Fiona Guthrie: Openpay and hospitals' BNPL puts sick people 'at risk of financial harm'
Controversial buy now pay later provider Openpay has caved-in to public fury over its credit contracts, saying it will amend its terms and conditions to exclude death as a default event.
Sydney-based payments experts Christos Fragias and Bradford Kelly floated concerns in Banking Day on Tuesday about Openpay’s death clause after the company announced it planned to fund customers for medical treatment in private hospitals operated by St John of God Health Care.
The death provision in the terms and conditions meant that Openpay customers would have been in default of their BNPL contracts if they died in an operating theatre or after they were discharged from hospital.
Under the controversial condition, Openpay had been able to claim immediate payment of late fees and outstanding balances from dead customers who had pre-authorised the company to draw funds from their accounts.
Openpay’s decision to bin the contract term appears timely as it coincided with a disclosure from ASIC that it was considering action in response to matters raised by Banking Day.
“ASIC is currently considering the concerns raised in the Banking Day article, and may choose to take the matter further,” said a spokesperson for the regulator.
“As a general observation, death is not considered a ‘default event’ in respect of some other credit contracts.”
The ASIC spokesperson could not say whether ASIC had been in communication with Openpay on Tuesday.
In response to questions about whether the death clause constituted an unfair term in Openpay’s contracts, chief executive Michael Eidel said the company would update the terms and conditions to exclude death as a default event.
“Openpay regularly updates our terms and conditions in line with new business developments and we have been contemplating the circumstance of a death of a customer leading up to this hospital partnership,” Eidel said.
“We will be updating our terms and conditions so death is no longer an event of default, 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.”
While the backdown might go some the way to assuaging the concerns of consumer advocates about the future operation of Openpay’s contracts, the company might still face regulatory scrutiny on the extent to which it collected payments from dead customers in the past.
Tom Abourizk, a policy officer at the Consumer Action Law Centre, described Openpay’s special death clause as “shocking” and a potential unfair contract term.
“Treating a person’s death as an act of default is a pretty shocking general company line in any situation, let alone when your service may be used to repay medical expenses,” he said.
“The provision in Openpay’s terms and conditions that defines death as an act of default may also be an unfair contract term.
“It allows Openpay to apply late fees to what is effectively then a person’s estate, simply because the borrower died – it doesn’t even require the borrower to miss a payment.”
Fiona Guthrie, the chief executive of Financial Counselling Australia, said the problems with Openpay’s terms and conditions underlined the need for robust regulation of the buy now pay later sector.
“While there isn’t adequate regulation of BNPL – they should be regulated under the credit laws – ASIC now has some new powers that they are going to need to use with this industry across the board,” she said.
“These are the design and distribution obligations and their product intervention powers.”
Guthrie also warned that private hospitals could be putting the financial welfare of patients at risk by entering merchant deals with buy now pay later providers.
“It is really worrying that a hospital has signed up to a buy now, pay later scheme,” Guthrie said.
“BNPL providers don’t need to do adequate affordability checks.
“That puts people at risk of financial harm.”
In recent presentations to investors, Openpay has highlighted the health care sector as a growth industry for its BNPL offering.
Eidel indicated the company did not expect “a heightened credit risk profile” to result from its entry into the hospital sector.