The government has put forward stronger self-regulation of the buy now pay later industry as one option for improving outcomes for consumers using BNPL.
Treasury released an options paper yesterday setting out proposals for closing what it calls “an unintended regulatory gap” and has called for submissions.
BNPL is not currently regulated under the National Consumer Credit Protection Act and, as such, is not subject to responsible lending obligations.
The paper makes clear that the government intends to close that gap: “This unintended regulatory gap creates the potential for consumer harm due to the absence of key protections.”
Options for regulatory intervention include a stronger BNPL industry code of practice, limited regulation under the Credit Act and full regulation under the Act.
A stronger industry code would include a legislated BNPL-specific affordability assessment (making it more a co-regulatory rather than self-regulatory approach).
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 options 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 the regulatory gap has contributed to potential harms and poor outcomes. From discussions with regulators, consumer groups, retailers and industry groups Treasury has identified these as unaffordable lending contributing to financial stress, poor complaints handling, excessive fees and charges, poor product disclosure, unsolicited selling and inadequate reverse charging provisions.
And it also makes clear that the government views BNPL as “credit in the ordinary sense of the word”, along with wage advance products, instalment payment plans and loans for rent payments and rental bonds.
According to the paper there are seven million active BNPL accounts in Australia. Transactions worth around A$16 billion in 2021/22 represented about 2 per cent of retail sales.
While BNPL products are exempt from the consumer protections in the Credit Act, they are subject to the misleading and deceptive conduct provisions of the ASIC Act, ASIC’s design and distribution obligation powers, the Australian Consumer Law and anti-money laundering rules.
If the government adopts the stronger self-regulation option it will expect the BNPL industry to strengthen the code to improve product disclosure requirements, dispute resolution standards, rules around fees and charges, and risk mitigation. It would also expect to see adequate compliance provisions.