On 21 November 2022, Treasury released its consultation paper on a proposed regulatory framework for buy now, pay later (BNPL) providers in Australia (BNPL Consultation Paper). The BNPL Consultation Paper follows a series of targeted consultations by Treasury to identify the impacts of BNPL, particularly those contributing to what Treasury considers to be poor consumer outcomes. Such outcomes include unaffordable lending practices, poor complaints handling processes, excessive or disproportionate consumer fees and charges, poor disclosure, unsolicited selling practices and non-participation in the credit reporting framework.
Current regulatory framework for BNPL
Since 1 March 2021, BNPL participants have been able to voluntarily subscribe to and be accredited under the Australian Financial Industry Association’s (AFIA) BNPL Code of Practice (BNPL Industry Code), an industry code developed in conjunction with the BNPL industry and interested stakeholders. The BNPL Industry Code is not law, nor is compliance with the code currently enforceable by regulators like the Australian Securities and Investments Commission (ASIC). Similarly, the BNPL industry is not subject to regulation under the National Consumer Credit Protection Act 2009 (Cth) (Credit Act), although BNPL providers may be subject to misleading and deceptive conduct provisions under the Australian Securities and Investment Commission Act 2001 (Cth) and the Australian Consumer Law, design and distribution obligations under the Corporations Act 2001 (Cth), ASIC’s product intervention powers and obligations under the Anti Money Laundering and Counter Terrorism Financing Act 2006 (Cth).
Options for new regulatory framework
The BNPL Consultation Paper is seeking feedback on three potential regulatory options, with varying degrees of regulatory intervention:
In proposing each of the options, Treasury is seeking to leverage the existing regulatory framework to develop a regime that improves consumer protections and dissuades avoidance of regulation while being flexible enough to enable new participants to enter the BNPL industry. Treasury has noted it is open to considering alternative regulatory options beyond the three proposed in the BNPL Consultation Paper.
The BNPL Consultation Paper is silent as to the commissioned Independent Review of the BNPL Industry Code being undertaken by Promontory Australia, which includes in the Terms of Reference to compare provisions of the Industry Code against the Credit Act to identify regulatory gaps. Promontory is due to provide their final report by 1 March 2023.
Supplementary reform proposals
As well as the three options above, Treasury has suggested that supplementary reform may be considered, via the following measures:
improving the financial capability of BNPL consumers by publishing additional resources to educate consumers on BNPL products;
reviewing the credit reporting framework to consider how BNPL providers may better report credit information of their consumers;
enhancing ASIC’s role in regulating the BNPL industry where BNPL providers are formally regulated under the Credit Act, which may cause BNPL providers to be subject to a levy to allow ASIC to recover the cost of regulating the industry; and
considering amendments to surcharging rules that prevent merchants from passing on the cost of BNPL to consumers to improve competition and efficiency in the Australian consumer credit market.
What next for BNPL providers
Irrespective of the option (or alternative option) chosen for implementation, we expect the outcome to be a significant factor in resolving Treasury’s concerns around consumer protection in the BNPL industry as well as providing clarity for BNPL providers after a number of years of public debate on the substance of regulation applicable to BNPL providers.
The consultation period is open until 23 December 2022. If you would like to discuss the options or prepare a submission to Treasury, please contact our Fintech + Web3 team .
KNOWLEDGE ARTICLES YOU MAY BE INTERESTED IN:
ASIC releases industry update: Buy now, pay later, regulate soon
Treasury consults on proposed reforms to financial product advice regulatory framework