Tag: Afterpay

Afterpay Breached Money Laundering Legislation

Afterpay breached money laundering law because of incorrect legal advice, according to an auditor. Via InvestorDaily.

The buy-now, pay-later giant was the subject of an AUSTRAC probe over allegations it breached the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF).

But an independent auditor contracted by Afterpay has discovered that the breaches occurred because of incorrect legal advice. 

“In reaching these findings I have established that Afterpay’s compliance with its AML/CTF obligations was, from the outset and over time, based upon legal advice from top tier Australian law firms,” wrote Neil Jeans, an anti-money laundering consultant who conducted the audit. 

“I am of the opinion this initial legal advice was incorrect.”

The unnamed law firms decided Afterpay was not providing loans to consumers but instead providing factoring services to merchants. This advice “did not reflect Afterpay’s business model” and led to the company focusing its AML/CTF controls upon merchants rather than consumers. 

“Despite Afterpay having a compliance-focused culture, the consequences of being provided with incorrect legal advice has resulted in historic non-compliance with the AML/CTF Act and Rules,” Mr Jeans wrote in the report. 

However, the audit noted that Afterpay’s transaction monitoring system is now “effective, efficient and intelligent” as a result of greater resource allocation. 

Mr Jeans also decided that the nature of Afterpay’s service mitigates some money laundering and terrorism financing risks, and noted that the company’s AML/CTF compliance had “evolved and matured over time”. 

Afterpay was quick to seize on the opportunities of the report in light of Westpac’s recent breaches of the same laws. 

“Afterpay reaffirms that it has not identified any money laundering or terrorism financing activity via our systems to date,” the company said in a statement accompanying the report. 

But the ball is now in AUSTRAC’s court. The regulator will consider the report and decide whether to take further action.

Afterpay has pledged to continue its co-operation with AUSTRAC.

Afterpay Success Disrupts Bank’s Credit Card Strategy

Superfund-owned bank ME has shelved plans to launch new credit cards after witnessing the success of “buy now, pay later” players like Afterpay and Zip, via Investor Daily.

The bank posted its full-year results this week, which showed that statutory net profit after tax fell by nearly 25 per cent to $67.1 million, down from $89.1 million the previous year. The lender recorded $14.4 million of impairment losses in its credit card business. 

ME CEO Jamie McPhee said the bank halted its work in bringing more credit cards to market after recognising a structural shift away from cards and was therefore focusing its work on digital wallets.

He explained: “Our work on digital wallets is progressing. We wanted to bring that forward, and we’ve taken the opportunity to relook at the credit card market, and what we’ve been seeing is that the number of credit cards are in decline, while we’ve seen a significant increase in the buy now, pay later entrants Afterpay, Zip, Flexi,” he said.

“We think that the credit card market is being structurally disrupted, so we’ve decided that we don’t think that is the right environment for the bank to go forward in.”

Mr McPhee added that while the bank will continue to have its low-rate credit card, it has revised its strategy regarding a wider product range.

“We were thinking of coming to market with a broader range of credit cards, including reward cards, etc. but having had a look at the market, we don’t think that is the right thing to do, strategically, going forward,” he said.

“So, that has obviously impacted the statutory earnings this time around.

“There is no way we will be diverting our attention away from building out the customer digital ecosystem like the digital wallets, NPP (national payments platform), until we get that right up to a very, very market competitive offerings. 

“That will be our focus for the foreseeable focus. Anything else would be a distraction.”

It is expected that ME will be releasing its “digital ecosystem” progressively from 2020.

Yet Another Inquiry Into Payday Lending And Beyond

The Senate will review  the regulatory environment surrounding payday lenders and consumer leasing businesses and also buy now, pay later schemes such as Afterpay. The scope will likely also include debt negotiation firms and credit repair agencies, who offer “services” which are unregulated and often costly.

Given the high and rising levels of household debt and mortgage stress, and the fact that this area is not caught within the current Royal Commission, it makes sense for it to be examined, assuming appropriate regulatory intervention follows.

This is the latest in a string of reviews which seem to go nowhere. After the previous inquiry, the Small Amount Credit Contract and Consumer Lease Reforms bill from 2015 would have introduced a cap on leases equal to the base price of the good plus 4 per cent a month and only allow leases and short-term loans to account for 10 per cent of a customer’s net income. The recommendations were broadly accepted in 2016.  But five ministers and more than 1000 days later, nothing has changed.  People are getting more into debt, and the growth in the alternative lending sector continues.

We estimated the cost of this inaction in an earlier post.

Since the Government released the report of the Independent Panel’s Review of the Small Amount Credit Contract Laws in April 2016, three million additional loans have been written, worth an estimated $1.85 billion and taken by some 1.6 million households.

In that time, around one fifth of borrowers or around 332,000 households, were new payday borrowers.