Australia

Status

In May 2023, the Australian government announced plans to change the law and regulate BNPL products as credit products.

Is the country considering regulation?

Yes, the government anticipates that the proposed legislation will be put to the parliament before the end of 2023.

Current state of regulation regarding BNPL?

BNPL is not currently regulated in Australia (although there are some aspects of BNPL that are incidentally subject to broader regimes e.g. the consumer protection provisions under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). Currently, “credit facilities” are largely excluded from the definition of a “financial product” under the Australian Financial Services Licence regime, and BNPL falls under the exemptions available to certain types of credit contained in Schedule 1 of the National Consumer Credit Protection Act (Credit Act) (the National Credit Code). Accordingly, BNPL products are not subject to responsible lending standards or other requirements of the Credit Act, and BNPL providers do not need to hold an Australian Credit License (ACL).

However, while BNPL is not currently subject to direct formal regulation in Australia, there is a voluntary Buy Now Pay Later Code of Practice (BNPL Industry Code) which sets best practice industry standards and strengthens consumer protections. According to the industry association, the 7 BNPL providers accredited under the BNPL Industry Code represent 90% of the BNPL market based on the number of active accounts.  

Outline the proposals to change regulation?

Under the proposed framework, BNPL products will be treated as credit products under the Credit Act. Assuming they are implemented in law as proposed, the key regulatory changes will include:

(a) a requirement for BNPL providers to obtain and maintain an ACL;
(b) the introduction of a bespoke set of responsible lending obligations (e.g., customer affordability assessments and verification requirements);
(c) the application of statutory product disclosure obligations to BNPL products;
(d) a requirement for BNPL providers to comply with existing marketing restrictions;
(e) the introduction of statutory dispute resolution and hardship requirements; and
(f) a requirement for BNPL providers to meet various other minimum standards concerning their conduct and products.  

What if any will be the consequences of BNPL legislation on merchants, brokers and consumers.

The BNPL regulatory changes will subject providers to a range of new obligations and standards which will fundamentally change the way they engage with the market. Among other things, BNPL providers will be required to hold an ACL, implement processes and procedures to manage disputes and meet consumer hardship requirements. The introduction of responsible lending obligations will have an impact on the industry as a whole, providers will be required to undertake customer suitability assessments while consumers will be afforded a greater deal of protection against irresponsible lending practices and avoidable debt. According to the Minister for Financial Affairs, in introducing the changes, the government will aim to ensure that the obligations imposed on BNPL providers are ‘scalable and technologically neutral’ and ‘are the right fit for the risk level’ of BNPL products.
The government has indicated it will be working closely with industry and consumer groups and expects to have draft legislation out for consultation in late 2023.