The federal government plan to introduce a Bill to parliament by the end of the year to regulate buy now, pay later services, such as Afterpay and Zip. Source: Freepik
Buy now, pay later (BNPL) services, such as Afterpay and Zip, will be regulated by the federal government under the Credit Act, in a move to better protect consumers against potential financial abuse by lending schemes.
Financial Services Minister Stephen Jones gave a speech at the Responsible Lending and Borrowing Conference that BNPL services will be treated as credit products, and that providers will be required to hold a credit licence, hardship requirements, and minimum standards for conduct.
The change is in light of a Treasury paper published last November, regarding possible options for BNPL regulation, putting three options on the table:
- BNPL services remain predominantly self-regulated
- BNPL services be subject to limited regulation under the Credit Act
- BNPL services be subject to the same laws as credit card providers
The federal government chose the second of these options, requiring BNPL products have a strengthened Industry Code and meet modified Responsible Lending Obligations under the Credit Act to determine customer unsuitability.
The Treasury paper showed that the 2021–2022 financial year had seen BNPL services increase by 37 per cent compared to the previous year, with 7 million active BNPL accounts and $16 billion in transactions.
Jones has said that increased regulation was needed as BNPL products, including Afterpay, were posing “growing dangers to consumers, which up until now have been largely unregulated and unchecked”.
“The plan will protect people from the spirals of harm that unregulated, unrestricted lending can cause,” he said.
Jones also noted that people were gaining access to far higher amounts of debt with BNPL services compared to credit card or payday loans, due to the ability to open multiple BNPL accounts.
Women are also disproportionately affected by the potential risks of BNPL products, along with First Nations communities and people on low incomes.
“And 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,” he said.
BNPL businesses, including Afterpay, had argued against tightened regulation in Australia, however Jones says that regulation is to strike a balance that protects consumers, and that providers are now required to “have appropriate safeguards in place” for example, an effective dispute resolution process.
Jones noted that further details will be developed over the coming months, with the Treasury working closely with the industry and consumer groups for draft legislation later this year.
The Bill is expected to be introduced to Parliament by the end of this year.
