The government is almost certain to extend coverage of the National Consumer Credit Protection Act to buy now pay later providers if it follows the consensus view of the submissions to its consultation on the BNPL regulatory framework.

A Treasury consultation paper released in November outlined three options: self-regulation under a stronger BNPL industry code of practice; limited regulation under the Credit Act; and full regulation under the Act.

The submissions, which were released by Treasury last week, show a clear preference for regulation under the Credit Act, with most of the view, as ASIC said in its submission, that “credit products with similar characteristics and the same purpose and function should be treated the same way in the regulatory framework”.

There is also a strong focus on the need to deal with the harm that unregulated credit poses for vulnerable consumers.

The Law Council of Australia said: “Regulation should have, as an underlying commitment, that financial consumer protection policies should contribute to the overall financial wellbeing and financial resilience of consumers.”

But there is uncertainty and a degree of confusion about whether option 2, limited regulation under the Credit Act, or option 3, full regulation, should apply.

According to the consultation paper, limited regulation would include a requirement for an Australian credit licence and modified responsible lending obligations, while full regulation would involve the responsible lending obligations in the Credit Act being applied to BNPL providers.

The Australian Banking Association said the government needs to be more specific about what limited or tailored regulation would mean.

The Customer Owned Banking Association said its members “strongly” support option 3, on the grounds that “consistent rules should apply to all credit-like products. Lenders should be obliged to check that proposed loans are not unsuitable and can be repaid without substantial hardship by the consumer”.

COBA opposed option 2, even with its uncertainties, because “watered down responsible lending obligations could create a knock-on effect for responsible lenders in the broader credit ecosystem”.

Among the proponents of limited regulation, on the other hand, Commonwealth Bank said it supported an enhanced version of option 2, so that in addition to requiring BNPL providers to assess suitability and affordability, providers should have to join the comprehensive credit reporting system and face restrictions on credit limit increases.

There was a strong push to have BNPL providers brought into the comprehensive credit reporting regime. The ABA called for it and so did the Australian Institute of Credit Management, which said its members consistently express frustration at the lack of clarity on how to treat BNPL and other unregulated products.

Another issue, highlighted in a submission by the University of Sydney Business School, among others, is the “lack of consistent and appropriate complaints handling”.

The Treasury consultation paper is not anti-BNPL. It says: “New credit products such as BNPL can offer consumers a cheaper and easier-to-access for of credit” and that “advances in technology have enable credit businesses to build a market for free or low-cost credit”.

However, it accepts that the regulatory gap has contributed to potential harms and poor outcomes.