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The Albanese government has announced on 5 June that it will introduce consumer protection law that would see buy now, pay later (BNPL) operators regulated as consumer credit.
Currently, most BNPL products are not covered by the National Consumer Credit Act (Credit Act), aside from other consumer protection provisions relating to misleading or deceptive conduct, with the industry being primarily self-regulated.
This means that BNPL providers are not subject to the same consumer protections, which include affordability checks that apply to other credit forms such as loans or credit cards.
Assistant Treasurer and Minister for Financial Services Stephen Jones MP has flagged that this could lead to consumers not having access to effective dispute resolution and hardship processes if they should find themselves in a troublesome situation.
“The government is working hard to protect consumers against financial harm,” Minister Jones said.
“We want Australians to enjoy the benefits of BNPL, while knowing there are strong consumer protections in place. If it looks and acts like credit, then it should be regulated as such.
“Our changes are balanced and proportionate and maintain the consumer benefits afforded by BNPL products.”
The new legislation will:
• Amend the Credit Act to require BNPL providers to hold an Australian credit licence.
• Mean operators will need to comply with existing credit laws, regulated by the Australian Securities and Investments Commission (ASIC).
• Establish a new category of ‘low cost credit’ under the Credit Act, to reflect the lower risk and cost of BNPL compared with other regulated forms of credit.
According to the government, the new legislation aims to “get the balance right between consumer protection, innovation and competition”.
The federal government confirmed that BNPL providers will still need to consider whether or not a product is suitable for consumers and recognised the contribution to competition introduced by these providers into credit markets.
According to the Australian Finance Industry Association (AFIA), it is estimated that BNPL providers support more than 120,000 local jobs, adding up to $18.4 billion to the gross domestic product (GDP).
Furthermore, a survey conducted by charity organisation Good Shepherd found that 84 per cent of financial practitioners reported that their clients attempted to manage debt by opening additional BNPL accounts, which often led to an “unmanageable debt spiral”.
The federal government released new legislation for the BNPL industry for consultation in March 2024 in order to bring licensing and responsible lending obligations to the industry for the first time.
Members of the broking industry welcomed the proposals when it was first announced, with CEO of the Mortgage & Finance Association of Australia (MFAA) Anja Pannek, expressing support for the regulations.
“We are supportive of the regulation of BNPL products and believe it will improve outcomes for consumers.
“Consumers that enter multiple BNPL commitments often don’t realise the impact it can have on their financial position, including their borrowing capacity and serviceability," Pannek told Mortgage Business's sister brand, The Adviser, at the time of the announcement.
Prior to this, the MFAA outlined (in a submission backing Option 3 of the regulatory proposals) the detrimental impact that BNPL debt could have on borrowing serviceability and the ease of access to consumers.
The association stated that its members had seen a lack of requirements for BNPL providers to undertake creditworthiness assessments and therefore, called for BNPL to be treated and regulated like all other forms of credit.
[RELATED: BNPL to come under credit licensing and RLOs]
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