SYDNEY, June 10 (Reuters) - Some customers of

Australia's Afterpay have been asked to close buy-now-pay-later

accounts to qualify for a mortgage and offered a credit card

upon qualification, the BNPL provider said on Tuesday,

underscoring fierce competition in the consumer finance

sub-sectors.

BNPL loans, on-the-spot interest-free short-term loans with

minimal credit checks, exploded as an alternative for younger

shoppers after the COVID-19 lockdowns and stimulus payments

spurred an online shopping frenzy. Customers are incentivised to

pay on time by the promise of maintaining or increasing their

borrowing limit.

In a survey of 1,000 of its customers, Afterpay said more

than 10% reported being offered a credit card by the same bank

or mortgage broker that told them to close their BNPL account to

qualify for a loan, without specifying which banks or brokers.

Owned by U.S. tech billionaire Jack Dorsey's Block

, Afterpay leads Australia's BNPL market with more than

3.5 million active monthly users, half the country's total BNPL

accounts, according to government figures.

Lenders are required by law to make reasonable inquiries

about an applicant's finances but may not give financial advice.

Spokespeople for Commonwealth Bank of Australia, the biggest

lender, and No.3 lender National Australia Bank ( NAUBF ) told

Reuters that they did not tell applicants to close their BNPL

accounts.

A spokesperson for No.4 lender ANZ said the bank

assessed BNPL liabilities alongside a person's other finances

and "depending on the customer's overall financial position,

goals, and objectives, they may choose to restructure or close

certain debts - such as BNPL accounts - to support their

application".

TO RISK OR NOT TO RISK

Afterpay claimed banks were capitalising on a perception of

BNPL users as riskier than traditional borrowers to protect a

declining lending category.

Australian interest-accruing credit card debt is down 30% in

half a decade as borrowers seek cheaper options.

The company added that its survey found BNPL users had

credit scores and on-time repayment records broadly in line with

credit card users.

The BNPL model has avoided regulation under Australian

consumer credit laws so far as it doesn't involve interest.

However, "if it looks and acts like credit, then it should be

regulated as such," the Australian government had said last

year.

New legislation requiring BNPL firms to run credit checks on

borrowers kicks in on Tuesday, which, Afterpay's Head of Public

Policy Michael Saadat hopes, would improve transparency around

user creditworthiness.

The main reason Afterpay customers close their accounts is

because their lender or broker told them to, and "this should

not be something that is driven by misperception of the

regulatory requirements," Saadat told Reuters in an interview.

According to mortgage broker AFG, one in 10

Australian mortgages are arranged by brokers. Mark Hewitt,

general manager of industry and partnerships at AFG, said the

company does not distribute credit cards but responsible lending

rules require it to "ensure adequate enquiry is made around an

applicant's ability to meet their financial commitments".