Australia: BNPL: Credit or not?

By Daniel Knight and Alex Morrison

The Minister for Financial Services, Stephen Jones, has said that the Government intends to regulate Buy Now Pay Later Products (BNPL Products) and stop the “argument about whether [they’re] credit or not”.

What is BNPL?

BNPL Products allow consumers to buy and receive goods and services immediately but pay for them over a specified period. Whilst BNPL schemes may be seen as an alternative to credit cards, they are not currently regulated as a credit product, because BNPL schemes may not charge interest to customers or may only provide short term credit.  These features mean BNP Products are typically exempt under the National Consumer Credit Protection Act (NCCP Act).

Regulating BNPL

The Government is assessing options to regulate BNPL products and legislate to “fill in any gaps”. The Government has acknowledged the value of the voluntary BNPL Code of Practice (BNPL Code) in promoting a customer-centric approach to the design, marketing and distribution of BNPL Products and Services, however ensuring that BNPL products are safe for consumers and appropriately marketed is a key priority. Consumer advocates have said that the voluntary BNPL code does not go far enough to protect consumers and have long been pushing for increased consumer protections in the BNPL sector.

The Government has announced that:

• BNPL products are expected to be regulated under the NCCP Act.
• The existing BNPL code is likely to be used as a starting point for regulation.
• The changes are expected to be introduced by June 2023.

Whilst some in the BNPL sector have previously opposed regulation, the Government has said that bringing BNPL products within the scope of the NCCP Act will not mean that all provisions of the NCCP Act will be applied to the BNPL sector. For example, it is not yet clear whether, and if so how, responsible lending obligations would apply to BNPL Products.  Responsible lending obligations typically require lenders to make enquiries about the borrower’s income and expenses and assess their capacity to repay.  This could be difficult in practice in the BNPL context, particularly for credit provided in real time at point of sale.

The Government has acknowledged the benefits of innovation offered by BNPL in credit markets for consumers.

In addition to changes to the BNPL sector, Minister Jones has foreshadowed a possible restoration of ASIC’s “why not litigate” approach and expressed an intention to regulate cryptocurrency exchanges in the same way as other financial markets. Treasury have been consulting on the shape of those reforms, but it remains to be seen what form they will take.