Australia’s government is preparing to introduce legislation requiring buy now, pay later (BNPL) providers to conduct basic credit checks on new customers.
Recent trends show a significant rise in the adoption of BNPL products from companies like Afterpay, Klarna, and Zip, with approximately 40% of the population utilizing these services in the first half of the year, according to a Finder survey.
While the government acknowledges the increased competition BNPL has introduced into credit markets, it points out that many of these products are not currently governed by the National Consumer Credit Act. To remedy this, the government plans to amend the act, mandating that providers obtain a credit license and adhere to current regulations regarding checks.
The proposed legislation will also introduce a new category of ‘low-cost credit’ under the Act, reflecting the lower risk and expense associated with BNPL compared to other regulated credit forms. This approach differs from the situation in the U.S., where the Consumer Financial Protection Bureau (CFPB) has recently declared that BNPL lenders should be treated similarly to credit cards, a ruling that has faced criticism from some industry players, including Klarna.
Assistant Treasurer and Minister for Financial Services, Stephen Jones MP, commented, “We want Australians to enjoy the benefits of BNPL while ensuring that robust consumer protections are in place. If it looks and acts like credit, then it should be regulated as such. Our changes are balanced and proportionate and maintain the consumer benefits afforded by BNPL products.”
Zip ANZ CEO Peter Gray added, “Zip has long advocated for fit-for-purpose regulation that supports strong customer outcomes. We welcome the Federal Government’s announcement and the introduction of these standards, which align with Zip’s existing practices.”