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13th Aug, 2024
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.
23rd Jul, 2023
As foreshadowed last year, the “buy now pay later” (BNPL) market will soon be facing more regulation. Assistant Treasurer Stephen Jones recently announced that the government will be moving forward to bring BNPL within the Credit Act’s application to apply a tailored version of the responsible lending obligations to BNPL products.
Late in 2022, the Federal Government released a consultation paper seeking views on options to regulate the BNPL market. The paper outlined three increasingly rigorous options for the regulation of the BNPL market, consisting of: strengthening the BNPL industry code plus an affordability test; limited BNPL regulation under the Credit Act; or full regulation under the Credit Act.
Consultation has since ended, and the Assistant Treasurer has announced that the government will moving forward with law changes to bring in limited BNPL regulation under the Credit Act, applying a tailored version of the responsible lending obligations to BNPL products so that BNPL providers must hold an Australia credit licence or be a representative of a licensee with a requirement to comply with most general obligations, including internal/external dispute resolution, hardship provisions, compensation arrangements and marketing rules.
Under the proposed changes, providers would be required to assess that credit is not unsuitable for an individual, and would be prohibited from increasing a consumer’s spending limit without explicit instructions from that consumer. Fee caps for charges relating to missed or late payments would be required, combined with additional warning and disclosure requirements. Merchants who offer BNPL products to consumers would not be required to be an authorised credit representative of the BNPL provider.
The government will be consulting with the industry and consumer groups in the coming months to bed down the details of the potential legislation. Draft legislation is expected to be released for consultation later this year, and the final Bill is expected to be introduced into Parliament by the end of the year.
19th Dec, 2022
In a bid to protect consumers, the Federal Government has released a consultation paper seeking views on options to regulate the “buy now, pay later” (BNPL) market. Currently the BNPL space is unregulated in Australia and thus not subject to responsible lending standards, despite involving financial products that offer credit.
The Reserve Bank of Australia estimates that approximately seven million active BNPL accounts made a total of $16 billion in transactions in the 2021– 2022 financial year – around a 37% increase on the previous year. Low value BNPL products that typically provide a spending limit of $2,000 are the most popular in Australia, although spending limits of up to $30,000 are available from some providers for large ticket items such as home upgrades.
Currently, the BNPL space is unregulated in Australia because it falls under the exemptions available to certain types of credit under the National Consumer Credit Protection Act 2009. This means BNPL products aren’t subject to responsible lending standards or the other requirements of the Credit Act, and BNPL providers don’t need to hold an Australian credit licence.
Consumer advocates argue that this regulatory gap has the potential to create harm – “instant” access to BNPL credit for all sorts of purchases might seem great at first, but the lack of requirements for providers to check your financial status and make sure you understand the terms and fees can make it easy for you to end up in unsustainable debt.
The consultation paper proposes three broad options for regulatory intervention. Option 1 would impose a bespoke affordability assessment for BNPL providers under the Credit Act and address any other regulatory gaps in a strengthened industry code to make it fit-for-purpose. Option 2 would require BNPL providers to hold a credit licence and comply with modified responsible lending obligations and a strengthened industry code. Option 3 would impose the strictest regulation, with BNPL providers needing to hold a credit licence and comply with all its regulations and the responsible lending obligations, including taking reasonable steps to check that their BNPL products are suitable for each person who accesses them.