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Buy now pay later crackdown: What does it mean for you?


BNPL will be considered a credit product for the first time – here's what you need to know.

The government is set to regulate the buy now, pay later (BNPL) industry in a bid to give consumers more protection.

Its decision, being announced today, will see BNPL fall under Credit Act rules. It follows a Treasury paper last November outlining different options for regulating the short-term lending sector.

What exactly has the government decided?

Up until now, BNPL – which lets shoppers buy goods immediately and pay them off in instalments – hasn't been officially considered a credit product.

That means it hasn't fallen under the same level of regulation as other products, such as credit cards or personal loans.

But this is changing.

Stephen Jones, Financial Services Minister, will today tell the Responsible Lending and Borrowing Conference that BNPL services must be treated as a credit product.

Broadly, the new laws will force BNPL providers to have a credit licence, set hardship requirements and apply minimum standards for conduct.

Did you know? BNPL has 7 million active accounts and $16 billion in transactions for the 2021-22 financial year. Some 3.2 million Australians use Buy Now Pay Later services such as AfterPay or Zip."

Last November, the Government released a paper with 3 options on how to regulate the BNPL market.

  • Option 1: No regulation, it would continue as is with self-regulation
  • Option 2: Regulation under the credit act but with a new code of conduct
  • Option 3: Full regulation, like all other unsecured credit providers like banks and non-banks

The government has now announced that it's going with option 2.

Zip welcomes more regulation

Peter Gray, Zip's co-founder, welcomed the upcoming announcement. Gray commented:

"We have long advocated for fit-for-purpose regulation and we believe that Option 2 delivers the right level of consumer protection while still encouraging innovation across the industry.

"The regulatory framework announced today formalises a minimum standard that Zip already complies with, requiring providers to hold a credit licence, conduct credit checks, provide access to external complaints services and not increase credit limits without customer consent."

How might it affect you?

The devil is in the detail, which is still to be confirmed. The government's draft legislation is going out for consultation later this year, with the Bill is set to be introduced into Parliament by the year's end.

But among the proposals are:

  • Caps on charges for missed payments
  • Credit increases may need to be requested, rather than provided without solicitation
  • Improved hardship processes
  • Better dispute resolution processes are among the proposals
  • New marketing requirements will also be part of the changes.

All of this could translate to lower fees and charges, which would be helpful for those who get caught out with multiple BNPL transactions draining their accounts – leading to some buy now pay later purchases ending up with an effective interest rate of over 270%.

Finance Minister Stephen Jones said the regulation plan would prevent people from falling into debt traps and financial abuse, which were disproportionately affecting women, First Nations communities and people on low incomes.

He said some consumers were able to open multiple BNPL accounts, accessing far more debt than they'd be able to get on other types of credit.

"BNPL looks like credit, it acts like credit, it carries the risks of credit," said Jones, adding:

"We must ensure that they operate honestly, efficiently, and fairly, in line with other regulated credit products."

Learn more about how BNPL works.

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