Buy-now pay-later reform: what you need to know
Introduction
Buy-now pay-later (BNPL) products will now be regulated, following legislative changes to come into effect from 10 June 2025. We outline the changes and what providers of BNPL contracts need to do to comply with the new laws.
New law
The Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 (Amending Act) was passed on 10 December 2024 and introduces the regulation of buy-now pay-later (BNPL) products by amending the National Consumer Credit Protection Act 2009 (Cth) (NCCP) to extend the operation of the National Credit Code (NCC), which is Schedule 1 to the NCCP. From 10 June 2025, providers of BNPL contracts will need to hold an Australian credit licence (ACL) that authorises them to engage in credit activities as a credit provider and be a member of AFCA, subject to transitional arrangements.
In line with the above:
- Treasury has released an exposure draft of the National Consumer Credit Protection Amendment (Low Cost Credit) Regulations 2025 (Cth) (Draft Regulations); and
- ASIC has released Consultation Paper 382 and Draft Regulatory Guide 000: Low cost credit contracts, for which ASIC seeks feedback on by 7 March 2025.
Background
BNPL transactions continue to grow strongly.
According to Reserve Bank of Australia data, the value of BNPL transactions increased by around 13 per cent in 2022-23, compared with 37 per cent in 2021-22.[1] The value of BNPL transactions during the 2022-23 financial year was around $19 billion, equivalent to approximately 2 per cent of all Australian card purchases.[2]
BNPL products bring a range of benefits to both consumers and the economy, such as improved access to credit and increased business for merchants through improved consumer purchasing power. They also increase competition among credit providers, reducing the cost of some products and generating innovation in product design. However, arising from this growth has been a range of concerns. These include unaffordable lending practices, unsatisfactory complaint resolution and hardship assistance, and excessive late payment fees.[3]
Current position
BNPL contracts are currently not regulated under the NCCP because they are not caught by the meaning of ‘credit contract’. [4] This is ordinarily because no charge is or may be made for the provision of credit.[5] Alternatively, if there is such a charge, they are not regulated because the provision of the credit fits within an exemption to the provision of credit to which the NCC applies.[6] These exemptions include where the provision of the credit is ‘short term’ or where there is only an ‘account charge’ payable (that is, where the only charge that is or may be made for the provision of the credit is a periodic or other fixed charge that does not vary according to the amount of credit provided).[7]
As noted in the Explanatory Memorandum to the Amending Act, the growth of the BNPL market was not contemplated by policy makers when these exemptions were designed in 2009.[8]
For this reason, BNPL providers are currently not required to hold an ACL or comply with the obligations imposed on licence holders, such as the responsible lending obligations.
What’s changing?
The NCCP and NCC
LCCCs: A new form of regulated credit
The Amending Act amends the NCCP to extend the NCC to BNPL products by introducing a new category of regulated credit, known as ‘low-cost credit contracts’ (LCCCs).[9] The requirement that a charge be made for the provision of credit and the ‘short term’ or ‘account charge’ exemptions that currently result in BNPL contracts not being classified as ‘credit contracts’ do not apply to LCCCs. This means that LCCCs will be credit to which the NCC applies. BNPL contracts will be a class of LCCCs.[10]
A contract will be an LCCC if:
- credit is, or may be, provided under the contract; and
- the contract is:
- a BNPL contract; or
- a contract of a kind prescribed by the regulations; and
- the period during which credit is, or may be, provided under the contract is no longer than the period (if any) prescribed by the regulations; and
- the contract satisfies any requirements prescribed by the regulations that relate to fees or charges payable under the contract; and
- the contract satisfies any other requirements prescribed by the regulations.[11]
BNPL contract: is defined with reference to there being a ‘BNPL arrangement’.[12] A ‘BNPL arrangement’ is an arrangement under which a BNPL provider pays a merchant some or all of the price of goods or services supplied to a consumer and where there is a contract between the BNPL provider and the consumer for the provision of credit in relation to the supply.[13]
What is the effect of the changes to the NCCP and NCC?
LCCC providers will need to hold an ACL
The effect of LCCCs becoming a form of regulated credit is that LCCC providers will be required to hold and maintain an ACL. They will therefore need to comply with all obligations imposed on licence holders, which include general conduct[14] and responsible lending obligations.[15] The general conduct obligations include doing all things necessary to ensure that credit activities are engaged in efficiently, honestly and fairly, complying with the conditions on the ACL and being a member of AFCA.
LCCC providers will need to comply with responsible lending obligations
The new laws require LCCC providers to choose between complying with the current ‘full’ version of the responsible lending obligations or with a modified ‘scaled down’ version exclusively available for LCCCs.[16]
The Minister for Financial Services, Stephen Jones, considers the new laws ‘strike the right balance between giving Australians access to innovative products and ensuring they are protected from these products’ potential harm’.
Key differences between the standard and modified responsible lending obligations
Standard responsible lending obligations | Modified responsible lending obligations |
|---|---|
Make reasonable inquiries about the consumer A credit licensee must make reasonable inquiries about a consumer’s requirements, objectives and financial situation.[17] | A credit licensee must still make reasonable inquiries about a consumer’s requirements, objectives and financial situation.[18] However, in determining what inquiries constitute ‘reasonable inquiries’ under section 130, a licensee must have regard to the matters at section 133BXC(3). These include whether the consumer is financially vulnerable and whether the licensee has any procedures in place to reduce the risk of the licensee providing credit to a consumer on terms that are not affordable for the consumer. The Draft Regulations prescribe the inquiries that a licensee must make to satisfy its obligation to make reasonable inquiries about the consumer’s financial situation. See our discussion on this below. |
Take reasonable steps to verify the information obtained A credit licensee must take reasonable steps to verify the information obtained.[19] | A credit licensee must still take reasonable steps to verify the information obtained. However, in determining what constitutes reasonable verification, a licensee must have regard to the matters set out at section 133BXC(3). |
Assess whether the credit product or credit limit increase is ‘not unsuitable’ for the consumer Before engaging in regulated conduct under s128(a)–(ba) (for example, entering into a credit contract with a consumer or increasing the credit limit of a credit contract with a consumer), a credit licensee must assess whether a credit contract or credit limit is unsuitable.[20]
The contract must be assessed as being unsuitable if, at the time of assessment, it is likely that:
|
|
Comply with time limits when making inquiries, verifications and assessments A credit licensee must undertake reasonable inquiries, verification and the assessment within 90 days before entering into a contract or increasing the credit limit.[25] | The time period for reasonable inquiries, verification and assessment is eased, as set out in the Draft Regulations. See our discussion on this below.
|
| No equivalent provision | A credit licensee must have a written policy that sets out how it will comply with assessments of unsuitability under sections 128 and 131.[26] |
Third party hook
Interestingly, there also needs to be a third party ‘hook’ for BNPL contracts to be regulated as LCCCs.
This definition of ‘BNPL contract’ relies on there being a third party BNPL provider. The definition does not capture products that are financed directly by a merchant. For example, if a retailer such as Microsoft were to offer its own BNPL credit directly to consumers purchasing Microsoft products, this would not be caught under the definition since there is no third party BNPL provider.
What do the Draft Regulations say?
Maximum fees or charges to qualify as an LCCC
A contract will satisfy the requirements prescribed by the Draft Regulations that relate to fees or charges payable under the contract if the fees or charges that are or may be payable under the contract between the BNPL provider and the consumer, and any other LCCC between them, do not exceed the maximum amounts set out at paragraph 69G(3) of the Draft Regulations in the relevant 12-month window.
For fees or charges other than default fees or charges, these amounts are $200 for the first 12 months and $125 for each 12-month period after that. For default fees or charges, these are between $120 and $320.
If a BNPL contract does not meet the definition of a LCCC because the fees and charges payable exceed the prescribed limits, it will be regulated as a credit contract under the NCC (eg without the modifications under the LCCC regime).
Modified responsible lending obligations
- Make ‘reasonable inquiries’ about the consumer’s financial situation
Section 130(2) states that the regulations may prescribe particular inquiries or steps that must be made or taken for the purposes of section 130(1)(a), (b) or (c).
Draft Regulation 28HAD provides that when determining whether a credit licensee has made reasonable inquiries about the consumer’s financial situation, as required by section 130(1)(b) before making an assessment whether an LCCC will be unsuitable for a consumer if the contract is entered or the credit limit of the contract is increased in the period covered by the assessment, the licensee must seek to obtain from a credit reporting body several pieces of information, which include:
- identification information (within the meaning of the Privacy Act 1988 (Cth) (Privacy Act) about the individual;
- default information (within the meaning of subsection 6Q(1) or (2) of the Privacy Act about the individual; and
- payment information (within the meaning of the Privacy Act) about the individual.
Draft Regulation 28HAD also requires the licensee to seek to obtain information that it reasonably believes to be substantially correct about the following:
- the income of the consumer;
- the expenditure of the consumer; and
- any LCCCs, small amount credit contracts or consumer leases to which the consumer is currently a party.
- Time period for reasonable inquiries, verification and assessment
The Draft Regulations relax the time periods for reasonable inquiries, verification and assessment for the purposes of section 128 in relation to LCCCs. Rather than having to undertake these actions within 90 days before entering into a contract or increasing the credit limit, Draft Regulation 28HAC provides that a credit licensee has 120 days before entering the LCCC.[27]
Consultation Paper 382 and Draft ASIC Regulatory Guide
On 7 February 2025, the Australian Securities and Investments Commission (ASIC) released Consultation Paper 382 Low cost credit contracts (CP 382) and Draft Regulatory Guide 000: Low cost credit contracts (Draft RG).
CP 382 seeks feedback on the Draft RG, particularly with reference to compliance costs, effect on competition and other impacts, costs and benefits, as well as whether the guidance is generally clear.
The Draft RG explains:
- the circumstances in which the low-cost credit contract regime applies;
- the modified responsible lending obligations that credit licensees providing low-cost credit contracts can elect to comply with; and
- other modified obligations that apply to low-cost credit contracts.
Conclusion
The changes made by the Amending Act come into effect on 10 June 2025. Therefore, from that date, providers of BNPL contracts will need to hold an ACL that authorises them to engage in credit activities as a credit provider and be a member of AFCA, subject to transitional arrangements.
The transitional arrangements allow a BNPL provider to continue to provide BNPL products where, by 10 June 2025:
- they have applied for and had their application accepted by ASIC for the appropriate ACL or variation of their ACL (that is, the application has been lodged with ASIC in the approved form for ASIC to consider but ASIC has not yet granted or rejected the application); and
- they have become members of AFCA.[28]
Therefore, if you offer BNPL products, it is important that you review your ACL authorisations to ensure you are authorised to engage in the relevant credit activities as a credit provider and that you are a member of AFCA. If not, you should apply for an ACL or an ACL variation and become a member of AFCA by 10 June 2025 to take advantage of the transitional arrangements.
Feedback to ASIC on CP 382 is due by 7 March 2025.
Please contact us for assistance regarding your ACL licence authorisations or making a submission on CP 382. We would be delighted to help.
Footnotes
[1] See Reserve Bank of Australia, Payment System Board Annual Report - 2023.
[2] As above.
[3] Explanatory Memorandum, Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 50.
[4] The National Consumer Credit Protection Act 2009 (Cth) (NCCP) provides that the term ‘credit contract’ has the same meaning as in section 4 of the National Credit Code (NCC). Section 4 of the NCC provides that a ‘credit contract’ is ‘a contract under which credit is or may be provided, being the provision of credit to which [the NCC] applies’. Section 5 of the NCC sets out the provision of credit to which the NCC applies.
[5] Section 5(1)(c) provides that the NCC only applies to the provision of credit where a charge is or may be made for the provision of the credit. This criterion is typically not satisfied for BNPL products, as charges are not made for the provision of the credit but for not paying instalments on time.
[6] Section 6 of the NCC sets out the provisions of credit to which the NCC does not apply.
[7] NCC sections 6(1), 6(5).
[8] Explanatory Memorandum, Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 49.
[9] NCC section 13E.
[10] Section 13E(1)(b)(i) of the NCC expressly includes ‘BNPL contracts’.
[11] NCC section 13E.
[12] NCC section 13D(4).
[13] NCC section 13D(1).
[14] NCCP section 47(1).
[15] NCCP Chapter 3.
[16] NCCP section 133BXA.
[17] NCCP sections 128(d) and 130.
[18] NCCP section 133BXC.
[19] NCCP section 130(1)(c).
[20] NCCP sections 128-9.
[21] NCCP section 131.
[22] NCCP section 133BXE.
[23] NCCP section 133BXE(2).
[24] NCCP section s133BXD.
[25] NCCP sections 128(a) and (d).
[26] NCCP section 133BXG.
[27] NCCP section 133BXB(b); regulation 28HAC.
[28] See Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 section 8.
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