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The Australian government has launched a public consultation on proposed amendments to the National Consumer Credit Amendment (Low Cost Credit) Protection Regulation and how it will oversee buy now, pay later (BNPL) usage.
The draft changes are intended to ramp up consumer protection, considering the growth in use of consumer credit options such as BNPL.
The amendments are being made to support the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024, which was passed on December 10, 2024.
Significant provisions are intended to clarify BNPL arrangements and impose stricter cost caps on credit providers.
The proposed amendments introduce exemptions for certain BNPL transactions, making sure that they are not classified as BNPL arrangements if they meet specific conditions.
Notably, transactions related to medical services that are covered by Medicare or that are provided at no cost to the consumer will fall outside the BNPL framework.
Fee caps and due diligence
The amendments also impose strict fee caps on credit providers.
General fees, excluding default charges, will be limited to A$200 ($126) for the first year, and default charges will generally be capped at A$120, although they could reach $320 in specific cases.
Creditors will be required to conduct thorough financial assessments before approving low-cost credit contracts, in a bid to enhance consumer protections.
This due diligence process will involve verifying a consumer’s income, expenses and any existing low-cost credit, small loans or consumer leases.
The reforms also mandate that lenders regularly review their unsuitability assessment policies. This measure is intended to prevent high-risk lending and ensure credit providers maintain responsible lending practices.
The consultation period will remain open until February 12, which, considering the consultation was released on February 5, is a tight turnaround.
The initiative will mean that Australia becomes one of many jurisdictions with increased oversight of the BNPL sector.
Both the UK and EU are in the process of introducing BNPL-focused consumer protection rules, and countries including the United Arab Emirates, Singapore, Sweden and the Netherlands have already taken steps in this direction, whether via industry codes or new financial regulation.
