The Federal Government will regulate the Buy Now, Pay Later industry

What is Buy Now Pay Later? The Federal Government unveiled its plans to add new rules for the services on Monday. Here's what they are
What is buy now pay later?

Buy now, pay later (BNPL) service providers like Zip and Afterpay will be subject to tougher requirements under new measures announced by the Federal Government on Monday.

The measures were announced by Financial Services Minister Stephen Jones in a speech delivered to the Responsible Lending and Borrowing Summit today.

BNPL products will be regulated as credit products under the Government’s plan. Laws will need to pass Parliament for this to happen.

What is Buy Now Pay Later?

BNPL is a financing option that allows you to pay for items in multiple instalments, rather than all upfront. Popular BNPL services include Afterpay, Zip, and Klarna.

An item purchased with a BNPL provider allows the consumer to buy and use the item immediately, despite having not paid the full price for it yet.

The proposal for Buy Now Pay Later

The Federal Government wants to regulate BNPL products in the same way as credit products.

Credit providers must satisfy several different legal requirements to operate in Australia. This includes obtaining an Australian credit licence and complying with responsible lending obligations. Providers must also abide by marketing restrictions and disclosure obligations.

Currently, the BNPL industry doesn’t need to meet these demands due to an “unintended regulatory gap”.

Why is regulation needed?

The Government says the BNPL industry poses risks to consumers that have until now been “unregulated and unchecked”.

They say these risks are being more acutely felt among women, First Nations people, and those on low incomes.

In his speech, Jones said: “We have also heard that some people may be weaponising BNPL products in abusive relationships – doing things like coercing their partners to take on BNPL debts or taking out BNPL debts in their partner’s name without their knowledge.”

What has the industry said?

Co-founder and Chief Operating Officer of Zip Peter Gray told ABC Radio on Monday he “absolutely” welcomed the new regulations.

“We really do applaud the Government for their choice in terms of regulation… we generally believe it provides a sensible balance between consumer protection in minimum standards, but also promoting and supporting competition and innovation which is also very important.”

Zip already has an Australian credit licence, and conducts banking affordability checks on its customers. Afterpay and Zip are among BNPL providers that have lost value on the Australian Securities Exchange this morning following the announcement.

The timeline for regulation

The Government will now draft legislation to put its proposed changes into law. A consultation period will follow.

It plans on introducing a final bill to Parliament by the end of the year.

Shadow Treasurer Angus Taylor said the Opposition would support “sensible regulation” of the BNPL industry, but would consider any future measures “once they are in front of us”.

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