BNPL Regulation Takes the Final Step in Australia
By: Daniel Knight, Ben Kneebush and Madison Jeffreys
On 29 November 2024, the Australian Parliament passed the long-awaited Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 (Bill).
The passing of the Bill means Buy Now, Pay Later (BNPL) providers will be covered by the National Consumer Credit Protection Act 2020 (Credit Act) like traditional credit providers.
As noted in our previous post regarding the exposure draft of the Bill, a new concept of ‘low cost credit contract’ (LCCC) has been introduced into the Credit Act.
The Bill defines LCCCs by reference to a number of factors:
- A type of credit to which the Credit Code applies (i.e. consumer credit);
- The period provided under the contract (to be defined by regulations);
- The fees or charges (to be defined by regulations); and
- The type of contract – for now, ‘BNPL contracts’ are the only type of contract prescribed to be a LCCC (with other classes of products to be prescribed in the future).
Are You Providing a ‘BNPL Contract’?
BNPL contracts will apply only to credit arrangements where the third person is the BNPL provider that provides the credit. Where the credit is provided by the merchant, the arrangement would not be captured as a LCCC under the Credit Act. Such arrangements could however still be regulated under the Credit Act, if they meet the criteria for other ‘credit activities’.
The Bill also makes it clear that LCCC providers (and therefore BNPL providers) will be captured by the anti-avoidance provisions in the Credit Act. BNPL providers will therefore be prevented from structuring their activities to avoid regulation. Failure to comply with these anti-avoidance provisions will incur penalties.
What Obligations Will BNPL Providers Have?
BNPL providers will now need to ensure they comply with the following obligations:
- Hold an Australian Credit Licence and comply with the associated obligations (e.g. mandatory disclosures);
- Become a member of the Australian Financial Complaints Authority;
- Implement an ASIC approved based dispute resolution procedure; and
- Abide by modified responsible lending obligations, which have been tailored to the lower risk posed by smaller loans.
When do the Amendments Come Into Effect?
Although the Bill is yet to receive Royal Assent, BNPL providers will then only have a six-month countdown before the new regulatory framework applies.
We urge BNPL providers to be proactive in obtaining their Australian Credit Licences to ensure they are covered by the transitional arrangements of the Bill which allow providers to continue providing BNPL credit contracts if they have applied for, or applied to vary, an Australian Credit Licence before the commencement of the reforms.