BNPL Industry Review – Is your TMD up to Scratch?

ASIC has identified four key issues with target market determinations (TMDs) across all industry sectors following ASIC’s review of the BNPL sector’s compliance with the design and distribution obligations (DDO). The review focused on the development of TMDs and the data and metrics used to establish review triggers.

ASIC has released guidance on TMDs identifying the following four key areas for the industry to improve on:

  1. Product Descriptions

ASIC reviewed several TMDs from within the industry and found that most of them lacked sufficient detail in describing the features and attributes of the product. In one instance, a key attribute of a product was not adequately described in the TMD. Additionally, some TMDs mentioned fees as a key attribute without specifying the specific numerical values of those fees.

ASIC identified that TMDs can be improved by clearly describing the key attributes of the product and explaining how they align with the likely objectives, financial situation, and needs of the target market’s consumers.

  1. Defining TMDs

ASIC outlined that there were deficiencies in the descriptions used in TMDs for BNPL products, with the descriptions often too broad and lacking clear parameters to define the target market. Defining the target market broadly without considering key product attributes will result in vulnerable consumers improperly forming part of the target market. It is important for TMDs to have objective and tangible parameters to precisely define the target market.

  1. Setting review periods

ASIC found that most providers conducted reviews of their TMDs annually, while some opted for a two-year review period. ASIC emphasised the importance of a reasonable review period that considers the risk of harm to consumers if the TMD is not promptly reviewed. Factors such as the product’s term, nature, market context, and distribution method should be taken into account when determining the frequency of TMD reviews. For shorter-term BNPL arrangements (i.e. 6 weeks or less), ASIC’s view is that a two-year review period is not appropriate to ensure the ongoing appropriateness of the TMD, especially when prompt reviews are necessary to protect consumers from potential detriment. We recommend that the BNPL industry consider decreasing the review intervals to ensure they are able to accurately capture their target markets.

  1. Setting review triggers

 ASIC identified the lack of appropriate review triggers across the TMDs it assessed. In particular, it criticised the lack of objective threshold triggers and over-reliance on subjective thresholds for triggering reviews. Review triggers such as consumers missing payments or becoming overcommitted when using BNPL are not properly reflected in TMDs.

ASIC expects that BNPL providers will review the feedback and take necessary actions to comply with their obligations by developing accurate target market definitions, clear product information, and object review triggers to ensure consumer protection and appropriate product suitability. ASIC has indicated it will continue to take enforcement action to protect consumers.

What action can ASIC take for non-compliance?

ASIC has already been using its power to issue stop orders for defective TMDs. A stop order is a temporary or permanent order issued by ASIC to stop a product issuer offering or distributing a product.  ASIC typically issues these orders where it is in the interest of protecting customers from accessing products that are not suitable for them.

How can we help?

It is important that you confirm that your TMD continues to accurately identify who the product is suitable for, who the product is not suitable for and how the product is distributed to ensure that you continue operating in a compliant way. It is worth ensuring that sufficient rigour is applied in preparing and reviewing your TMD.

If you would like assistance reviewing your existing TMDs or if you are preparing for a new product launch and want to stress test your TMD, please get in touch.

For more information, please contact Jaime Lumsden or Nicholas Pavouris.

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Senior Associate