Afterpay shares have plunged following news a Senate inquiry will examine “debt vultures”, payday lenders, lease-to-buy schemes and ‘buy now, pay later’ providers not covered by the banking royal commission.
The steep share price slide began shortly after 3:00pm AEDT as the Senate agreed to the motion by Labor’s Jenny McAllister to refer the inquiry to the economics committee.
Shares in Afterpay, which allows customers to purchase an item and pay for it in fortnightly instalments, closed 19 per cent lower at $11.35.
In a statement to the ABC, Afterpay said it “welcomed” the opportunity to participate in any review and ensure its service is “clearly understood.”
“The category ‘buy now, pay later’ is a relatively new concept that has been applied broadly and inconsistently across several players with very different characteristics. Our service is highly differentiated from others in that category,” it said.
In its push for the inquiry, Labor said concerns about unregulated providers were on the rise.
“Financial counsellors are telling us that their clients are coming in with increased debts, as a result of predatory debt-management firms and other unlicensed financial services providers,” Senator McAllister said.
Currently, ‘buy now, pay later’ providers including Afterpay, which does not charge interest, fall into a regulatory blackhole as they are not covered by the National Credit Code.
‘Debt vultures’ in inquiry’s sights
Consumer advocates have welcomed the inquiry, which will also examine “debt vultures” — debt-management firms that promote themselves as helping people deal with their debts and repair their credit scores.
“If you thought from watching the royal commission that the banks, insurers and superannuation companies have been ripping us off, they’ve got nothing on the unregulated debt-management sector,” Consumer Action Law Centre chief executive Gerard Brody said.
“This Senate inquiry is an important initiative and will expose those financial-services providers that have been left free to prey on financially struggling Australians for too long.”
The Government undertook a review of small-amount, credit-contract laws, which issued its final report in March 2016.
Speaking in Parliament, Liberal senator Anne Ruston said the Government was considering the review’s recommendations and welcomed “any further scrutiny” on the sector.
“Despite sensible recommendations and a draft bill, we are yet to see legislative reform of these extremely expensive loans and leases that target low-income Australians,” Consumer Action said.
Afterpay shares have surged during 2018
Afterpay shares have had a stellar run, gaining 90 per cent since January.
In August, the company reported a 365 per cent surge in the money it earns from late fees — charged when customers miss payments — to $28.4 million, or 24 per cent of its income.
On Wednesday, Afterpay emphasised the “vast majority” of its revenue was derived from fees paid by retailers and merchants.
It said late fees were capped and denied it profited from the charges.
“Afterpay‘s total late fees are lower than the costs it incurs when consumers don’t pay on time [for example, bad debts and administrative costs],” it said.
“This means Afterpay, unlike other services, is incentivised to promote responsible use and discourage late payments.”
Afterpay was not the only company to lose ground on the share market — shares in Credit Corp, which buys and collects debt, tumbled close to 9 per cent lower, while shares in lender Money3 fell nearly 14 per cent.