Credit checks to be introduced for Buy Now Pay Later
Make us a preferred source
Make us a preferred source on Google
The news: The federal government has introduced new consumer protection legislation that will see Buy Now Pay Later (BNPL) operators, such as Zip, Afterpay and Klarna, regulated as consumer credit.
The context: The new legislation, that was introduced to parliament today, will:
- Amend legislation to require BNPL providers to hold an Australian credit licence;
- Mean operators will need to comply with existing credit laws, regulated by the Australian Securities and Investments Commission; and
- Establish a new category of 'low-cost credit' under the Credit Act to reflect the lower risk and cost of BNPL compared with other regulated forms of credit.
However, BNPL providers will still need to consider whether a product is suitable and affordable for consumers.
Treasury's announcement comes in response to growing support for tighter BNPL regulation, including from the financial complaints authority and financial counsellors who claim BNPL products are playing a heightened role in financial distress and abuse.
Most BNPL products are not currently covered by the National Consumer Credit Act, meaning providers are not subject to the same consumer protections. Also, BNPL consumers may not have access to effective dispute resolution and hardship processes.
The Australian Finance Industry Association estimates the BNPL sector supports more than 120,000 local jobs and adds up to $18.4 billion to GDP.
However, a 2022 survey by the Good Shepherd found 84% of financial practitioners reported that their clients had tried to manage the debt by opening additional BNPL accounts, leading to an unmanageable debt spiral.
What they said: Assistant treasurer Stephen Jones said: "The government is working hard to protect consumers against financial harm".
"We want Australians to enjoy the benefits of BNPL, while knowing there are strong consumer protections in place," he said. "If it looks and acts like credit, then it should be regulated as such. Our changes are balanced and proportionate and maintain the consumer benefits afforded by BNPL products."
The source: Treasury media release
