Government introduces new legislation to regulate BNPL

Amendment to Credit Act will ensure BNPL providers’ compliance with existing credit laws

Government introduces new legislation to regulate BNPL

The Albanese Government has introduced new consumer protection legislation for buy-now-pay-later (BNPL) services, which will see BNPL operators regulated as consumer credit.

Currently, most BNPL products are not covered by the National Consumer Credit Act (Credit Act), meaning providers are not subject to the same consumer protections, such as affordability checks, that apply to other forms of credit like credit cards and loans. The lack of regulation can leave consumers without access to effective dispute resolution and hardship processes when they encounter financial difficulties.

The new legislation will amend the Credit Act to require BNPL providers to hold an Australian credit licence, ensuring compliance with existing credit laws regulated by the Australian Securities and Investments Commission (ASIC). It will also establish a new category of “low-cost credit” under the Credit Act to reflect the lower risk and cost of BNPL compared to other regulated forms of credit.

The Australian Finance Industry Association estimates that the BNPL sector supports over 120,000 local jobs and adds up to $18.4 billion to GDP. A 2022 survey by Good Shepherd found that 84% of financial practitioners reported clients managing debt by opening additional BNPL accounts, leading to an unmanageable debt spiral.

The new laws aim to balance consumer protection with innovation and competition, with government acting to protect people from the damage that harmful lending can cause.

“The government is working hard to protect consumers against financial harm,” said Stephen Jones (pictured left), assistant treasurer and minister for financial services. “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.”

Arca, previously the Australian Retail Credit Association, has welcomed the continued progression of the BNPL reforms, being long-standing supporters of the need to bring the BNPL sector into the existing credit framework.

“This is a good outcome for both consumers and industry; although we continue to urge BNPL providers to fully participate in the credit reporting system i.e. at least sharing account data, and possibly also sharing payment data,” said Michael Blyth (pictured right), general manager for policy and advocacy at Arca.

“Getting access to and reporting information about customer accounts and payments will mean BNPL providers can make better credit decisions. And for BNPL customers, it is a great opportunity to demonstrate to other lenders positive credit behaviours. This promotes financial inclusion, which is especially good news for customers who are young or new to the credit system.”

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