Australia Introduces Regulations to Classify Buy Now Pay Later as Credit Products

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The global fintech phenomenon of Buy Now Pay Later (BNPL) has gained significant traction, with approximately 7 million active BNPL accounts in Australia. However, concerns have emerged regarding providing BNPL products to individuals who struggle with repayments, prompting the government to announce regulatory measures to classify BNPL as credit products.

The reform aims to balance consumer protection and fostering innovation in the BNPL sector. Currently, BNPL needs more regulation under the National Consumer Credit Protection Act, raising concerns among consumer groups about its suitability for individuals unable to meet repayment obligations.

In November 2022, the Treasurer released an Options Paper outlining three models for regulating BNPL products in Australia. The government has decided to hold BNPL products as ‘credit’ under the National Consumer Credit Protection Act, which will require BNPL providers to comply with specific regulations. The Australian Securities and Investments Commission (ASIC) is expected to have robust enforcement powers.

The proposed reforms require BNPL providers to hold an Australian Credit License (ACL) and adhere to responsible lending obligations. Providers must demonstrate their fitness, organizational competence, and resources to engage in credit activities. Unsuitability assessments will be mandatory to prevent the issuance of unsuitable BNPL products to consumers.

Responsible lending requirements for BNPL providers will be tailored to the risk level associated with the product or service. Some prescriptive requirements may be eliminated, but suitability and affordability checks will still be required. Compliance with the AFIA BNPL Code of Practice can help meet legislated hardship and dispute resolution requirements.

BNPL providers must meet statutory product disclosure and information obligations to ensure transparent terms and conditions, enabling consumers to understand the total costs, payment schedule, and key terms of their BNPL products. Existing restrictions on unacceptable marketing practices will continue to apply.

While specific details are yet to be provided by the government, BNPL providers should actively engage in the consultation process to develop realistic and achievable regulations for the sector.

“It is unclear how quickly the Government will move to action the recommendations ultimately made by Treasury, but it is clear that 2023 is shaping up as a big year for BNPL providers and their business model,” said Corrs Chambers Westgarth, Australia’s leading independent law firm.

The exposure draft legislation is anticipated to be released later this year, with the final Bill expected to be introduced by year-end. These regulatory changes aim to provide consistent and transparent rules for BNPL, empowering consumers to make better-informed decisions when using these services.

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