ARCA reaffirms support for BNPL regulation

Another industry giant calls for sector reforms

ARCA reaffirms support for BNPL regulation

The Australian Retail Credit Association has reiterated its support for the government’s plans to enact reforms in the buy now pay later sector, maintaining its long-held position that BNPL should be regulated as credit. 

ARCA’s submission to the Treasury review on BNPL reforms called for regulation under the National Credit Code, which would see BNPL products treated like other forms of consumer credit.

“We’re happy for the industry to move beyond tying itself up in knots asking how BNPL should be characterised, and instead now move to ensure that BNPL is properly integrated within the existing credit regulatory and reporting framework,” ARCA CEO Elsa Markula (pictured above left) said.

ARCA’s submission also noted that the existing regulatory framework have been designed to be “comprehensive and flexible,” thus able to accommodate BNPL credit.

“While there may need to be some fine-tuning of the framework to address issues specific to BNPL credit, this does not provide an invincible barrier to regulation,” ARCA general manager for policy and advocacy Michael Blyth (pictured above right) said.

Furthermore, including BNPL in the credit reporting system would provide an objective way to verify the creditworthiness of BNPL users, ARCA said in its submission, helping ensure “better consumer outcomes.”

BNPL’s participation in credit reporting would benefit providers as well, Markula said, since this would allow them to identify customers at risk of over-indebtedness and provide services to those who use BNPL responsibly.

The move to capture BNPL in the credit reporting system would also help consumers who do not have a strong credit history, Markula said.

“With BNPL included in credit reporting, consumers’ responsible and managed use of BNPL can help them when they need to apply for credit to support their next life stage, whether that’s buying a car or seeking a home loan,” she said.

The growing popularity of BNPL products

Research by ARCA has revealed Australians’ increasing reliance on BNPL products, with an August 2022 survey showing that 49% of Australians have used BNPL services.

The survey, conducted through ARCA’s credit information website CreditSmart and with the help of YouGov, also showed that over a third (34%) who used BNPL products have been late on their payments.

Additionally, those using BNPL products were found to be more likely to have more than one BNPL accounts.

Other organisations voice support for BNPL regulation

ARCA’s submission on Treasury’s BNPL options paper acknowledged the organisation’s experience with BNPL, pointing to its members that are “either providing BNPL products or seeking to understand the impact of BNPL credit within their own credit assessment processes”.

The submission likewise cited insights from a recent report conducted by Good Shepherd Australia and New Zealand, which Blyth said identified a real risk of consumer harm in the BNPL sector.

“It is important adequate regulation exists to manage this risk of harm and, moreover, that the credit reporting system is used to provide the insights necessary to identify the potential for harm,” Blyth said. “This allows credit providers to actively avoid that harm, which is critical to avoid exploiting vulnerable customers.”

The consumer advocacy group Financial Rights Legal Centre echoed the sentiments raised by ARCA in its submission, with CEO Karen Cox stating that they “strongly welcome” the support provided by industry bodies for BNPL regulation.

Lenders like CBA and MoneyMe have previously voiced their support for BNPL regulation, calling for measures that include making BNPL part of the current credit reporting regime.