The Federal Government is seeking public consultation on regulations for buy now, pay later (BNPL) arrangements to balance finance services innovations with consumer protection.
This could mean new regulations for some of Australia’s fastest-growing companies like AfterPay, Zip, Klarna, and LatitudePay.
Currently, the BNPL industry fell under exemptions available to certain types of credit in the National Consumer Credit Protection Act 2009 (the Credit Act). BNPL providers were not required to hold an Australian Credit License (ACL) and were not subject to responsible lending standards under the Credit Act.
“These products deliver real benefits to the vast majority of these consumers. But there is a regulatory gap that can leave some vulnerable groups in over their head,” observed Stephen Jones, Assistant Treasurer and Minister for Financial Services.
In a Treasury options paper released this week, three potential regulatory frameworks were outlined:
- Stronger industry self-regulation and a new “affordability test” requirement;
- Partly bringing BNPL into the Credit Act, including licensing providers and a sliding “unsuitability test”;
- Completely bringing BNPL into the Credit Act (as was the case with credit cards and other such products)
BNPL transactions accounted for around 2% of all Australian card purchases in the last financial year.
Active accounts grew from five million to seven million, largely held by consumers between 18 and 34 years of age.
Diane Tate, CEO of the Australian Finance Industry Association (AFIA), welcomed the public consultation for a framework “that is proportionate, scalable and targeted and works into the future”.
“Our research shows consumers of all ages are choosing BNPL to help them make payments and manage their money in the way they want. Retailers are using BNPL to help them grow their businesses and participate in the digital economy,” Tate said.
“BNPL is already regulated – we aren’t opposed to regulation, but it needs to be right-sized and it needs to reflect how things really work and how customers are actually using it. We will continue to advocate for regulation that is fit for the future.”
Over the years, there had been numerous concerns surrounding the growing BNPL sector including excessive consumer fees, poor complaints handling processes, inappropriate lending practices, and poor product disclosure practices.
In the first quarter of 2022, ASIC’s Consumer Monitor monthly survey report found 19% of BNPL consumers surveyed went without essentials or cut back to make repayments on time.
“BNPL is credit, plain and simple, so it needs to be regulated in the same way as other credit products to provide people with adequate safeguards,” said Fiona Guthrie, CEO of Financial Counselling Australia.
The Treasury would accept submissions on BNPL regulatory frameworks till 23 December, 2022.
