The Australian Government has announced its intention to regulate the buy now pay later (BNPL) sectors. Financial Services Minister, Stephen Jones, announced the Australian Government’s intention to regulate the sector at the annual Responsible Lending and Borrowing Summit. We were in attendance at the conference, and it felt clear that the Government wishes to balance consumer protection of vulnerable users of BNPL products who find themselves trapped in debt spirals with the continued availability of the products to those consumers who find it invaluable and never miss payments.
Following its consultation in early 2021, the Government looks set to adopt option 2 of its proposed plan, which is to regulate the BNPL industry through the National Consumer Credit Act and National Credit Code, by removing the ability for the sector to rely on the existing exemptions in the National Credit Code.
We understand that the intention is for BNPL providers to hold an Australian credit licence and comply with a tailored version of the responsible lending obligations. The requirement will be for BNPL providers to assess customers to ensure that they are not unsuitable for the product.
Other points on the agenda for this reform include:
- Caps on charges for missed or late payments;
- Warning and disclosure obligations;
- Internal and external dispute resolution;
- Hardship support; and
- Limits on the ability of customers to increase their spending.
This is a better starting position for BNPL than for the Government to revoke the exemptions upon which BNPL rely, which would leave BNPL regulated identically to home loans and credit cards.
BNPL providers should monitor the development of the draft legislation as it evolves and be aware that the future appears to require them:
- Obtain a credit licence,
- Comply with the general conduct obligations; and
- To be able to demonstrate organisational competency.
BNPL providers with a credit licence to support regulated products will be at an initial advantage compared to those without.
Further Consultation
The Government plans to have laws before Parliament by the end of the year, and we expect consultation on the draft legislation and regulations to commence in the coming months.
If you are looking to get ahead of the curve and prepare for the future, we can:
- Assess your business key people against ASIC’s responsible manager requirements;
- Prepare all licensing documentation;
- Provide technical support or liaise with ASIC on your behalf; and
- Submit your licence application to ASIC.
Hamilton Locke has been actively involved in the fintech space for several years, assisting buy now, pay later providers with product development, collateral development, service offerings and navigating the consumer credit landscape. We are technical specialists with a broad and deep understanding of financial services, licensing, credit regulation and consumer regulation. We deliver practical, compliant and innovative solutions for our clients, working with a range of clients, including buy now, pay later providers, debt factoring providers and buyer-led reverse factoring providers.
For more information, please contact Jaime Lumsden, Jessica Smith or Nicholas Pavouris.
