Afterpay flags potential credit checks as regulation looms

Afterpay has opened the door to conducting credit checks on some customers as it prepares for regulation of buy now pay later products (BNPL), but it argues that treating the sector the same way as credit cards would be excessive.

As the government consults on regulating the BNPL sector, which falls outside credit laws, consumer groups and some banks have called for Afterpay and its industry rivals to be treated in the same way as traditional credit product providers.

Currently, customers opening an Afterpay account receive an initial spending limit of $600, without the company conducting a credit check, and without the customer providing details of their income or expenses. Limits can be increased as customers show they can make repayments, to a maximum of $3000.

Afterpay’s international head of public policy, Michael Saadat, said the company already conducted credit checks in the United States, and the process could signal if a customer might be financially vulnerable. He said credit checks, which can be carried out almost instantly, could play a role in Australia for customers with limits of more than $1000.

“I think we recognise that credit checks have a role to play, we just don’t agree with some of the sentiment expressed by others that credit checks and the credit reporting system are somehow a panacea, and a sort of fundamental part of consumer protection,” he said.

The company did not support changes that would require BNPL firms to assess customers’ income or expenses, he added.

“If we’re designing a framework that has consumers in mind, I think consumers would say that it really is disproportionate to be asking for their income and expenses when they’re being provided with an Afterpay product that gives you a $600 up-front spending limit,” Saadat said.

Afterpay is the country’s biggest provider of BNPL loans, which allow consumers to pay for purchases over four interest-free, fortnightly instalments.

It made the comments in response to federal Treasury consultation on BNPL regulation, which has suggested three options for the sector. They include: stronger self-regulation; limited regulation under the Credit Act; and more comprehensive regulation under the Credit Act.