Buy Now, Pay Later, a Credit Service, to Be Treated Like a Credit Service

Buy Now, Pay Later, a Credit Service, to Be Treated Like a Credit Service

The Australian government in November signalled its intention to crack down on buy now, pay later services. Also known as BNPL, the idea is exactly what it says on the tin: buy the item now, pay for it later. It’s a modern twist on the old classic that is credit card debt.

BNPL will be treated like a credit facility under the Australian Credit Act. Absolutely bizarre that it isn’t already – you enter into debt to buy something now.

Anyway. Behind the BNPL crackdown is Financial Service Minister Stephen Jones, who, in a nutshell, wants to ensure the sector is regulated.

“BNPL looks like credit, it acts like credit, it carries the risks of credit,” Jones said in a speech to the Responsible Lending and Borrowing Summit in Sydney.

Financial services like banks are very heavily regulated and while BNL services offer assistance when you can’t afford the cost of the item immediately, they aren’t governed to the extent banks and the like are. The government is increasingly sceptical, specifically around unaffordable or inappropriate lending practices, poor complaints handling processes and unsolicited selling, among other things.

Jones said under his plan, buy now, pay later providers will be required 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.

That means buy now, pay later providers in Australia will have to perform the same type of credit checks banks have to on customers.

Currently, BNPL products are not regulated under the Credit Act because they fall under the exemptions available to certain types of credit in Schedule 1 to the Credit Act (the National Credit Code). 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 Licence (ACL), Treasury explained in its BNPL regulation consultation.

That consultation kicked off in November, with a  discussion paper titled: Regulating Buy Now, Pay Later in Australia.

According to the paper, there were around 7 million active buy now, pay later accounts in the 2021-22 financial year in Australia. These accounts performed $16 billion in transactions. Jones today said the average BNPL consumer uses it for 18.2 transactions per annum, with an average transaction amount of $136. The most common BNPL providers in the space are Afterpay, Zip Pay, Humm and Klarna. With the cost of living crisis affecting so many of us, this figure is likely far more this past financial year.

This article has been updated since it was first published.

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