For those living in Australia, you have likely noticed the Afterpay option at checkout when shopping online — “Shop now. Pay later. Interest-free.” This Afterpay slogan has enticed many people to jump at the buy-now-pay-later option. But beyond the convenience, are you aware of the risks that come with Afterpay? Today we will walk consumers and retailers through the key things to watch out for when using Afterpay.
How Afterpay Works
Afterpay is a relatively new interest-free payment provider. Consumers do not have to pay any registration fee to use Afterpay, nor do they pay interest for using the service. Compared with paying in full immediately using a bank card, the most obvious difference is that Afterpay allows you to pay later. When a consumer pays with Afterpay, they do not need to pay the full amount up front. Instead, the payment is spread across a six-week period, with one instalment every two weeks, interest-free — and the goods are still delivered quickly. The consumer pays the first instalment up front, and the remaining balance is paid off over four interest-free instalments. As illustrated below, a $599 AUD item can be paid off in 4 instalments over 6 weeks. If payments are made on time, no additional fees are charged; Afterpay will send reminders to the consumer and will restrict further purchases if payments are overdue.
Once a consumer makes a purchase using Afterpay, the retailer immediately receives the full payment from Afterpay. This is a plus for retailers, as they do not need to worry about consumers defaulting on payment.
Understanding the Risks of Afterpay
While Afterpay offers considerable convenience for both consumers and retailers, there are still risks to be aware of — many of which stem from Afterpay’s terms and conditions.
1. Additional Fees
Although no interest is charged on the purchase price itself, Afterpay’s terms stipulate that if a consumer fails to make an instalment payment, they will be charged late payment fees (滞纳金). For example, if an automatic deduction fails due to insufficient funds or an expired credit card, a late payment fee will be charged.
A failed instalment payment incurs a fee of $10 AUD, and if the following week’s payment also fails, a further fee of $7 AUD will be charged.
In addition, while Afterpay has a fixed payment schedule, consumers who pay using a credit card should keep in mind that credit cards also have a fixed interest-free period, and that period may be shorter than Afterpay’s fixed payment schedule. As a result, consumers using Afterpay may still end up being charged interest by their credit card provider.
2. Late Payment Fees
Afterpay has introduced caps on late payment fees (applicable to all payments due on or after 30 June 2018):
(a) For each order with an original order value of less than $40 AUD: a maximum of $10 AUD in late payment fees may be charged;
(b) For each order with an original order value between $40 AUD and $272 AUD — the total late payment fees associated with the order will not exceed 25% of the original order value;
(c) For each order with an original order value exceeding $272 AUD, a maximum of $68 AUD (i.e. 4 x $17 AUD) in late payment fees may be charged.
Please note: there are no partial late payment fees, so all applicable late payment fees are either $10 AUD or $7 AUD, subject to the caps above.
3. Debt Risk
If a consumer incurs debt to Afterpay, Afterpay reserves the right to refer the debt to debt collectors.
4. Credit Rating and Credit Protection
Although Afterpay is not a traditional form of credit, using Afterpay can still affect a consumer’s credit rating. This is something consumers should take seriously — it is one of the more significant risks associated with Afterpay. Afterpay’s terms state that they reserve the right to conduct credit history checks. If a consumer fails to repay, they may be reported to a credit reporting agency such as Veda.
Afterpay is not regulated under the National Credit Code (NCC) because it does not charge interest and provides short-term credit for a period of less than 62 days. Afterpay also charges retailers a “service fee” to use its service.
As a result, consumers using Afterpay lose a certain degree of consumer credit protection. This includes protections under the National Consumer Credit Protection Act 2009, which requires credit providers to assess whether an individual is suitable to be provided with credit.
Given that Afterpay’s user base may include younger consumers who do not have significant income to meet repayments, Afterpay can carry a higher risk for some consumers — all the more reason to take these risks seriously. If a consumer experiences financial hardship and falls behind on Afterpay payments, they should contact Afterpay immediately and explain their situation. Doing so will help ensure that issues are resolved early, and will reduce the risk of incurring late payment fees or being reported to a credit reporting agency.
5. Refunds
Under the Australian Consumer Law, if the goods purchased by a consumer fail to meet the consumer guarantees — for example, if the quality is unacceptable, or the goods do not match the description in the advertising — the consumer can request a refund.
If a consumer requests a refund within 120 days of purchase and used Afterpay to buy the item, the consumer must return the goods to the retailer. The retailer must then notify Afterpay of the refund and return the full amount to Afterpay. Afterpay will then refund the consumer.
Given that a third party is involved, retailers should do their best to make the refund process quick and simple, improving the consumer’s shopping experience and maintaining a healthy customer relationship.
If You Do Need to Use Afterpay, We Recommend:
• Using only a debit card rather than a credit card
• Setting a spending limit
• Setting payment reminders to avoid unexpected late payment fees, although Afterpay will automatically set up several reminders for users
• Contacting Afterpay immediately if you experience any difficulty making repayments.
Final Thoughts
As this article has shown, Afterpay can help consumers avoid paying the full amount up front and ease payment pressure, but it also carries risks that both consumers and retailers need to be aware of. For consumers, Afterpay will charge late payment fees for payments that are not made on time, and it may also refer debts to debt collectors or credit reporting agencies. For retailers, Afterpay can complicate the refund process. Overall, whether you are a consumer or a retailer, you should follow Afterpay’s terms and conditions, along with consumer protection law and relevant business operation regulations, throughout the transaction, to avoid financial or debt-related disputes. If you have any related questions, you are always welcome to consult a qualified legal professional.
