From 10 June 2025, the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 (BNPL Act) will amend the law so that the National Consumer Credit Protection Act 2009 (NCCP Act) and National Consumer Credit Protection Regulations 2010 (NCCP Regulations) apply to buy now pay later contracts (BNPL Contracts). Importantly, these changes apply to all BNPL Contracts entered into before, on or after the commencement of the new laws.
Earlier this month, the Australian Securities and Investments Commission (ASIC) published Regulatory Guide 281 (RG 281), which provides regulatory guidance relevant to the provision of BNPL Contracts (including low cost credit contracts (LCCCs), which are a type of BNPL Contract). RG 281 covers important topics for industry participants such as the application of the new modified responsible lending obligations, the total amount of fees and charges that may be payable under an LCCC (Fee Caps) and prescribed contractual requirements and policies relevant only to BNPL Contracts.
Practical implications for industry participants
Ahead of the 10 June 2025 commencement date, BNPL providers must, among other things:
Apply for an Australian Credit Licence, and have ASIC accept the application for lodgement.
If opting into the modified responsible lending obligations, prepare a written election to that effect and a written unsuitability assessment policy.
Update all contracts and disclosures to comply with the NCCP Act as modified by the BNPL Act.
For LCCC providers, review and update internal systems and processes to ensure compliance with the Fee Caps and modified responsible lending obligations.
Background
BNPL arrangements often offer consumers a cheaper and easier alternative to more traditional forms of credit, such as credit cards, personal loans and small amount credit contracts.
These products have traditionally been structured as unregulated credit, because:
there is no charge made for providing the credit (although there may be fees or charges for a breach of contract); or
there is only a limited account charge payable for the continuing credit contract; or
the credit fits into another exemption from being regulated credit.
However, concerns for Australian consumers regarding unaffordable lending practices, unsatisfactory complaint resolution and hardship assistance, excessive late payment fees and a lack of transparency in the context of product disclosures and warnings are said to have justified regulatory intervention.
ASIC Commissioner Alan Kirkland said: “These reforms are an important step to improve protection for Australian consumers who use buy now pay later products.”
Read our previous article regarding the regulation of BNPL products under the NCCP Act.
Regulatory Guide 281 – key concepts addressed in the guidance
To assist credit providers transition into the new regulatory framework, ASIC has provided guidance with respect to the operation of the new regime.
Regulated contracts
To be a BNPL Contract, the credit contract must be part of a BNPL arrangement, whereby:
a merchant supplies goods or services to a consumer
a third person (the BNPL provider) pays the merchant, directly or indirectly, some or all the price for that supply of goods or services
there is a contract between the consumer and the BNPL provider to provide credit to the consumer in connection with that supply of goods and services.
The BNPL provider may pay for the goods or services indirectly, such as through a third-party payment service provider or card scheme.
The regime applies to all LCCCs that were entered into before (pre-commencement contracts), on, or after, 10 June 2025. Notably, consumers may make a hardship application or complaint under internal and external dispute resolution processes for pre-commencement contracts, however, credit providers do not have to comply with responsible lending obligations for pre-commencement contracts, unless the credit limit of a pre-commencement contract is increased on or after the commencement of the BNPL Act.
Fee Caps will also apply to pre-commencement contracts that meet the definition of a LCCC, meaning that credit providers must vary these contracts to comply with the maximum amount of fees and charges that may be payable under an LCCC before relying on the modified responsible obligations to advance further credit under these contracts.
Modified responsible lending obligations
The existing “standard responsible lending obligations” require credit providers to, among other things:
make reasonable inquiries about the consumer’s requirements and objectives
make reasonable inquiries about the consumer’s financial situation
take reasonable steps to verify a consumer’s financial situation.
Credit providers must assess that the credit contract is not unsuitable before they enter into a credit contract with a consumer. A loan will be unsuitable if, at the time of the assessment, it is likely that:
the consumer will be unable to repay the loan or will only be able to repay the loan with substantial hardship; or
the loan will not meet the consumer’s requirements or objectives.
Under the BNPL Act, the responsible lending obligations have been modified to be less onerous than the standard responsible lending obligations for LCCCs. The modified responsible lending framework is optional – although if a credit provider of a LCCC does not opt-in to the modified responsible lending framework, it must comply with the standard responsible lending obligations.
The key modifications include:
Unsuitability assessment policies: credit providers who elect to comply with the modified responsible lending framework are required to have a written policy which sets out how the provider will comply with:
Its obligation under s 128 of the NCCP Act to assess whether a contract or credit limit increase is unsuitable.
The requirement under s 131 of the NCCP Act to assess a contract as being unsuitable in certain circumstances.
Longer time period: the time period for making reasonable inquiries, verifying a customer’s financial situation and assessing whether the credit contract is unsuitable is extended from 90 days to 120 days.
Mandatory inquiries: the scope and intensity of the reasonable inquiries that must be undertaken is lowered, although it is mandatory that reasonable inquiries are made about the consumer’s:
income, expenditure and other credit products; and
credit history.
Reasonable verification: when determining what constitutes reasonable inquiries and reasonable steps to verify a consumer’s financial situation, the credit provider must have regard to several mandatory factors. These factors are intended to lower the scope and intensity of reasonable verification and include:
The nature of the LCCC (including the terms of the contract and the type and amount of credit provided under that contract).
If there is a target market determination, the nature of the target market as described in that determination.
Whether the consumer is financially vulnerable.
What procedures are in place to reduce the risk of the credit provider providing credit to a consumer on terms that are not affordable for the consumer and to mitigate the harm that may be caused if credit is provided on terms that are not affordable to the consumer.
Financial vulnerability: RG 281 provides additional guidance on indicators of financial vulnerability, which ASIC considers to include reliance on Centrelink payments, repeated late payment fees across credit products, a credit history showing substantial debt, or signs of family violence or financial abuse.
Rebuttable presumption: there is a rebuttable presumption that contracts with a credit limit of less than or equal to $2,000 will meet the consumer’s requirements and objectives, unless there is evidence to the contrary. Importantly, the presumption only applies to the assessment of a consumer’s requirements and objectives and not the obligation to make inquiries.
Negative credit checks: if the total value of all LCCCs the consumer has with the credit provider (including the LCCC being applied for) is less than $2,000, the credit provider must conduct a ‘negative credit check’.
Partial credit checks: if the total value of all LCCCs the consumer has with the credit provider (including the LCCC being applied for) exceeds $2,000, the credit provider must seek to obtain a ‘partial credit check’.
Fee caps: the total amount of fees and charges that may be payable under a LCCC and any other LCCC between the credit provider and a consumer in a 12-month fee period cannot exceed the Fee Caps imposed by regulation 69G of the NCCP Regulations. BNPL Contracts that do not comply with the Fee Caps are still regulated under the NCCP Act, but without the modifications afforded to LCCCs.
Electing to comply with the modified responsible lending obligations
Providers of BNPL contracts must elect in writing to opt-into the modified responsible lending obligations. If the election is revoked or no election is made, then the standard responsible lending obligations must be complied with.
BNPL providers who elect to comply with the modified responsible lending obligations should update their responsible lending policy to reflect the additional obligations applicable to LCCCs.
Other modified obligations for LCCCs
In addition to the modified responsible lending obligations, the regime introduces other modified obligations for LCCCs:
Electronic disclosure: Any material required to be given to a person in relation to a LCCC (for example, credit contract or information statement) can be made available electronically, provided consumers are notified and can easily access, save and print the materials.
Comparison rates: Advertisements for LCCCs do not need to include comparison interest rates.
Default notices: The first time a customer defaults under a credit contract, they must be provided with a default notice containing prescribed information, including the number for the National Debt Helpline. For LCCCs, defaults are not limited to direct debit defaults as for other regulated credit products but can be any other kind of default (for example, defaults on the New Payments Platform).
Contract requirements: Credit contracts for LCCC products must specify the frequency, amount and number of repayments (including when the first repayment must be made) and must state if no interest is payable.
Other obligations: Where a LCCC meets the definition of another type of credit contract other than a small amount credit contract or medium amount credit contract (for example, a continuing credit contract or credit card contract), the credit provider must comply with any additional obligations that apply to those credit contracts.