Shares in staggered payments company Afterpay have dropped heavily after news emerged that the Senate is planning an inquiry into so-called “debt vultures,” which include schemes offering a range of services that are not currently under cover of the banking Royal Commission.

This means that payday lenders, schemes that offer lease-to-buy purchases and those who enable purchases with no up-front fees should fall under the spotlight.

Scrutiny around the financial sector has increased heavily this year, with the Royal Commission inquiry into financial misconduct earlier this year unearthing many cases of malpractice and negligence that threatened to completely derail consumer trust in major banks.

Once the Senate agreed to pass the motion set by MP Jenny McAllister of Labor, shares immediately took a nosedive, dropping 19% by the end of today’s trading and finishing at $11.35.

Afterpay’s business model is based on allowing customers to buy goods and pay them off in instalments twice a month, with many similar models allowing companies to accrue interest along the way. Afterpay, however, said that it does not charge interest for this.

While this is of benefit to many who cannot afford some possessions with upfront cash, businesses such as Afterpay have also faced criticism in some quarters for targeting lower-income families to make a profit.

Afterpay clarified in a statement that it had no problems with the announcement, saying that it wants to make everyone aware of how its service works. It added that it “welcomed” any opportunity to make itself “clearly understood.”

The company said that “the category ‘buy now, pay later’ is a relatively new concept that has been applied broadly and inconsistently,” lamenting the fact that it was lumped in with “several players with very different characteristics.” Afterpay went on to say that its “service is highly differentiated from others in that category.”

Meanwhile, Senator McAllister said there is a need to step in and look at what unregulated lenders are doing in the market, adding: “Financial counsellors are telling us that their clients are coming in with increased debts as a result of predatory debt-management firms and other unlicensed financial services providers.”

Since Afterpay does not fall under any of the categories that the National Credit Code covers, it remains unregulated.

Many consumer advocates have been pushing for an inquiry for some time, as they are concerned that without proper regulation, some debt management companies will be able to carry out unscrupulous practices with no code to follow.

Afterpay will not be happy that the news has brought its climbing share price to an end, as its 90% valuation increase since January of this year has hit a noticeable slide.

One of the main ways that the company makes its money is through charging late fees for missed payments, and it revealed back in August that these had ballooned by a whopping 365%, or 24% of its income. This worked out as $28.4million.

Afterpay was quick to issue a statement clarifying where most of its funds originate, claiming that they come from retailers and merchants using its platform to encourage customers to buy its products.

The company said that its “total late fees are lower than the costs it incurs when customers don’t pay on time,” suggesting that it has to make payments back to merchants under its terms of agreement.

This, it said, showed that it is “incentivized to promote responsible use and discourage late payments.”