“Loopholes” that allowed Australia’s $18 billion Buy Now Pay Later sector to explode with little regulation will be closed under an Albanese government plan to treat companies like Afterpay as credit providers.
Assistant Treasurer and Financial Services minister Stephen Jones on Tuesday confirmed the government will introduce legislation this year requiring BNPL providers to hold an Australian Credit Licence and abide by the Credit Code.
It will subject the digital debt providers to product disclosure, dispute resolution and hardship assistance requirements under the Credit Act.
New regulations will require the firms to seek information about consumers and follow responsible lending obligations, after growing concerns about the industry.
BNPL transactions accounted for the equivalent of around two per cent of Australian card purchases during the 2022 financial year. The Australian Finance Industry Association has estimated that BNPL adds as much as $18.4 billion to GDP and supports more than 120,000 jobs.
But financial counsellors warn “loopholes” are being exploited by the companies as Australians are increasingly using BNPL to pay for everyday essentials.
A 2022 survey by consumer advocates found that one in four BNPL customers use the platforms for essential products or services.
BNPL providers have largely escaped rules designed to protect consumers from traditional credit products because their new low cost and short term credit model makes them eligible for exemptions.
It means the companies have mostly operated without specific regulation or, since 2021, under an unenforceable industry code that has no civil or criminal penalties for breaches.
Treasury begun exploring ways to regulate the industry in response to growing concerns in 2022.
“The key concerns that have been identified relate to unaffordable lending practices, unsatisfactory complaint resolution and hardship assistance, the charging of excessive late payment fees, and a lack of transparency surrounding product disclosures and warnings,” exposure draft legislation published on Tuesday said.
Consultation on the draft legislation will be open to submissions until April 9, ahead of a final bill being introduced by the government later this year.
