The federal government will regulate the buy now, pay later industry under the Credit Act to better protect consumers against financial abuse by the lending schemes.
In a speech today, financial services minister Stephen Jones told the Responsible Lending and Borrowing Conference that buy now, pay later (BNPL) services will be treated as a credit product, with providers required to have a credit licence, hardship requirements and minimum standards for conduct.
The decision comes after a Treasury paper published in November last year, which explored possible BNPL regulation options, suggested three potential options for regulation:
- That the services remain largely self-regulated.
- That the services be subjected to limited regulation under the Credit Act.
- That the services be subjected to the same laws as credit card providers.
The second option, chosen by the federal government, requires that BNPL products meet modified Responsible Lending Obligations under the Credit Act to determine unsuitability, combined with a strengthened Industry Code.
The consultation paper said there were seven million active BNPL accounts in the 2021-22 financial year, which resulted in $16 billion in transactions – an increase of nearly 37 per cent compared to the year prior.
Mr Jones said tougher regulation was needed as BNPL products had posed “growing dangers to consumers, which up until now have been largely unregulated and unchecked”.
“The plan will protect people from the spirals of harm that unregulated, unrestricted lending can cause,” he said.
Evidence had shown that the risks were disproportionately affecting women, First Nations communities and people on low incomes.
He said some people were opening multiple BNPL accounts, to access far more debt than they’d be able to get on a credit card or a payday loan.
“And we have also heard that some people may be weaponising BNPL products in abusive relationships – doing things such as coercing their partners to take on BNPL debts or taking out BNPL debts in their partner’s name without their knowledge,” he said.
A study, conducted by Good Shepherd in late 2022, found that about 73 per cent of financial counsellors said clients had missed essential payments, or cut back on essentials, or gone without essentials, to service BNPL debt.
“BNPL looks like credit, it acts like credit, it carries the risks of credit,” Mr Jones said.
Consumer groups and financial counselling organisations have long argued that BNPL providers need to adhere to the same responsible lending laws as other credit providers.
A report by the corporate regulator, ASIC, in 2020 found that some consumers were “suffering harm” as a result of BNPL schemes, with people cutting back on or going without essentials, or taking out additional loans to make their repayments on time.
Buy now, pay later businesses, including Afterpay, had argued against potential regulation, with a Senate inquiry into fintech two years ago under the previous Coalition government suggesting players could voluntarily adhere to an industry code, instead of wider regulation.
Mr Jones said the regulation was about striking a balance that ultimately protected consumers.
He said the providers would now need to “have appropriate safeguards in place” such as better dispute resolution processes.
There would be caps on charges for missed payments and new marketing requirements.
“We must ensure that they operate honestly, efficiently, and fairly, in line with other regulated credit products,” he said.
Further details would be developed over the coming months, he said.
Treasury would work closely with the industry and with consumer groups, with exposure draft legislation out for consultation later this year and the bill introduced into parliament by the end of the year.
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