This move will see the Federal Government adopt one of the three regulatory options put forward by the Treasury following a paper published in November 2022. 

The option chosen by the Federal Government will see an amendment to the existing Credit Act, requiring buy now, pay later (BNPL) providers to hold an Australian Credit Licence, or be a representative of a licensee. 

Under the chosen option, BNPL providers would be required to meet responsible lending obligations as laid out by ASIC to determine whether credit is suitable for a consumer.

Platforms are prohibited from increasing a consumer’s spending limit without explicit instructions from the consumer.

Treasurer Jim Chalmers said the time is now right to legislate and regulate buy now, pay later.

“These are very popular products, something like seven million accounts in Australia,” Dr Chalmers said.

“They have a legitimate role to play in our financial system, but we need to make sure that we are managing the harm and managing the risks which often fall disproportionately on the people who are already the most vulnerable.” 

Peter Gray, co-founder and Chief Operating Officer of buy now, pay later provider Zip, noted Zip supports the Minister's decision to regulate BNPL under Option 2.

“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,” Mr Gray said. 

“With BNPL now well and truly established in Australia this will provide clarity and consistency across the sector, deliver confidence to stakeholders and build on the already high levels of trust we have with our customers."

It remains to be seen whether regulation may force more BNPL players to exit the market, with 2023 already claiming the scalps of Affirm, LatitudePay and OpenPay.

The draft legislation for BNPL regulation will be out for consultation later this year, with the final bill on BNPL regulation to be introduced before parliament by year’s end. 

Appetite for invisible debt continues to grow

New research from open banking provider Frollo has revealed Aussies are continuing to turn to BNPL and pay advance services in the face of cost of living pressures. 

Across 31,372 Frollo users, in the first quarter of 2023 32% of users accessed BNPL services, marking an increase of 7% from the same period in 2022 with an increase in spend of 9% to $420 per month. 

Further, the average spend on pay advance repayments and fees has increased by 60% to $749 per month in the first quarter of 2023, compared to the same period in 2022. 

Frollo Chief Commercial Officer Simon Docherty said invisible debts like BNPL and pay advance pose a higher risk for both consumers and lenders.

“Since these debts are largely unregulated and unregistered, consumers are less protected,” Mr Docherty said. 

Speaking to Savings.com.au, payments expert Grant Halverson said it remains unclear if new regulation covers ‘copycat’ apps using the same legal loophole such as salary advance loans and cash advances. 

“Salary advance fintechs now process over $4 billion in loans with this amount continuing to grow,” Mr Halverson said. 

“[These] apps have no legal requirement to comply with credit laws or offer hardship programs nor register with a dispute resolution scheme, like the Australian Financial Complaints Authority.”


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