Openpay’s remorse fuels buy now, pay later’s critics

“They said death is an act of default – meaning as soon as you default we’re going to charge you egregious fees and we’re going to call on the entire amount on the spot.”

Mr Kelly said: “On top of that, Openpay is not a bank so this product is unregulated [unlike] bank or credit card lending. This deal is to fund elective surgery as well as people who incur a bill with St John of God."

Openpay’s chief executive, Michael Eidel, said it regularly updates its terms and conditions as new business develops and that it contemplated the circumstance of a customer death prior to announcing the hospital partnership.

“We will be updating our terms and conditions as of today so death is no longer an event of default,” Mr Eidel said.

“Meaning should a customer pass away their contract with us will come to an end and we will cease to collect any outstanding payments due. This update will be in place before Openpay’s agreement with St John of God Health Care formally goes live and will be effective across the business.”

Openpay shares have soared more than fivefold from 49¢ to $2.71 over the past year, amid wild investor enthusiasm for the loss-making sector, which has been allowed to partly self-regulate.

Payday lending territory

Under some public pressure over a lack of regulation the industry including Afterpay, Humm, Zip Co, Brighte, Klarna, Latitude, Payright, and Openpay agreed to a Code of Practice with the Australian Finance Industry Association (AFIA) on March 1.

The AFIA said the code goes above and beyond the law in Australia to set best practice standards for the sector and strengthen consumer protections. However, Mr Kelly slammed the code as largely useless: “It’s not regulation, it’s a voluntary code of conduct without any sanctions. It’s the equivalent of being flogged with a wet lettuce. It has absolutely no consequence,” said Mr Kelly.

“Another problem is there’s a carve out for customers where transaction amounts are under $2000. That’s Afterpay’s customers firstly, so they’ve exempted themselves from the additional checks under the code.”

Mr Kelly said because there were now so many buy now, pay later operators in Australia they were having to take on more risk to win market share. “What that means is some are vectoring into payday lending territory,” he said.

“So if you look at Beforepay, that’s a classic example. They offer a $300 advance on your salary. That’s payday lending, but they’re not lending at all apparently. So they’ve found a loophole and ASIC have a very hands off approach.”

In the UK, regulators are drawing up plans to require ASX-listed players like Afterpay, Zip, Openpay, and Laybuy to conduct credit or affordability checks before lending to consumers.

This week Afterpay announced its launch into Italy, Spain, and France, where European Union lawmakers have a reputation for tough consumer protection regulation.

In Australia, buy now, pay later lenders remain exempt from onerous credit protection laws under ASIC’s National Consumer Credit Protection Act 2009, which apply to credit card and home loan issuers like banks.