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Buy now, pay later (BNPL) is set to come under similar rules as other credit products in Australia following the introduction of the country’s first bill to regulate the sector.
Last week, Australia’s Labor government introduced the Treasury Laws Amendment (Responsible Buy Now, Pay Later and Other Measures) Bill 2024 to parliament.
Led by Stephen Jones, assistant treasurer and minister for financial services, the bill was moved to a second reading on the same day. It was also referred to the Senate Economics Legislation Committee, which is due to report on the bill by June 24.
If adopted, the bill will introduce new amendments to the National Consumer Credit Protection Act 2009 and the National Consumer Credit Protection Regulations 2010.
By doing so, BNPL would come under the same regulatory framework as other credit products for the first time.
For BNPL providers, this will mean that holding and maintaining an Australian credit licence will become essential for doing business.
How does the bill regulate BNPL?
The bill extends the application of Australia’s National Credit Code to BNPL products by establishing “low-cost credit contracts” (LCCCs) as a new category of regulated credit.
LCCCs are defined as “continuing or non-continuing credit contracts for providing credit to consumers on a low-cost basis”. According to the Treasury’s explanatory memoranda, “most” BNPL contracts will be regulated as LCCCs.
The bill also makes a distinction between “smaller” and “larger” LCCCs. Smaller LCCCs are defined as those with a credit limit of up to A$2,000 ($1,318), while larger LCCCs are those with a credit limit above A$2,000.
“Unsuitability” provisions are another key element of the bill. Under these provisions, BNPL providers are required to make “reasonable inquiries” as to the “requirements and objectives” of the consumer and their financial situation.
Providers should take “reasonable steps” to verify the consumer’s financial situation, the bill states. However, for smaller LCCCs, these steps need not be completed prior to entering a credit agreement.
Instead, BNPL providers can satisfy the unsuitability obligations by making inquiries and verifications within 90 days of either entering into an LCCC or increasing the credit limit of an LCCC.
“Unaffordability is not defined, but is broadly intended to refer to the same circumstances set out in paragraphs 131(2)(a) and 133(2)(a) of the Credit Act,” said the Treasury.
“Those provisions state that a contract or increase is unsuitable if the consumer will be unable to comply with their financial obligations, or could only comply with substantial hardship.”
The unsuitability provisions in the bill were criticised by Afterpay, Australia’s largest BNPL provider, in an earlier submission to the Treasury.
As covered by Vixio, Afterpay argued that requiring BNPLs providers to obtain this information from all customers would be time-consuming and costly, and customers may not be forthcoming about their financial health and other obligations.
Instead, Afterpay proposed that partial credit checks should be run on users seeking LCCCs of up to A$5,000 ($3,300). Afterpay’s suggestion did not make the current version of the bill.
A Labor campaign promise
The bill aims to deliver on the government's commitment to regulate BNPL as a form of consumer credit — a process that began in November 2022 with a Treasury’s publication of an Options Paper for the sector.
Assistant treasurer Jones, a key sponsor of the bill, said in a speech to parliament that BNPL is an “Australian innovation” that benefits both users and businesses.
BNPL provides Australians with access to cheaper credit and brings new customers to merchants, he said, but the sector’s lack of regulation has also led to consumer harm.
Jones cited a 2022 study, conducted by the Good Shepherd charity, which found that 70 percent of financial counsellors say their clients have missed other payments and either cut back on or gone without essentials in order to pay BNPL debts.
“The risks of BNPL disproportionately impact upon vulnerable Australians, including First Nations Australians and those struggling financially,” said Jones.
At present, BNPL is not regulated by Australia's consumer credit laws, and BNPL products are not subject to affordability checks in the same way as credit cards and other loans.
“When consumers do get into trouble, they might not have access to effective dispute resolution and hardship processes,” said Jones.
“Most Australians would think of BNPL as a form of credit and that it should be regulated accordingly. We are acting to do that.”
