form contracts for potentially unfair contract terms. And all of the buy-now-pay-later providers are now members of the new Australian Financial Complaints Authority.
This means if you purchase that laptop through Afterpay but don’t bother to read the contract and end up having to pay the inflated price of $1,850 because of unknown fees, ASIC can help. If you miss a payment on your laptop because of unplanned expenses who can you call? ASIC.
Avoiding a Buy-Now-Pay-Later Debt
In the meantime, you really don’t want to get to the stage of missing payments and being in debt. Statistics say that as of June 2018, Australians owe around $903 million in unpaid debt due to using buy-now-pay-later services. Unreal, isn’t it? This means that one in six Australians have either become overdrawn, delayed their payments or borrowed money to meet their payments. Are you a part of this statistic?
ASIC’s review into buy-now-pay-later agreements is a positive step towards regulating this industry.
If you have fallen victim to a buy-now-pay-later agreement and have unmanageable debt as a result, or if you are just struggling with other repayments on credit cards or utility bills, please seek advice immediately from one of our experts at Debt Rescue and we can help keep your debts from spiralling out of control.
Contact us for a confidential chat today on 1800 560 568.