Groundswell for BNPL Regulation in Australia

The Assistant Treasurer and Minister for Financial Services, the Honourable Stephen Jones, has announced legislative changes that will see the Buy Now Pay Later (BNPL) sector being subjected to the credit legislation, at least to a limited degree. Once the proposed legislative changes are enacted, BNPL service providers (like AfterPay and Zip Pay) will be required to:

• hold an Australian Credit Licence (or be an authorised representative of a licensee);
• comply with a tailored responsible lending obligation in relation to the BNPL products (which will involve assessing whether a BNPL product is suitable for the specific consumer);
• comply with internal and external dispute resolution, hardship provisions and compensation arrangements, fee caps and marketing rules; and
• engage more meaningfully with the existing credit reporting regime under the Privacy Act 1988 (Cth).

The proposed legislative changes mirror option 2 as outlined in the Options Paper the Australian Treasury released in November last year.  Option 2, as described in the Options Paper, noted that the legislative amendments would be supplemented by a “strengthened” BNPL Industry Code (the industry code for the sector that came into effect from 1 March 2021). However, no reference was made to the BNPL Industry Code in the Minister’s speech.

Any application of the credit regulatory regime to the BNPL sector should be proportional to the risk posed by the sector. For example: obligations to reference check, share information,  make reasonable inquiries about and verify a consumer’s financial situation and make disclosures should be tailored for the BNPL sector, especially where the amount lent under the BNPL product is low. The Treasury appears to have intended that the credit legislation should be applied in a partially calibrated fashion to the BNPL sector. It noted in the Options Paper that the application of the credit legislation under option 2 “could be calibrated to the level of risk of BNPL products and services”.  The devil will be in the detail of the draft legislation. Draft legislation is expected to be released for consultation later this year with the view to introducing a final Bill to the Australian Federal Parliament by the end of the year. The Minister said the proposed changes will “give ASIC strong enforcement powers” and “involve industry consultation on the detail”.

The Minister’s full speech is here.