In recent years, the financial landscape in Australia has been significantly transformed by the advent of buy now, pay later (BNPL) services. These innovative credit products have provided consumers with a convenient and often cheaper alternative to traditional credit forms such as credit cards, small amount credit contracts and consumer leases.

BNPL arrangements typically involve a third-party provider financing consumer purchases of goods and services, with repayments collected in instalments. Unlike traditional credit products, BNPL services generally don’t charge interest but may impose small fees on consumers and service fees on merchants. Australian BNPL transactions were worth around $19 billion in 2022–2023, accounting for approximately 2% of all Australian card purchases.

Currently, BNPL products aren’t regulated under the National Consumer Credit Protection Act 2009 (Credit Act). As a result, providers aren’t subject to responsible lending obligations (RLOs) or other Credit Act requirements, and they don’t need to hold an Australian credit licence. Some of the most common concerns about the BNPL sector include unaffordable lending practices, inadequate complaint resolution and hardship assistance, excessive late payment fees, and a lack of transparency in product disclosures and warnings.

Although BNPL providers adhere to the Australian Finance Industry Association’s voluntary Buy Now, Pay Later Industry Code, which covers approximately 90% of the market, this self-regulation isn’t enforceable by the Australian Securities and Investments Commission (ASIC). Consequently, breaches of the Code don’t attract criminal or civil penalties, highlighting the need for more robust regulatory oversight. A Bill currently before Parliament aims to extend application of the Credit Code to BNPL contracts and regulate most BNPL contracts as low cost credit contracts (LCCCs). Once the Bill passes, providers of LCCCs will be required to hold and maintain an Australian credit licence and comply with the relevant licensing requirements and licensee obligations, with some modifications to ensure regulation is proportionate to the relatively low risk posed by LCCCs. The existing RLO framework will also be modified to create an alternative, opt-in framework that scales better with the risks posed to consumers and requires each LCCC provider to develop and review a written policy on assessing whether an LCCC would be unsuitable for the consumer.