Looming changes for the “buy now, pay later” market

Currently the BNPL space is unregulated in Australia because it falls under the exemptions available to certain types of credit under the National Consumer Credit Protection Act 2009.

This means BNPL products aren’t subject to responsible lending standards or the other requirements of the Credit Act, and BNPL providers don’t need to hold an Australian credit licence. This is despite involving financial products that offer credit.

Consumer advocates argue that this regulatory gap has the potential to create harm – “instant” access to BNPL credit, without the lack of requirements and financial checks and potential uncertainty on terms and fees which could end up in unsustainable debt.

The Reserve Bank of Australia estimates that approximately seven million active BNPL accounts made a total of $16 billion in transactions in the 2021–2022 financial year – around a 37% increase on the previous year. The majority of these are low value BNPL products with spending limit of $2,000, although some include limits of up to $30,000 for large ticket items.

The consultation paper proposes three broad options for regulatory intervention. Option 1 would impose a bespoke affordability assessment for BNPL providers under the Credit Act and address any other regulatory gaps in a strengthened industry code to make it fit-for-purpose. Option 2 would require BNPL providers to hold a credit licence and comply with modified responsible lending obligations and a strengthened industry code. Option 3 would impose the strictest regulation, with BNPL providers needing to hold a credit licence and comply with all its regulations and the responsible lending obligations, including taking reasonable steps to check that their BNPL products are suitable for each person who accesses them.

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