Australia's Buy Now, Pay Later (BNPL) industry will soon be regulated under the National Consumer Credit Protection Act 2009 (Cth) (Credit Act). Industry should begin preparing for the changes but will have a further opportunity to comment on the final form of the legislation.
The announcement followed the release of an Options Paper, published by the Treasury in November 2022, which put forward three different options for regulating the BNPL industry.
The plan announced by the Government on Monday was listed as Option 2 in the Options Paper, which was limited regulation under the Credit Act, including licensing and a scalable unsuitability test. It is not Option 3, which would have involved full regulation under the Credit Act.
The Minister's speech foreshadows changes that will require providers to:
- hold Australian Credit Licences;
- comply with Responsible Lending Obligations;
- meet statutory dispute resolution and hardship requirements;
- comply with statutory product disclosure and other information obligations;
- abide by existing restrictions on unacceptable marketing; and
- meet a range of other minimum standards in relation to their conduct, and in relation to their products.
The Minister stated that the obligations will be scalable and technologically neutral, but did not provide any further information on them. We can look to how Option 2 was described in the Options Paper for an early indication as to the extent of the obligations. In that paper it was suggested that:
- some of the more prescriptive requirements in assessing that credit is not unsuitable for a person may be removed, such as verifying a person's financial documentation and checking that the credit aligns with the person's needs and objectives; and
- merchants who offer BNPL products to consumers would not need to be a credit representative of the BNPL provider.
The Government plans to release exposure draft legislation later this year with a view to introducing the final Bill into the Parliament by the end of the year.
BNPL providers should start identifying key areas of potential impact for their business, particularly with respect to responsible lending practices, with a view to being best placed to prepare submissions on the exposure draft to be released later this year.