Australia’s government is set to introduce legislation that mandates basic credit checks for new customers of Buy Now, Pay Later (BNPL) providers. The new rules aim to bolster consumer protection in a rapidly growing market dominated by companies like Afterpay, Klarna, and Zip.
Rising Popularity and the Need for Regulation
BNPL products have seen a surge in adoption in Australia, with around 40% of people using them in the first half of the year, according to a Finder survey. Despite their popularity, most BNPL services currently fall outside the scope of the National Consumer Credit Act.
New Legislative Measures
To address this gap, the government plans to amend the Act, requiring BNPL providers to hold a credit license and comply with existing laws on credit checks. Additionally, the legislation will introduce a new category of ‘low-cost credit’ under the Act to reflect the relatively lower risk and cost of BNPL products compared to other regulated forms of credit.
This approach contrasts with the United States, where the Consumer Financial Protection Bureau (CFPB) recently ruled that BNPL lenders should be treated similarly to credit card issuers, prompting pushback from some providers, including Klarna.
Government and Industry Responses
Assistant Treasurer and Minister for Financial Services, Stephen Jones MP, emphasized the balanced nature of the new regulations: “We want Australians to enjoy the benefits of BNPL while ensuring strong consumer protections are in place. If it looks and acts like credit, then it should be regulated as such.”
Zip ANZ CEO Peter Gray welcomed the changes, stating: “Zip has been a longstanding advocate for fit-for-purpose regulation that supports strong customer outcomes. We welcome the Federal Government’s announcement and the introduction of these standards, which are aligned with Zip’s existing practices.”
