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13th Aug, 2024
In recent years, the financial landscape in Australia has been significantly transformed by the advent of buy now, pay later (BNPL) services. These innovative credit products have provided consumers with a convenient and often cheaper alternative to traditional credit forms such as credit cards, small amount credit contracts and consumer leases.
BNPL arrangements typically involve a third-party provider financing consumer purchases of goods and services, with repayments collected in instalments. Unlike traditional credit products, BNPL services generally don’t charge interest but may impose small fees on consumers and service fees on merchants. Australian BNPL transactions were worth around $19 billion in 2022–2023, accounting for approximately 2% of all Australian card purchases.
Currently, BNPL products aren’t regulated under the National Consumer Credit Protection Act 2009 (Credit Act). As a result, providers aren’t subject to responsible lending obligations (RLOs) or other Credit Act requirements, and they don’t need to hold an Australian credit licence. Some of the most common concerns about the BNPL sector include unaffordable lending practices, inadequate complaint resolution and hardship assistance, excessive late payment fees, and a lack of transparency in product disclosures and warnings.
Although BNPL providers adhere to the Australian Finance Industry Association’s voluntary Buy Now, Pay Later Industry Code, which covers approximately 90% of the market, this self-regulation isn’t enforceable by the Australian Securities and Investments Commission (ASIC). Consequently, breaches of the Code don’t attract criminal or civil penalties, highlighting the need for more robust regulatory oversight. A Bill currently before Parliament aims to extend application of the Credit Code to BNPL contracts and regulate most BNPL contracts as low cost credit contracts (LCCCs). Once the Bill passes, providers of LCCCs will be required to hold and maintain an Australian credit licence and comply with the relevant licensing requirements and licensee obligations, with some modifications to ensure regulation is proportionate to the relatively low risk posed by LCCCs. The existing RLO framework will also be modified to create an alternative, opt-in framework that scales better with the risks posed to consumers and requires each LCCC provider to develop and review a written policy on assessing whether an LCCC would be unsuitable for the consumer.
13th Jul, 2024
The Australian Securities and Investments Commission (ASIC) has issued a scam alert warning consumers that there has been an increase in the use of ASIC’s logo in social media scams promoting fake investments and stock market trading courses; cold calling scams; and impersonation accounts on Telegram. ASIC is working with the National Anti-Scam Centre (NASC) and social media platforms to remove such content and reminds consumers that it does not endorse or promote investment training or platforms, doesn’t cold call consumers, and is not associated with any investment offerings.
ASIC’s warning to consumers covers three main areas of concern.
19th Dec, 2023
As a part of the government strategy to target investment scams, ASIC and the Australian Competition and Consumer Commission (ACCC) – through the newly formed National Anti-Scam Centre – have published an investor alert list which may help consumers to identify whether entities they are considering investing with could be fraudulent, running a scam or unlicensed. While the list is not exhaustive, as new scams are appearing every day, any reduction of consumer harm, financially and non-financially, is surely a positive step.
According to the National Anti-Scam Centre, which commenced operation on 1 July 2023, Australians reported a record $3.1 billion of losses to scams the previous year. The Centre is already making inroads by highlighting the most harmful scams and making it easier for Australians to report scammers, and it will build its capabilities over the next three years, working on a new system to improve scam data-sharing across government and the private sector.
The new investor alert list replaces the previous list of “companies you should not deal with” issued by ASIC, and has the advantage of including both domestic and international entities that regulators are concerned about. These concerns largely relate to entities operating and offering services to Australians without appropriate licenses, exemptions, authorisation or permission. The alert list also includes entities that run impersonation scams, falsely claiming to be associated with legitimate and often well-known businesses.
ASIC recommends conducting the following checks before handing over any investment money:
23rd Oct, 2023
With the cost of living crisis and increase in interest rates hitting Australian households, there is growing evidence that many are falling into financial stress. It is with this background that the Australian Securities and Investments Commission (ASIC) has issued an open letter to various banks, credit institutions, and lenders, calling on them to ensure that their customers have the appropriate level of support.
ASIC has reminded lenders that under s 72 of the National Credit Code, providers must consider varying a customer’s credit contract if they are notified that these credit obligations are unable to be met. Credit providers must also ensure that credit activities authorised by their licence are engaged in efficiently, honestly and fairly. First and foremost, to meet their obligations, lenders must proactively communicate to customers about the circumstances in which they can seek hardship assistance and the options that are available.
Hardship options may be temporary (eg deferring a payment) or permanent (eg setting up a payment plan or altering/varying loan repayments). Applications for financial hardship will usually be required to provide proof of hardship including reasons for the hardship, current income and other major financial expenses, as well as the level of repayments that can be afforded at the current time.
Customers worried that seeking hardship arrangements will permanently affect their future credit scores can rest easy knowing the effects are only temporary. While hardship arrangements for certain credit products such as loans or credit cards can appear in credit reports, the report will only show the months the arrangement is in place, or if the arrangement is permanent, the month the loan is varied, no other details are included and the listing will be deleted after 12 months.
Where a hardship application is granted, lenders should contact customers as the period of assistance comes to an end, to understand their most up-to-date financial circumstance and consider whether further assistance is required. This includes ensuring that customers understand what happens to any arrears that may exist at the end of the hardship assistance period.
Where a customer’s hardship assistance is denied, written reasons must be provided along with other options including making a complaint to the Australian Financial Complaints Authority (AFCA) about the decision.
11th Apr, 2023
The Australian Securities and Investments Commission (ASIC) has released results of its recent review on improving arrangements for life insurance in super funds. The review was conducted as a follow-up to issues first identified in 2019, when ASIC found that some super trustees offered insurance that unnecessarily erodes a member’s retirement balance, inappropriate coverage of insurance due to restrictive definitions and exclusions, and unreasonably onerous or lengthy claims handling processes.
To find out whether improvements had been made in the industry, ASIC used its compulsory information-gathering powers to examine the actions of 15 selected trustees. In total, approximately three million super accounts in these trustees’ funds had death and/or total and permanent disability (TPD) cover, and approximately 800,000 accounts had income protection (IP) cover at 30 June 2022. This information was further supplemented with industry-level data from the Australian Prudential Regulation Authority (APRA) and the Australian Financial Complaints Authority (AFCA) to gauge the overall level of improvement.
Overall, the report concluded that while the changes observed are a positive step towards reducing risks of members receiving insurance that does not meet their needs or paying for cover they cannot claim on, trustees need to continue improving how they monitor and respond to those risks. ASIC says it will continue to work closely with APRA to drive better practices in the super industry, and will use its regulatory powers where trustees and insurers are not complying with their obligations.
13th Mar, 2022
According to the Australian Securities and Investments Commission (ASIC), there has recently been a surge of promoters encouraging individuals to set up self managed superannuation funds (SMSFs) in order to invest in crypto-assets. ASIC warns people to be aware that while crypto-asset investments are allowed for SMSFs, they are high risk and speculative, as well as being an attractive area for scammers targeting uninformed investors.
For example, late last year ASIC moved to shut down an unlicensed financial services business based on the Gold Coast that promised annual investment returns of over 20% by investing in crypto-assets through SMSFs.The money obtained was not invested, but instead allegedly used by the directors of the business for their own personal benefit, including acquiring real property and luxury vehicles in their personal names.
Professional advice should always be sought before deciding on whether an SMSF is appropriate for your circumstances, as there are risks involved in being the trustee of an SMSF, and any SMSF established must meet the “sole-purpose” test.
Remember, SMSF trustees bear all the responsibility for the fund and its investment decisions complying with the law, and breaches may lead to administrative or civil and criminal penalties. This is the case even if you (as the trustee) rely on the advice of other people, licensed or otherwise.
SMSFs are not generally prohibited from investing in crypto-assets – if you do decide, after receiving appropriate advice, that investing in crypto-assets through an SMSF is right for your situation, you can do so.
If you do decide to invest in crypto-assets, whether through an SMSF or as an individual investor, it’s also important to keep accurate records and ensure you report any related income to the ATO.
The ATO’s legal power to gather information is extensive and includes the power to physically enter any place and inspect any document, good or other property – this extends to a physical cryptocurrency wallet. The ATO is also permitted by law to amend a taxpayer’s tax return for an unlimited period where it considers fraud or evasion has occurred – and deliberate non-reporting of gains made from disposals of crypto-assets would meet this description.