Australia, home to more than a dozen listed buy-now, pay-later service providers, is considering bringing the sector under regular consumer credit regulation, which bans unsolicited credit-limit increases and has background checks for most consumer lending
, cut her limit to A$2,000 from A$3,000, but a few months later she added up the debts in her account and saw the limit had returned to A$3,000, the maximum available.
Whereas credit card issuers collect both interest payments and vendor fees, BNPL companies attract users by charging nothing for credit, instead relying almost entirely on revenue from retailers. By monitoring users' repayment performance on generally small balances to control risk, they require no background checks, so signing up is easy and the companies' costs are low.
Already shares of the companies, which soared in the first two years of the pandemic, are down sharply in 2022 as investors see BNPL users doing less shopping, and perhaps hitting trouble in repaying balances, amid high inflation and rising interest rates on their other debts. Afterpay, which along with other BNPL providers has until Dec. 23 to respond to the discussion paper, said its existing system of rewarding timely repayment with credit limit increases and punishing late payment with credit cuts gave a more accurate reflection of a shopper's ability to service debt than the one-off checks required by credit-card providers.
Asked about the experience of Afterpay user Elliott, a company spokesperson said customers could always ask for their limits to be lowered. The spokesperson did not address the issue of limits going back up again without request.
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