The Australian government will be bringing in new legislation targeted at the burgeoning Buy Now, Pay Later (BNPL) market, which it says doesn’t operate under the same framework to which other finance lenders must adhere.
Citing the need to increase consumer safeguards, new laws, essentially an amendment to the Credit Act, were announced today.
In an expected move, BNPL lenders are to be licenced, following concerns raised by financial watchdogs over credit disclosure, excessive default fees and customer’s overextending their finances.
Assistant Treasurer and Minister for Financial Services Stephen Jones said in March the new legislation would classify BNPL loans as credit products.
This means lenders will be required to hold an Australian Credit Licence and will have to comply with the Act’s requirements pertaining to product disclosure, dispute resolution, and hardship assistance.
“BNPL providers will also be required to take steps to make sure they are lending responsibly. This requirement will operate in a way that is flexible, adaptable and proportionate to the risk of consumer harm,” Mr. Jones said.
The government considered three options to tighten the sector, including adding an affordability test to the self-regulated industry code and rewriting the Credit Act to make BNPL providers subject to the same laws as credit card companies.
However, it ultimately settled on the introduction of limited regulation.
In a move that may lessen the appeal of the schemes to many hamstrung by bad credit, under the changes, users of BNPL schemes will now have to undergo credit checks—something the minister said was to “ensure that the credit product that they are signing up to is going to be affordable for the individual.”
“People who have got multiple accounts, they’re racking up thousands and thousands of dollars in debt, they’re the sort of things we’re trying to ensure protections against and the new laws will do just that,” he told ABC’s News Breakfast this morning.
