Regulating Buy Now, Pay Later in Australia
The Law Council of Australia is pleased to provide this submission to the Treasury in response to its November 2022 Options Paper, Regulating Buy Now, Pay Later in Australia (Options Paper). It welcomes the opportunity to comment on the future regulatory framework for buy now, pay later (BNPL) arrangements under the National Consumer Credit Protection Act 2009 (Cth) (Credit Act).
While the BNPL industry provides consumers with increased choice and access to credit, the Law Council is of the strong view that the BNPL sector is now too large and significant a force in the Australian retail market—exposing consumers to harm—for it to remain outside the consumer credit regulatory regime. As such, the Law Council commends the Government for seeking to take action to close the existing regulatory gaps, and supports the guiding principles for an approach to regulating BNPL, as proposed in the Options Paper.
The Law Council particularly notes the risk of significant detriment from financial overcommitment that arises when consumers, particularly vulnerable consumers and those experiencing financial hardship, utilise multiple BNPL providers to purchase goods and services without considering the cumulative commitments flowing from those transactions.
As such, the Law Council is supportive of reforms that balance the ability of the BNPL sector to provide consumers with low cost, low friction access to credit with the need for providers to ensure that, as is currently required when other forms of credit are provided, those products are suitable to the consumer’s needs and financial situation.
In relation to the three options proposed in the Options Paper, the Law Council does not recommend Option 1—Strengthening the Australian Finance Industry Association’s BNPL Code of Practice (Industry Code) plus an affordability test. Regrettably, due to the limited consultation timeframe, the Law Council was unable to arrive at a consensus view on whether Option 2—Limited BNPL regulation under the Credit Act, including licensing and scalable unsuitability test—or Option 3— Regulation of BNPL under the Credit Act—is most appropriate. This submission will outline the advantages and limitations of both options, serving to highlight that, while the Australian legal profession supports enhanced consumer protections within the BNPL sector, there are differing views on the preferred degree of regulatory intervention required and the appropriate level of risk that ought to be borne by individuals who seek to use BNPL products.
The Law Council thanks the Treasury for its consideration of these issues to date, and is eager to continue to engage with both the Treasury and Government throughout 2023 to improve the regulation of BNPL credit in Australia.
Read the full submission below.
Last Updated on 22/10/2024