Afterpay Buy Now Pay Later service to introduce spend cap for users

Are you someone who uses Buy Now Pay Later (BNPL) services more than you should?

With the industry largely unregulated, it can be almost too easy to rack up debt.

Two in five Australians have used one in the six months to August, with the most frequent adopters being Gen Z (59 per cent) and millennials (55 per cent), according to a recent Finder survey.

The survey of 1,000 Australians found the average debt carried by BNPL users was $1,052 — down from $1,391 in July 2023.

Now, Afterpay is introducing a new spending cap for shop-happy users.

“When it’s available, it will allow you to set a cap on what you can spend with Afterpay with a few simple taps in the app,” it said on Tuesday.

The feature will launch in late 2024.

Currently, Afterpay users do not need an external credit check to set up an account, and borrowing on the platform does not affect someone’s credit score.

The service offers customers an initial borrowing limit of $600, which increases gradually

“The longer you have been a responsible shopper with Afterpay — making all payments on time — the more likely the amount you can spend will increase,” its website states.

Missing payments and orders being declined due to insufficient funds are among the factors that can decrease someone’s estimated spend limit.

Twenty per cent of BNPL users admitted to being hit with late fees every month after missing a payment, according to a June survey by Compare Club.

The government is cracking down on credit lenders and wants better protection for vulnerable users.

Legislation introduced in federal parliament in June will make it harder for vulnerable Australians to access the credit schemes by making sure adequate user background checks are completed and lending businesses have credit licences.

The government says BNPL providers have not been adequately regulated by Australian consumer credit laws, meaning the businesses are not subject to complete affordability checks like those essential for credit cards and other loans.

The Responsible Buy Now Pay Later and Other Measures Bill, currently before the senate, outlines fee caps for credit lender users which will be finalised with the implementation of the regulations.

The Australian Securities and Investment Commission has said while the lending arrangements can be beneficial, “it is aware some consumers are incurring missed payment fees and report being financially stressed”.

Assistant Treasurer Stephen Jones said the government’s approach struck a balance between preserving the benefits of access to low-cost credit and addressing the risks of consumer harm.

“This legislation regulates BNPL in a proportionate way that provides necessary consumer protections while maintaining the essential benefits,” Jones said in June.

“This will not change the underlying obligation not to provide credit unless it’s affordable and meets the consumer’s needs.”

- With AAP