Buy now, pay later will be regulated under credit laws, meaning the likes of Afterpay and Zip will need to run credit checks on potential customers, under responsible lending obligations.
This comes six months after Treasury released three options on how to police the fast-growing BNPL sector.
The government has chosen to insert the BNPL sector into the Credit Act, and will now require lenders to hold an Australian credit licence. The company will now be required to ensure a BNPL offering “is not unsuitable” for a potential customer.
This is different to a full credit check, the likes of which bankers are required to carry out on credit card and personal loan applicants — which was one of the other options the Treasury floated.
The third, and least restrictive, of the options was basically self-regulation for the sector.
By choosing the middle path, the government has allowed more flexibility between the differing loan amounts on offer in the sector.
The BNPL sector is currently exempt from the Credit Act, as it doesn’t charge interest on loans.
There will now be caps on fees for missed payments, new warning systems and disclosures, players will need to have internal and third-party dispute resolution systems, and must offer hardship provisions.
BNPL companies must now comply with ASIC’s “design and distribution obligations”, which limits targeted advertising. They will also be prohibited from lifting a customer’s credit limit without making explicit the reasoning behind the credit boost.
Financial Services Minister Stephen Jones will announce the new measures in speech today at the Responsible Lending and Borrowing Summit in Sydney.
“I think we have struck the right balance between competition and consumer protection,” Jones said, of the decision.
“I think it will be welcomed by consumer groups and industry at large, to create a base level of regulation that lifts the standard and ensures innovation can occur in a safe environment.
“BNPL is a credit product and is in competition with other forms of credit. I am a fan of the innovation and competition it has brought, but they have to meet a set of standards imposed on other credit products.”
Jones said the regulations on BNPL offerings will be “scaled to the risk”.
“Not all buy now, pay later products are the same,” he said, “some are offering $15,000 to $20,000 loans for niche products like solar, which is very different to $150 for a pair of jeans.”