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‘Doing nothing is not an option’: BNPL products to be regulated as credit
The Albanese government plans to begin regulating buy-now, pay-later (BNPL) offerings as credit products, calling BNPL a “fintech success story” that nonetheless presents growing dangers to consumers, particularly women, First Nations communities and low-income earners.
While Minister for Financial Services Stephen Jones acknowledged in a speech last week at the Responsible Lending and Borrowing Summit that BNPL products have created opportunities in Australia, he said a lack of regulation has led to these credit-like offerings hurting vulnerable consumers, and that “doing nothing is not an option”.
The proposed changes therefore aim to “protect people from the spirals of harm that unregulated, unrestricted lending can cause”, according to Jones.
‘New and growing dangers’
There are now 7 million active BNPL accounts in Australia, Jones noted, with the average consumer making 18.2 BNPL transactions a year; the average transaction amount is $136. And he conceded these products have benefitted both consumers and businesses. “In many ways, BNPL is a fintech success story; a financial innovation which has been exported around the world.”
He cited studies showing BNPL products created $2.7 billion in new revenue for merchants, and said that through relative low cost, BNPL has “provided a valuable source of competitive pressure on traditional credit products, such as credit cards or payday loans”.
However, these products also represent “new and growing dangers” to consumers, Jones said, especially as they have been “largely regulated and unchecked” until now. Moreover, evidence suggests these risks are disproportionately affecting women, First Nations communities and people on low incomes.
“We have heard that some people are opening multiple BNPL accounts, to access far more debt than they’d be able to get on a credit card or a payday loan. And we have also heard that some people may be weaponizing BNPL products in abusive relationships – doing things like coercing their partners to take on BNPL debts or taking out BNPL debts in their partner’s name without their knowledge.”
Because “BNPL looks like credit, it acts like credit, it carries the risks of credit,” it should be regulated the same way credit products are, Jones said.
The government commenced its consultation on options to regulate BNPL in late 2022 on concerns of “unacceptable levels of unaffordable lending occurring”, largely among lower-income borrowers. It also cited concerns raised over the quality of dispute resolution and hardship processes.
Jones acknowledged the issue is complicated. “While BNPL customers are more than twice as likely to end up in financial trouble as a credit card customer, the risk is only half as big for consumer leases and payday loans,” he said. “So, while they aren’t the safest form of credit, they aren’t the riskiest either.”
Other concerns raised by stakeholders in the consultation included excessive fees, poor disclosure practices, problematic marketing practices and unsolicited credit increases.
New obligations, focus on compliance
Under the proposed changes, BNPL providers will be required to hold Australian Credit Licenses, comply with responsible lending obligations, and meet statutory dispute resolution and hardship requirements. It would also require them to comply with statutory product disclosure and other obligations, abide by marketing restrictions and meet a range of other minimum standards.
The Australian Securities and Investments Commission would be given strong enforcement powers under the proposal.
“Our plan will bring BNPL into line with other regulated credit providers, simplifying our regulatory system and addressing concerns about competitive neutrality,” Jones said. “Our legislation ensures that the obligations on BNPL providers are scalable and technologically neutral. We will make sure they are the right fit for the risk level of their products.”
The goal, he said, is to prevent lending to those who can’t afford it without stopping “safe, prudent BNPL use”.
“Our plan maintains the benefits of BNPL that many Australians enjoy, and we must ensure that providers will have appropriate safeguards in place, and we must ensure that they operate honestly, efficiently and fairly, in line with other regulated credit products.”
Treasury will work closely with industry and consumer groups in the coming months, and it plans to have exposure draft legislation out for consultation later in 2023, with a final bill to introduce to Parliament by the end of the year.
