New buy-now-pay-later laws will bring the sector into line with other lending platforms

New Law

The somewhat inevitable tightening of regulations around buy-now-pay-later (BNPL) products has begun with the federal government set to introduce legislation that will treat them like any other loans.

The announcement came from Financial Services Minister Stephen Jones in a recent speech to the Responsible Lending and Borrowing Summit.

Popular services like Afterpay will be considered credit products under the move and will fall under The Credit Act.

Up to this point BNPL platforms have allowed customers to access their service to make purchases on credit without going through the same checks as traditional credit cards, and without the same oversight from the industry regulator ASIC.

“BNPL looks like credit, it acts like credit, it carries the risks of credit,” Minister Jones said.

“Our plan maintains the benefits of BNPL that many Australians enjoy, and we must ensure that providers will have appropriate safeguards in place, and we must ensure that they operate honestly, efficiently, and fairly, in line with other regulated credit products,” he said.

The new legislation will see BNPL providers forced to hold Australian Credit Licences and comply with the same responsible lending rules as home and car loan lenders.

While BNPL products generally have smaller limits than traditional credit cards, they can escalate quickly if customers regularly meet their repayments, and they can also open multiple accounts at one time.

“We have also heard that some people may be weaponising BNPL products in abusive relationships — doing things like coercing their partners to take on BNPL debts or taking out BNPL debts in their partner’s name without their knowledge,” Minister Jones said.

Last year there were nearly six million active BNPL accounts in Australia, with a year-on-year increase of around 35 per cent, and customers can be spending over $400 a month on repayments and fees.

Chief customer officer at Frollo, Simon Docherty, told SmartCompany that one in four customers use their credit card to pay off their BNPL debt.

“Furthermore, our findings reveal that BNPL users are more than twice as likely to also engage with Pay Advance (short-term credit) services compared to the general population. On average, Pay Advance users now spend $749 monthly to service their debt, marking a concerning 60% increase since last year,” he said.

Minister Jones said the sector was posing increasing risks to consumers and had remained, for the most part, unregulated up until now.

“The plan will protect people from the spirals of harm that unregulated, unrestricted lending can cause,” he said.

“Our plan will bring BNPL into line with other regulated credit providers and ensure that the obligations of BNPL providers are scalable and technologically neutral. We will make sure they are the right fit for the risk level of their products.”

Afterpay released a statement welcoming the moves, saying they will generate positive outcomes for consumers and businesses and will provide the certainty the industry needs.

FinTech Australia general manager Rehan D’Almeida also released a statement supporting the regulations for an industry they say adds plenty of value and diversity to the credit sector.

“Buy Now Pay Later is an Australian innovation story that has been exported around the world, generating competition and consumer choice,” he said.

“Crucially, it recognises the distinct differences between BNPL and traditional credit products, and is a vote of confidence in a sector that delivers positive outcomes for customers, businesses and the broader economy.

“As new technologies and digital services disrupt and create better consumer experiences, we need regulatory frameworks that value these innovations, protect consumers, and encourage competition.”


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