Buy now, pay later – yes, it’s about to be regulated credit

What does this mean for me?

So what does this mean in practice, both for BNPL providers and consumers? 

In summary, key changes include the following:

• BNPL providers will be required to hold an Australian credit licence (ACL), or be an authorised credit representative of an ACL holder.  Merchants who offer BNPL products to consumers would not, however, be required to be an authorised credit representative of the BNPL provider.  This is broadly consistent with the approach being adopted in the United Kingdom. 
• As ACL holders, BNPL providers will be required to comply with the general obligations of an ACL holder, including requirements relating to internal and external dispute resolution, hardship, product disclosure, and other minimum standards of conduct required of a licensee.
• Notably, BNPL providers will be required to assess whether a BNPL credit (including any limit increase) is not unsuitable for a person, similar to the existing responsible lending obligations framework for other credit products.  This unsuitability question will be scaled to the level of risk of the BNPL product or service, and will be technologically neutral (although it remains unclear what form of credit checks might be required to be conducted by BNPL providers as part of their assessment).  This assessment will be in addition to the existing design and distribution obligations required by ASIC under Part 7.8A of the Corporations Act 2001 (Cth), which require BNPL providers to design fit-for-purpose products that meet consumer needs and ensure that their products are reaching the right consumers.
• As ACL holders, BNPL providers will be able to access and engage with the existing credit reporting regime under the Privacy Act 1988 (Cth), including with respect to a consumer’s repayment history and hardship information. 
• Fee caps for charges relating to missed or late payments will be introduced, and additional warning and disclosure requirements will be imposed.

Implementation of the reforms

The BNPL reforms, which will be implemented through changes to the National Consumer Credit Protection Act 2009 (Cth) (the Credit Act) (with a relevant Bill expected to go before Parliament before the end of the year), will be supplemented by strengthening the current AFIA Buy Now Pay Later Code of Practice (Industry Code) (such as product disclosure requirements, dispute resolution standards and hardship practices, fees and charges and mitigating risks associated with scams, domestic violent, coercive control and financial abuse).  Although the scope of changes to that Industry Code remain unclear, it is expected that part of the Industry Code will be made enforceable by ASIC.  The reforms will introduce penalties for non-compliance with the legislation, including infringement notices, civil penalties, corrective advertising and consumer remediation schemes.

This is a significant regulatory change for many industry participants who have, to date, relied on structuring their products to rely on the current exemption to regulation as ‘credit’ under the Credit Act on the basis that they do not charge the consumer for providing the credit (missed payment fees do not count for this purpose) or the credit is provided under a continuing credit contract where the consumer is only charged a fixed upfront fee or periodic fee (and which is less than a specified threshold amount).  In the current economic environment, the option chosen is no surprise, given the focus of various Government bodies on decreasing current inflationary pressure in Australia via a reduction in consumer spending. 

Broader payments system regulatory reforms

As we reported in June last year, reforms to BNPL product regulation is just one part of broader payments system regulatory reform plans in Australia, aimed at developing a more efficient and competitive payments system.  This is consistent with various policy actions announced by the Reserve Bank of Australia, ASIC and the Australian Prudential Regulatory Authority, including the modernisation of the Payments Systems (Regulation) Act 1998 (Cth).