Treasury has published an options paper Regulating Buy Now, Pay Later in Australia seeking views on three options that aim to ensure new and emerging credit products such as Buy Now, Pay Later (BNPL) are subject to appropriate regulation under the National Consumer Credit Protection Act 2009 (the Credit Act) that balances consumer protection while still encouraging innovation in the financial service industry.

Option 1: Strengthening the BNPL Industry Code plus an affordability test
Option 1 proposes a government-industry co-regulation regime, where the current BNPL industry Code is strengthened to address current gaps in coverage, supplemented with a bespoke affordability test legislated under the Credit Act.

Key features of this proposal include:
• Amending the Credit Act to impose BNPL specific requirements on providers to check that a BNPL product is not unaffordable for a person before offering it to them.
• No requirement to obtain and maintain an Australian Credit Licence.
• The BNPL industry would work in consultation with government to strengthen various provisions in the Industry Code relating to:
– product disclosure and warning disclosure requirements;
– access and standards of dispute resolution and hardship practices;
– excessive consumer fees and charges, including default fees;
– refund and chargeback processes;
– advertising and marketing;
– mitigating risks associated with scams, domestic violence, coercive control, and financial
abuse; and
– ensuring its compliance of these requirements are adequate.

Option 2: Limited BNPL regulation under the Credit Act, including licensing and scalable unsuitability test
This option proposes to bring BNPL within the Credit Act’s application to apply a tailored version of the Responsible Lending Obligations (RLOs) to BNPL products.

Key features of the proposal include:
• Amending the Credit Act to require BNPL providers to hold an Australian Credit Licence, or be a representative of a licensee, with a requirement to comply with most general obligations of a licensee, including Internal and external dispute resolution, hardship provisions, compensation arrangements, fee caps and marketing rules.
• This option would not require merchants who offer BNPL products to consumers to be an authorised credit representative of the BNPL provider.
• As a licensee, BNPL providers will be able to engage more meaningfully with the existing credit reporting regime under the Privacy Act 1988, including repayment history information and hardship information in accordance with the Principles of Reciprocity and Data Exchange. Participation in the comprehensive credit reporting framework would continue to be voluntary unless the provider is a big bank.
• BNPL providers would be required to assess that a BNPL credit is not unsuitable for a person, similar to the existing RLO framework, scaled to the level of risk of the BNPL product or service.
• BNPL providers would be prohibited from increasing a consumer’s spending limit without explicit
instructions from the consumer.
• Fee caps for charges relating to missed or late payments would be required, combined with additional warning and disclosure requirements.
• These legislative amendments would be supplemented by the strengthened Industry Code
similar to that as described in Option 1.

Option 3: Regulation of BNPL under the Credit Act
This option would treat BNPL products similarly to other credit products regulated under the Credit Act, and require BNPL providers to comply with regulations, such as the RLOs. Key features of the proposal include:
• Amending the Credit Act to regulate BNPL products and services. Accordingly, BNPL providers would be required to hold an Australian Credit Licence or be an authorised representative of one.
• As a licensee, BNPL providers would need to comply with all licensee obligations, including the reportable situations regime, internal and external dispute resolution, compensation arrangements, ASIC reporting obligations, as well as Credit Act requirements including information sharing, warnings, and hardship provisions.
• A requirement that BNPL providers would need to allow consumers to set their own spending limit and a prohibition from increasing a consumer’s spending limit without their permission.
• Fee caps for charges relating to missed or late payments would be applied, combined with disclosure requirements.
• BNPL providers would be better able to engage with the credit reporting regime to share and receive all credit information, including repayment history information and hardship information because they would be licensees. BNPL providers would not be captured under the mandatory Comprehensive Credit Reporting regime unless the BNPL provider is a big bank.

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