It used to be known as lay-by. But in the high-tech world of today’s finance, it’s called Afterpay.

Now the corporate watchdog, ASIC is probing fast-growing “buy now pay later” platforms such as Afterpay following concerns by consumer groups that these services are taking advantage of a “legal loophole.”

The “buy now pay later” schemes are aimed at millennials – but with an important difference.

Unlike lay-bys, Afterpay allows customers to take their goodies home before they have paid for them. They then pay the merchant back in fortnightly instalments.

Afterpay claims it has over 1.1 million customers in Australia and is signing up more than 3000 new users a day. It expected to be available in more than 4000 shops before Christmas.

Afterpay does not charge customers interest, so it is not covered by consumer credit laws. The company can offer the service without interest, subscription or set-up fees to consumers because it is the merchants who pay to use the platform.

Afterpay makes about 80 per cent of its revenues from fees charged to merchants and the remainder mainly from late payment fees, which are $10 per late payment and another $7 if the payment is not made within a week.

And that’s the catch.

“ASIC is currently monitoring this industry and engaging with both industry participants and consumer groups,” ASIC’s senior executive Michael Saadat said.

The review will look into the proportion of consumers who miss repayments and whether customers are signing up for several “buy now pay later” schemes at the same time.

Consumer Law Action Centre’s senior policy officer Katherine Temple said: “Our key concern is that the product is structured so that it’s not subject to our national credit laws. We just want to make sure that people don’t end up with more credit than they can handle.’’

Afterpay has a maximum limit of $2000 and this is only applies to customers who have shown a repayment behaviour. More than 75 per cent of Afterpay customers are millennials aged between 18 and 34 years.


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