Buy now, pay later (BNPL) products will finally be regulated after Federal Parliament passed laws relating to the burgeoning sector late last week.
The Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 comes after years of campaigns, investigations and advocacy by CHOICE and other consumer groups to close the loopholes that allowed BNPL to operate outside of the national credit laws.
"The new laws will greatly reduce the risk of people being signed up to unaffordable BNPL loans that leave them worse off. It also ensures customers can take disputes with BNPL providers to the financial complaints body and have their complaint fairly heard," says Ashley de Silva, CHOICE CEO.
Consumer groups have been calling for regulation of buy now, pay later for years. We congratulate the government on passing these very important laws
CHOICE CEO Ashley de Silva
"Consumer groups have been calling for regulation of buy now, pay later for years. We congratulate the government on passing these very important laws that will help make BNPL loans safer and fairer."
While passing the legislation, Financial Services Minister Stephen Jones said the reforms would protect Australians from falling into debt spirals.
"These new laws strike the right balance between giving Australians access to innovative products, and ensuring they are protected from these products' potential harm," he said.
What's in the bill
The new laws will require all BNPL providers to hold an Australian Credit Licence and comply with the National Consumer Credit Protection Act 2009.
That includes the obligation for providers to be members of the Australian Financial Complaints Authority, which provides an independent dispute resolution mechanism for financial complaints.
Advocates didn't get everything they wanted in the reforms, however.
For example, BNPL providers will have to ask people about their expenses and income to assess whether they can afford the loan, but they won't be required to verify that information.
A long campaign
CHOICE has been writing about, investigating, and campaigning and advocating on the issue of the unregulated BNPL industry and the loopholes exploited in the legislation since 2021.
We gave BNPL provider Humm a Shonky Award in 2021 for selling customers into up to $30,000 of debt without properly assessing their ability to repay it.
In 2022 we brought together a global alliance of consumer groups from nine different countries to call for urgent action to regulate the BNPL sector.
Back home, 22 organisations formed the Close Lending Loopholes Coalition and over 23,500 of you joined the campaign in some form.
While we welcome this change, we are still concerned about what this will mean for accounts under two thousand dollars
Domenique Meyrick, Financial Counselling Australia
CHOICE has consistently joined forces with a wide range of consumer organisations and financial counsellors to express concerns about the way vulnerable consumers were falling into BNPL debts and the lack of options, redress and regulation to help when they did.
Domenique Meyrick, Co-CEO of Financial Counselling Australia, welcomed the legislation, but said concerns remain for small-amount BNPL accounts.
"Financial counsellors see the harm BNPL products can cause and these new laws will go a long way to protect consumers from getting into unnecessary debt," she says.
"While we welcome this change, we are still concerned about what this will mean for accounts under two thousand dollars. Many people have multiple, small amount accounts and these are getting some into debt spirals."
Regulating BNPL products couldn't be more important in a cost-of-living crisis
Stephanie Tonkin, Consumer Action Law Centre
Stephanie Tonkin, CEO of Consumer Action Law Centre, says the proof about whether these laws are a success will come in the months and years ahead.
"Regulating BNPL products couldn't be more important in a cost-of-living crisis. We observe BNPL being used to afford essentials like food, and easy access to multiple BNPL accounts has intensified the 'money juggle' for the many families that we help," she says.
"There are compromises in the laws, so we will be monitoring the impacts on consumers to understand how effective these new guardrails will be in stopping the people we help falling into unaffordable debt spirals."
Stock images: Getty, unless otherwise stated.
