Australian government set to regulate BNPL industry
The Australian government has announced that it will be regulating the buy now, pay later (BNPL) industry, treating BNPL as credit products.
Australia set to regulate the BNPL industry
The decision was announced by Australian financial services minister Stephen Jones in a speech at the Responsible Borrowing and Lending Summit held this week in Sydney, Australia.
Jones says the government arrived at the conclusion following an extensive consultation on options to regulate BNPL, which kicked off late last year.
The review raised “significant” concerns in the BNPL industry, including “unacceptable levels” of unaffordable lending, largely concentrated among low‑income borrowers, including those on social security. Additionally, it highlighted concerns about the quality of dispute resolution and hardship processes, excessive fees, poor disclosure practices, problematic marketing practices, and unsolicited credit increases.
As per the government’s plan, BNPL providers will now be regulated under the Credit Act, and will be required to hold Australian credit licences, meet statutory hardship and resolution requirements, and comply with minimum standards of conduct.
The government plans to put out its draft legislation for industry consultation later in the year, with an aim to introduce the final bill in the parliament by the end of 2023.
The risks of BNPL
The review suggests there are around seven million BNPL accounts in Australia and that while it comes with its own set of benefits, including generating new revenue for merchants and being a low-cost alternative to traditional credit products for consumers, BNPL also poses “new and growing dangers”.
“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,” Jones says, suggesting that some people may also be “weaponising” BNPL products in abusive relationships.
Jones also cites a study conducted by Good Shepherd in 2022, where it found that around 73% of financial counsellors said clients had missed essential payments, or cut back on essentials, or actually gone without essentials, in order to service BNPL debt.
Last year, the Australian Securities and Investments Commission (ASIC) also found that 19% of BNPL consumers showed two or more indicators of financial stress, such as cutting back on essential items or missing payments on other bills.
“These accounts tell us that doing nothing is not an option,” Jones says. “BNPL looks like credit, it acts like credit, it carries the risks of credit.”
“Our plan prevents lending to those who cannot afford it, without stopping safe, prudent BNPL use.”
