The Albanese government is seeking feedback on three potential options for regulatory intervention to help close the “regulation gap” in the buy now, pay later (BNPL) sector.
One of the options put forward is bringing BNPL completely into the Credit Act in line with credit cards and other credit products with full responsible lending obligations (RLOs).
Meanwhile, the other two options include limited BNPL regulation under the Credit Act and strengthening the existing BNPL Industry Code with the addition of an affordability test.
“These options aim to ensure new and emerging credit products such as BNPL are subject to appropriate regulation that balances consumer protection while still encouraging innovation in our financial service industry,” Treasury said in an options paper released on Monday.
Assistant Treasurer and Minister for Financial Services Stephen Jones noted that the number of active BNPL accounts grew from 5 million to 7 million in the last financial year, with most accounts being held by those aged 18 to 34.
“These products deliver real benefits to the vast majority of these consumers. But there is a regulatory gap that can leave some vulnerable groups in over their head,” he said.
To identify the impacts of BNPL and inform the development of regulatory options for consideration, Treasury said that it had undertaken consultations with a range of consumer groups, BNPL providers, retailers, financial services peak bodies and regulators.
“These discussions have identified the relatively looser regulatory environment combined with the rapid growth of the BNPL industry may be contributing to poor consumer outcomes,” it said.
Issues raised included unaffordable or inappropriate lending practices, poor complaints handling processes, excessive or disproportionate consumer fees and charges, poor product disclosure practices, unsolicited selling and inadequate reverse charging provisions.
The non-participation in Australia’s credit reporting framework was highlighted, as this means that some BNPL credit information is not available for use in credit checks by other lenders.
Additionally, the frictionless sign-up to BNPL products was raised as an issue due to the potential to enhance other consumer harms like scamming, overselling and financial abuse.
Treasury said that completely bringing BNPL into the Credit Act would lead to BNPL providers needing to obtain and maintain an Australian Credit License (ACL).
“The existing RLOs in the Credit Act will be applied to all BNPL credit, including requirements around reasonable inquiries into a consumer’s financial situation and taking reasonable steps to verify this information,” it explained.
The second option of limited BNPL regulation would force providers to obtain and maintain an ACL and introduce modified RLOs under the Credit Act to determine unsuitability alongside a strengthened industry code.
Finally, the third option to strengthen the existing code would impose a bespoke affordability assessment for BNPL providers under the Credit Act while addressing any other regulatory gaps in a strengthened Industry Code to make it “fit for purpose”.
The government has encouraged anyone with views about the three potential options to make a submission through the Treasury consultation process before it closes on 23 December.
“Submissions received during this consultation process will inform a future government decision on the regulatory framework for BNPL in Australia,” Treasury said.
“Treasury anticipates undertaking further targeted consultations with stakeholders to refine these options ahead of any government decision.”
Commenting on the options paper, Humm Group CEO Rebecca James welcomed the opportunity to engage with the government and regulators on the future of the BNPL industry.
“We are supportive of industry-wide responsible lending checks that include verifying customers’ identity and credit history,” she said.
“We also believe it is important that the final legislation does not have the unintended consequence of denying consumers the significant benefit of Buy Now Pay Later finance as an interest-free alternative to more expensive forms of finance.
“We are encouraged to see that reflected in the draft issues paper which demonstrates that the government is considering a proportional and balanced approach to regulation.”
