Australian Government Takes Steps to Regulate the BNPL Industry

The article written by Shruti Khairnar on May 23, 2023, at Fintech Futures states that, in a significant development, the Australian government has announced its decision to regulate the buy now, pay later (BNPL) industry, treating BNPL products as credit offerings. The announcement was made by Australian Financial Services Minister Stephen Jones during his speech at the Responsible Borrowing and Lending Summit held in Sydney this week.

The decision to regulate BNPL comes after an extensive consultation process initiated late last year. According to Jones, the review raised several concerns within the industry, including alarming levels of unaffordable lending, particularly among low-income borrowers and individuals on social security. Other issues highlighted were inadequate dispute resolution and hardship processes, excessive fees, insufficient disclosure practices, problematic marketing strategies, and unsolicited credit increases.

Under the government’s plan, BNPL providers will be brought under the Credit Act and will be required to obtain Australian credit licenses, comply with statutory hardship and resolution requirements, and adhere to minimum standards of conduct.

The government aims to release the draft legislation for industry consultation later this year, with the final bill expected to be introduced in parliament by the end of 2023.

While BNPL has its benefits, including revenue generation for merchants and an affordable alternative to traditional credit products, the review emphasized the «new and growing dangers» associated with BNPL. Jones mentioned concerns about individuals opening multiple BNPL accounts to accumulate more debt than they would be eligible for with a credit card or payday loan, potentially leading to abusive relationships. He cited a study by Good Shepherd in 2022, which revealed that 73% of financial counsellors reported their clients missing essential payments or sacrificing essential items to manage BNPL debt.

The Australian Securities and Investments Commission (ASIC) also found that 19% of BNPL consumers displayed signs of financial stress, such as cutting back on essential expenses or missing payments on other bills.

Jones concluded by stating, «Doing nothing is not an option. BNPL looks like credit, it acts like credit, it carries the risks of credit.» He assured that the government’s plan aims to prevent lending to those who cannot afford it while still allowing safe and responsible BNPL usage.

In recent years, the BNPL industry has gained significant popularity in the United States as well, with several prominent companies offering these services, such as Afterpay, Klarna, Affirm, and PayPal’s Pay in 4. It is worth noting that the BNPL landscape in the United States is dynamic, with ongoing discussions and potential regulatory developments. At the state level, individual states may have their own regulations that apply to BNPL services. For example, California enacted the California Financing Law (CFL), which regulates certain types of consumer loans, including some BNPL transactions. Other states may have similar laws or regulations that encompass BNPL activities. Given the increasing popularity of BNPL services and the concerns raised, it is possible that regulators may consider introducing more specific regulations to address the industry’s unique characteristics and risks.