Australian BNPL Regulation Getting Closer Each Day

May 23, 2023
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Consumer credit reforms will mean that buy now, pay later (BNPL) agreements will be treated as credit products by year-end.

Consumer credit reforms will mean that buy now, pay later (BNPL) agreements will be treated as credit products by year-end.

"It looks like credit, it acts like credit, it carries the risk of credit,” said Stephen Jones, minister for financial services, in a speech in Sydney on Monday (May 22).

Jones, part of the Antony Albanese-led Labor government, made the announcement that BNPL products in the country will be recognised as credit products by the end of 2023.

“Evidence suggests that those risks are disproportionately affecting women, First Nations communities and people on low incomes,” said Jones.

“We have heard that some people are opening multiple BNPL accounts, to access far more debt than they’d be able to get on a credit card or a payday loan."

According to the Treasury minister, these reforms will require BNPL providers to hold Australian credit licences, as well as comply with responsible lending obligations.

BNPL providers will also need to meet statutory dispute resolution and hardship requirements, comply with statutory product disclosure and other information obligations, and abide by existing restrictions on unacceptable marketing.

Australia has had BNPL regulation in the pipeline for months.

In November, the Treasury published its Options Paper outlining three ways to bring BNPL firms into a more formal regulatory framework.

The Treasury chose a middle ground option which requires limited BNPL regulation under the Credit Act, including licensing and unsuitability tests. The rejected options were a light touch strengthening of the current self-regulated industry code and the more stringent regulating of BNPL products in the same way as credit cards.

This was spurred by a report in 2020 by the Australian Securities and Investments Commission (ASIC), which warned that some consumers were "suffering harm" as a result of BNPL schemes.

ASIC found that 19 percent of BNPL consumers were cutting back on essentials, or going without them altogether.

Meanwhile, one in five consumers were missing payments, with some taking out additional loans to make up the shortfall.

“Our approach will protect consumers while supporting this important industry,” said Jones.

The announcement has so far garnered some support among financial services players.

For example, FinTech Australia, whose membership boasts key local player Afterpay, welcomed the proposals.

"Measured regulation is crucial in ensuring trust in Australia’s fintech industry, which is essential for its growth,” said Rehan D'Almeida, the trade association’s general manager.

“This framework strikes a balance, designing a scalable and technology-neutral framework that embeds strong and effective consumer protections."

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