Announcement date
22 May 2023
Link to announcement
https://ministers.treasury.gov.au/ministers/stephen-jones-2022/speeches/address-responsible-lending-borrowing-summit
Problem being addressed
Concerns have been raised by consumer groups, regulators and academics – supported by various studies and surveys – that some Buy Now, Pay Later (BNPL) borrowers are experiencing financial stress after being extended credit they cannot afford. Other possible consumer harms include those arising from poor complaint handling processes, cases of disproportionate fees, undesirable marketing practices, financial abuse and poor or inconsistent pre-contractual product disclosures. BNPL products are currently not regulated under the National Consumer Credit Protection Act 2009 (Credit Act), although some other consumer protection laws apply. Industry self-regulation has been only partially effective due to incomplete coverage of the industry Code of Practice, a lack of rigour in some industry commitments, insufficient compliance with some commitments and a lack of mechanisms to penalise or exclude bad actors.
Proposal
Bring BNPL within the Credit Act’s application to apply a tailored version of the Responsible Lending Obligations (RLO) to BNPL products. This seeks to address the key issue of unaffordable lending by applying the RLO framework which ensures that providers do not provide consumers with loans that are unsuitable for them, but in a way that allows for the RLO assessment to be scaled-down according to the risk of the product. Key features of the proposal include amending the Credit Act to require BNPL providers to hold an ACL, or be a representative of a licensee, with a requirement to comply with most general obligations of a licensee, including:
- Internal and external dispute resolution, hardship provisions, compensation arrangements, fee caps and marketing rules.
- The provisions could be calibrated to the level of risk of BNPL products and services. This could include exemptions from reference checking, and other obligations that do not relate to issues identified in the BNPL business practices.
Assessed Impact Analysis outcome
Good practice
Assessment comments
The analysis in the RIS is good quality overall. The RIS addresses the seven RIS questions and follows an appropriate policy development process commensurate with the significance of the problem and magnitude of the proposed intervention.
Regulatory burden
The Department of the Treasury estimates an increase in regulatory costs of $15.0 million per year, averaged over ten years.