If you use Afterpay, your bank might reject your home loan
application under new instructions from the regulator
Jack Derwin, Business Insider,
13 December 2019, 12:10 pm.
ASIC's latest responsible lending guidelines have suggested to
lenders that 'unregulated' buy now, pay later (BNPL) services are
red flags to look for when considering an application.
The wording indicates BNPL customers may face greater scrutiny when
applying for a loan in 2020, with ASIC saying they may pose a
It's the latest signal from the regulator's attitude towards the
services, possibly indicating greater scrutiny
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If you use buy now, pay later (BNPL) services like Afterpay and
Zip, it could be about to become a lot harder for you to take out a
In its latest responsible lending guidelines, which instruct banks
and other lenders as to what appropriate approvals look like, ASIC
has made multiple references to the BNPL sector.
The reference most likely to concern the likes of Afterpay is one
warning of the risk of consumer harm these services pose,
describing them as a potential 'red flag', alongside multiple
credit cards or personal loans. ASIC goes on to describe the buy
now, pay later sector as a form of 'unregulated credit'. Companies
like Afterpay are notably reluctant to describe their products as
While lenders aren't explicitly instructed to decline applicants
with a BNPL history, they are urged to consider the risks. ASIC
provides an example to highlight this point, in which 'Chanthavy'
applies for a $20,000 secured car loan. While her credit score and
history are good, she has two credit cards near their maximum
limits and uses several buy now, pay later services.
ASIC instructs lenders to treat such applicants as 'higher risk',
possibly 'operating at the margins of [their] available income' and
implores the lender to go deeper on their financial situation to
consider if they can make loan repayments.
With more than 1.5 million Australian BNPL users, the move could
have serious ramifications, particularly when considering BNPL
users are overwhelmingly young Australians – a demo which has
long-bemoaned being priced out of the capital city housing market.
Research house Roy Morgan estimates more than a third of customers
are under 28 years of age, and more than three-quarters under
It's not the first time the space has caught the ire of the
regulator. Late last year, ASIC released its first review finding
the services 'can cause some consumers to become financially
overcommitted and liable to paying late fees'. It also highlighted
its concern surrounding the especially young demographics attracted
to companies like Afterpay.
Likewise, co-founder of buy now, pay later company Zip Peter Gray
has called for the bar to be lifted closer to Zip's
'Buy now, pay later is a unique sector that needs unique
regulation,' he told Business Insider Australia. 'We would not
support simple and transparent modern cost of living solutions
being regulated out of existence because we’re forced to do
business the way the big banks do. We're trying to fix the models
that the big banks have implemented.'
He disagrees that buy now, pay later customers pose an inherent
'Because of our focus on and commitment to responsible lending, Zip
customers are demonstrating superior repayment behaviour with just
1 in 100 customers late in any given month, compared to more than 1
in 6 credit card users struggling to repay their debts,' Gray
He has previously suggested that Zip would like to see 'a cut-down
version of responsible lending' to lift the industry's minimum
standards. Specifically, Gray said he'd like to see competitors
conduct greater financial checks on customers and stop credit cards
being used from making repayments.
Where he draws the line however is when it comes to the issue of
surcharging. At present, BNPL companies don't allow merchants and
retailers to pass on the cost of the service to customers. ASIC is
currently conducting a review into that practice.
READ MORE: Afterpay and its competitors are under pressure to
charge customers for their service – and it might actually be good
for them in the long run
Afterpay has been contacted for comment.
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