Financial services regulator ASIC has accepted a court enforceable undertaking (CEU) from specialist buy now, pay later (BNPL) service Elepay after the company admitted its failure to comply with a key design and distribution obligation (DDO).
The CEU comes after the regulator expressed concerns over Elepay’s alleged failure to make Target Market Determinations (TMDs) – a requirement for all financial product issuers, as part of DDO regulations, to notify the regulator where a significant dealing outside of the business’s target market occurs.
Without TMDs, ASIC claims that Elepay customers were put at “risk of obtaining a financial product that was inappropriate to their needs and objectives”.
Elepay, a home improvement specialist BNPL, admitted to ASIC that in the nearly 18 months (between 5 October 2021 and 15 March 2023) it did not supply TMDs for seven credit products it distributed to consumers.
Over this period, the BNPL provider lent $13.75 million to 1,658 retail clients.
ASIC also alleges that Elepay had neither the appropriate compliance systems nor controls in place to comply with the DDO.
“TMDs ensure that products are only sold to consumers in the target market for that product and that the product is appropriate to their needs and objectives,” ASIC said.
Elepay, ASIC noted, introduced TMDs for its products only after 15 March 2023.
The regulator said it had agreed to accept an undertaking from Elepay to engage an independent auditor to report on:
- whether Elepay’s clients who were issued with one of its products after 5 October 2021 fell within the target market of clients identified in the TMDs,
- the fees and charges that have been paid to Elepay by clients who fall outside of the target market specified in the TMDs,
- whether Elepay’s TMDs comply with the requirements of the DDO and if not, what steps Elepay needs to take to rectify this.
Founded in 2019 by former staff of the now defunct BNPL provider OpenPay, Elepay offers funding to property owners for expenses relating to the preparation of their property for sale, including home improvements and renovations, design and marketing.
While, as ASIC notes, Elepay’s BNPL products do not include charges for providing credit, they do include a merchant fee payable to the company by a third-party supplier.
Elepay also offers short-term loans which include fees and, in some cases, interest charged to consumers.
With regulation still awaiting the BNPL sector, providers of pay later products – as providers of a “credit facility” – must still comply with the DDO, ASIC stressed.
Elepay has previously come to the attention of the Consumer Action Law Centre, with the consumer advocacy group flagging concerns over the lack of regulatory oversight, lack of effective consumer protections and insufficient dispute resolution functions.
Despite its lack of sufficient regulatory oversight, the advocacy group said the BNPL service, which markets itself as ‘Australia’s Pay Later specialists for property owners’, can still offer customers substantial sums of credit (up to $500,000) on short-term loan arrangements.
