BNPL is now a new category of 'low cost credit' under the National Consumer Credit Act after legislation introduced by the Albanese Government last year kicked in on 10 June.
Providers now need to comply with responsible lending rules, and must join the Australian Financial Complaints Authority (AFCA) if they aren't already members.
It also means providers will need to offer hardship support, as well as provide clear information to customers on what fees and charges could apply.
"We want Australians to enjoy the benefits of BNPL while knowing there are strong consumer protections in place," Assistant Treasurer Stephen Jones said last year.
"If it looks and acts like credit, then it should be regulated as such."
What BNPL regulation means for customers
Could be harder to get approved
BNPL providers are now required to practice responsible lending, just like any other lender.
The legislation establishes BNPL as a new type lower risk credit product, so it still won't be as difficult as applying for a personal loan or a credit card.
Nonetheless, the new regulations may mean BNPL providers ask for more information about a customer's finances before opening a line of credit.
This might include income, expenses and liabilities (other outstanding debts), which could mean a greater chance financially stressed customers are rejected.
A pervading criticism of BNPL is that its customers are more likely to be financially challenged.
However, Experian reports that Gen Z Afterpay customers have an average credit score of 685.
Any score above 625 is deemed 'Good' by Experian.
May hurt your credit score
When you apply to become a customer with the likes of Afterpay or Klarna, the provider is now required to check your credit before approving you.
BNPL providers are also required to perform a hard credit score check (meaning it is recorded on your credit report) when you apply to increase your credit limit.
Previously Afterpay only performed a soft credit check, not recorded on your credit report.
According to a report by Experian, a single credit check on a single product won't impact an applicant's credit score in isolation.
If you're firing off a number of BNPL applications though, or you've got a large credit limit, it's possible your credit score will take a hit.
Can positive conduct improve your credit score?
If your BNPL provider participates in Comprehensive Credit Reporting (CCR), consistently making your repayments on time can help improve your credit score.
For now though CCR isn't compulsory - Afterpay for example does not share repayment history data with the credit reporting bureaus, while Klarna does.
Payday lenders next in line?
Consumer advocates across Australia have welcomed the regulation of BNPL that will hopefully help prevent vulnerable people 'Afterpaying' their way into significant debt.
Next on the agenda for people like Consumer Action Law Centre CEO Stephanie Tonkin are 'Wage Advance' products.
Similar to Payday loans, wage advances are short term loans, usually not more than $5,000, that you can get your money very quickly, often within minutes of applying.
Wagepay for example offers up to 25% of someone's regular wage for new customers (more for repeat customers) up to a maximum of $3,000, without performing a credit check.
It charges a flat 5% fee and an interest rate of 24% p.a.
"We hear from people who call our frontlines with multiple wage advance contracts - sometimes their whole income is committed to repaying these loans," Ms Tonkin said.
"These products encourage people to borrow against their future income to meet their essential living needs, and this can cause serious harm when there’s no extra money in the next pay cycle, only greater debt.
"We want wage advance brought under the Credit Act as a priority to give people the same consumer protections as BNPL."
Picture from appshunter.io on Unsplash
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