Under this option the existing BNPL Industry Code would be expanded to introduce more robust requirements for signatories and the requirement for providers to undertake an affordability test.

The key points of the regulation proposed in this option include:

• amending the Credit Act to impose specific obligations for BNPL providers to conduct an affordability test (ie, checking that a BNPL product is not unaffordable for a person before offering the product to them). Treasury has suggested that the test will be proportionate to the overall value of credit being provided – for example, providers may use a credit score to determine the person’s credit risk but may need to consider income and expense information where a person is identified as a “risky borrower”. Treasury is not proposing to include requirements to verify a customer’s financial situation or check if the provision of credit aligns with the person’s needs and objectives;
• BNPL providers would not be required to hold and maintain an Australian credit licence; and
• there would be further consultation between industry and government to strengthen the BNPL Industry Code to address issues of concern such as disclosure, dispute resolution, fees, refund and chargeback processes, advertising and marketing, mitigating the risks associated with domestic violence, scams and financial abuse, and ensuring compliance controls are adequate.

The BNPL Consultation Paper also suggests that the BNPL Industry Code could be enforceable by ASIC, subject to the industry body’s application and ASIC’s approval, and be made mandatory for all BNPL providers. The revised BNPL Industry Code would also supplement but not override the bespoke affordability checks that would be specified in the Credit Act.

Under this option, BNPL providers would be required to hold an Australian credit licence or be otherwise authorised. BNPL providers would need to comply with most general obligations of credit licensees, including complying with a reduced set of responsible lending-like obligations to confirm that BNPL credit is not unsuitable for a person (and scaled to the level of risk of the BNPL credit).

The key points of the regulation proposed in this option include:

• BNPL providers would be required to undertake a credit assessment that BNPL is not unsuitable for a consumer but may not need to verify financial documentation or check that BNPL credit aligns with the person’s needs and objectives;
• BNPL providers would be prohibited from increasing spending limits without customer instructions;
• participation in the existing credit reporting framework would remain voluntary, unless the BNPL is a big bank;
• fee caps for charges relating to missed or late payments would be required, combined with additional warnings and disclosure requirements; and
• merchants would not need to be an authorised credit representative of a BNPL provider.

The above legislative amendments would be supplemented by a strengthened BNPL Industry Code, with parts of the code being enforceable by ASIC (subject to ASIC’s approval).

This option would treat BNPL similarly to other credit products under the Credit Act and requires BNPL providers to obtain an Australian credit licence and step fully into the regulatory regime for credit providers.

The key points of the regulation proposed in this option include:

• BNPL providers would need to either hold an Australian credit licence or be a credit representative of a credit licensee, subject to all relevant obligations under the Credit Act including responsible lending (ie, confirming that BNPL credit is not unsuitable for a person), compensation and dispute resolution arrangements;
• a requirement that consumers be able to set their own spending limit and a prohibition on increasing this without permission;
• fee caps for missed or late payments would be applied, combined with disclosure requirements; and
• improved accessibility to the credit reporting regime by BNPL providers to share and receive credit information (eg, repayment history information and hardship information) due to such BNPL providers being credit licensees. Note, mandatory comprehensive credit reporting would only be required where a BNPL provider is a big bank.

This option also contemplates revisions to the BNPL Industry Code address issues not considered in the scope of the Credit Act, such as industry standards, refund and chargeback processes and providing BNPL providers with information on identifying vulnerable customer situations (eg, domestic violence and financial abuse).