Afterpay tweaks late fee rules as Australian lawmakers weigh up BNPL regulation

Locally-born buy now, pay later (BNPL) giant Afterpay has tweaked its late fee structure for purchases under $40, as lawmakers consider exposing the company and its competitors to enhanced consumer protections under Australia’s credit regulation.

Afterpay this week announced its late fees for orders under $40 will be capped at 25% of total order value, replacing rules which slugged late payers with an initial $10 late fee.

Under the new rules, the maximum late fee for those orders will still be $10.

However, late payments on orders under $40 will be spared total late fees which could theoretically exceed 25% of their order value.

“A $20 order with four $5 instalments will only ever incur a $5 late fee,” Afterpay informed customers via email.

Those changes are now in effect, Afterpay says.

The fee structure for orders over $40 has also changed.

Afterpay will enact an initial $10 late fee, and a follow-up partial fee of up to $7 should the payment stay unpaid a week after its due date.

Late fees for orders over $40 will max out at 25% of the value of the order or $68, whichever is lower, Afterpay says.

Those tweaks will come into effect from June 19.

Afterpay asserts the majority of its revenue comes from fees paid by retailers which offer Afterpay as a payment option, and not from late fees themselves.

“Late payments are bad for our business,” the company states.

“If you do miss a payment, you can’t buy anything else using Afterpay until your account is settled – which is another reason you missing payments is not how we earn money!”

Nevertheless, changes to how Afterpay recoups late fees on small orders come as lawmakers consider how best to fold buy now, pay later providers into broader lending regulation.

Because Afterpay does not technically charge interest, it and others like it fall outside the regulatory oversight of the Credit Act.

The Credit Act, which covers traditional lenders, requires them to undertake responsible lending checks and suitability assessments before handing out money.

BNPL providers are not currently required to follow the same rules.

Consumer advocates argue that offering pay-in-four options can expose vulnerable consumers to significant financial risks, with groups like UnitingCare suggesting BNPL options pose “enormous” social harms.

Afterpay and competitors including Zip and Humm have aligned themselves to a self-imposed Code of Practice, with signatories pledging to only offer services that are “suitable” for their customers.

The Code of Practice holds no legal bearing, and the Albanese government is likely to introduce legislation that formalises BNPL’s place under broader financial regulation.

For its part, Afterpay has voiced its tacit approval for formal credit checks for customers with purchase limits in excess of $1,000.

However, the company asserts that credit checks are not required for all customers, using a submission to a Treasury options paper to claim broad coverage by the National Consumer Credit Protection Act would be a “disproportionate and damaging response that is not reflective of the evidence of consumer harm in the BNPL sector.”