Buy Now, Pay Later to Be Regulated Like Other Credit Products in Australia

Buy Now, Pay Later to Be Regulated Like Other Credit Products in Australia

by June 6, 2024

Australia will introduce new legislation to amend the Credit Act, requiring Buy Now, Pay Later (BNPL) providers to hold an Australian credit license and comply with existing credit laws regulated by the Australian Securities and Investments Commission (ASIC).

Currently, most BNPL products are not covered by the National Consumer Credit Act, leaving consumers without the same protections such as affordability checks that apply to credit cards and loans.

Additionally, a new category of “low-cost credit” will be established under the Credit Act to reflect the lower risk and cost associated with BNPL compared to other forms of credit.

BNPL providers will need to assess whether their products are suitable and affordable for consumers.

When consumers do get into trouble, they might not have access to effective dispute resolution and hardship processes.

The government does acknowledge the competition BNPL has introduced into credit markets, providing consumers with access to small amounts of credit and contributing to the broader economy.

According to the Australian Finance Industry Association, the BNPL sector supports over 120,000 local jobs and contributes up to AUD$18.4 billion to GDP.

A 2022 survey by Good Shepherd revealed that 84 percent of financial practitioners reported clients opening additional BNPL accounts to manage debt, leading to unmanageable debt spirals.

The new laws aim to balance consumer protection with innovation and competition. The Australian Government’s actions seek to prevent the damage caused by harmful lending practices while maintaining the benefits of BNPL services.

Stephen Jones

Stephen Jones

Assistant Treasurer and Minister for Financial Services, Stephen Jones MP, emphasised the government’s commitment to consumer protection. ”

“The government is working hard to protect consumers against financial harm. 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.”

 

Featured image credit: Edited from Freepik