Buy Now Pay Later (BNPL) Reforms

Buy Now Pay Later (BNPL) Reforms

The Buy Now Pay Later (BNPL) industry currently operates outside the regulatory framework of the National Consumer Credit Protection Act 2009 (Cth) (NCCPA) and the National Credit Code (Code). Consequently, BNPL providers have not been required to perform responsible lending measures or meet key disclosures of the NCCPA and Code.

Following review of the submissions received in response to its November 2022 “Regulating Buy Now, Pay Later in Australia” options paper, in March 2024, Treasury introduced a reform package for consultation to address the abovementioned deficiencies. This package consists of the Treasury Laws Amendment Bill 2024: Buy Now, Pay Later (the Bill), which will introduce a new category of credit known as ‘low-cost credit contracts’ (LCCCs) to be regulated under the Code. A LCCC, such as a BNPL credit contract, involves the provision of credit to consumers that has low upfront costs, is interest free, and generally short term.

The legislative reforms will:

include LCCCs in the regulatory scope of the NCCPA and the Code;
require LCCC providers to comply with licensing requirements under Chapter 2 of the Code, including the requirements to hold and maintain an Australian Credit Licence;
modify the existing Responsible Lending Obligations (RLO) framework to introduce an opt-in RLO regime which scales with the level of consumer risk;
establish safeguards to prevent credit providers from structuring their businesses to evade regulation;
exclude LCCCs from certain credit contract definitions e.g. small amount credit contract; and
expand default notice requirements under the Credit Code to cover LCCCs.

Fees and Charges

A key proposal is the cap on credit fees (excluding default fees and charges), namely:

a maximum of $200 in the 12-month period commencing immediately after the consumer enters into the contract; and
a maximum of $125 in any subsequent 12-month period thereafter.

Default fees will be capped at $10 per month. However, if the consumer already has or had another LCCC with the provider or its associate within the last 12 months, then no fees (including default fees) can be charged.

Opt-in RLO Framework

Under the opt-in RLO framework, LCCC licensees are required to establish and regularly review a documented policy for assessing unsuitability, detailing their criteria for determining contract suitability. They must also prepare and perform routine evaluations of their unsuitability assessment policy.

Additionally, the LCCC provider can take into account, when considering a consumer’s financial circumstances, various risk factors (relevant matters) in determining what is reasonable. These include:

the nature of the product;
the target market (including potential financially vulnerable persons);
whether the consumer belongs to a class of persons whose members are likely to be financially vulnerable;
whether the licensee has implemented policies to minimise the risk of providing credit on terms beyond the consumer’s affordability;
whether the licensee has established policies to alleviate potential harm to consumers if credit is provided on terms beyond their affordability; and
any other matters prescribed by the Regulations.

Despite the introduction of the Opt-in RLO framework, LCCC providers retain the option to instead adhere to the existing RLO framework set out in the credit legislation.

Credit Reporting

The Regulations stipulate that a LCCC licensee must endeavour to acquire certain information from a credit reporting body regarding the financial status of a consumer who is, or will become, a debtor under an LCCC valued at less than $2,000, namely:

identification information;
details of any information requests made concerning the individual;
default information as per subsection 6Q(1) or (2) of the Privacy Act;
payment information about the individual;
personal insolvency information about the individual;
publicly available information about the individual covered under paragraph 6N(k) of the Privacy Act;
new arrangement information about the individual; and
court proceedings information about the individual;

If the LCCC’s value is $2000 or greater, the LCCC licensee must seek to obtain, in addition to the information identified above, consumer credit liability information (within the meaning of the Privacy Act) relating to the individual.

Regardless of the value of the LCCC, the licensee is also required to seek to obtain information about the income of the consumer; the consumer’s expenditure; and the details of any other LCCCs, small amount credit contracts, or consumer leases that the consumer has entered into.

Conclusion

The law regarding credit contracts can be complex and is frequently the subject of legal proceedings. If you need assistance in navigating the new or existing requirements under the NCCPA and Code, please contact us.

Nicholson Ryan delivers expert advice across all areas of corporate and commercial law. If you have any queries as to the matters addressed in this article, please contact us at (03) 9640 0400 or email us at admin@nrlawyers.com.au

This article is prepared by Shannon Ryan. Shannon specialises in financial services at Nicholson Ryan Lawyers and can be contacted direct on shannonr@nrlawyers.com.au.

This memorandum is intended as general information only. It does not purport to be comprehensive legal advice. Readers must seek professional advice before acting in relation to the aforementioned matters.