Big changes for Buy Now, Pay Later

Article published 9 December 2022

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AUSTRALIA has pretty strong legal protections for consumers using traditional credit products such as credit cards, payday loans and consumer leases.

But with the rise of new credit products like Buy Now, Pay Later (BNPL), the wild west is back. Hardly any laws apply. And they’re so easy to apply for.

That’s not to say that these newer products are completely unregulated. The Buy Now, Pay Later Industry Code of Practice is followed by almost every BNPL provider.

It requires providers to be transparent with all information. They must be fair with any fee changes. There has to be a strong complaint handling process. They must take into account customer vulnerability.

But the Industry Code places the burden on the consumer to tell the provider any problems they might have. This is unlike the Credit Act which has Responsible Lending Obligations to make sure that providers ask about the consumer’s financial status and that they verify that their product won’t cause financial hardship before providing it.

The Industry Code also doesn’t require providers to hold an Australian Credit Licence, meaning that they don’t have to comply with the same general conduct obligations.

In general, the Industry Code just isn’t as thorough as the Credit Act. So, there are lots of loopholes that open up consumers to harm.

The Government has launched a consultation process on regulating Buy Now, Pay Later with an options paper laying out a few possible ways forward.

Here are some of the big issues caused by the lack of regulation that they want to address.

BNPL causes poor consumer outcomes and financial hardship.

BNPL charges excessive consumer fees and lacks clear product disclosure practices.

Consumers are often encouraged to use it for essential purchases like groceries and utilities.

Three options to address this are explored in the paper.

The light option is to fix up the Industry Code and make providers use an ‘affordability assessment’.

A slightly heavier touch is to make BNPL follow some relevant sections of the Credit Act. This would mean BNPL providers have to get an Australian Credit Licence and follow modified Responsible Lending Obligations. In addition, the Industry Code would be fixed.

Lastly, the heaviest option would be to change the Credit Act. This would make BNPL follow all the same requirements that apply to other cards.

BNPL only makes up around 2 per cent of all Australian credit and debit card purchases but it is quickly growing. There’s no reason this market shouldn’t be regulated just as heavily as traditional credit products.

Otherwise, we’ll only see vulnerable consumers continue to be taken advantage of.



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