With the introduction of the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 into Parliament, the Buy Now Pay Later (BNPL) industry now has enough detail to assess the impact of the expected changes on their existing customers, terms and compliance measures.
The Bill clarifies some of the uncertainty arising from the exposure draft released by Treasury on 12 March 2024, but also introduces new obligations and transitional arrangements that will need to be carefully navigated. Critically, if it becomes law BNPL providers must:
- hold and maintain an Australian credit licence (ACL), which may require them to apply for or vary an existing credit licence; and
- comply with licensee and other obligations, including either the existing responsible lending obligations (RLO) or electing to comply with a modified RLO framework for low-cost credit contracts (LCCCs), for existing and future customers.
A quick recap: Previous consultations on BNPL reforms
In November 2022, Treasury published an Options Paper which put forward three different options for regulating the BNPL industry. It was announced in May 2023 that the Government would be pursuing Option 2, which foreshadowed changes that would involve limited regulation under the National Consumer Credit Protection Act 2009 (Cth) (Credit Act), the National Credit Code outlined in Schedule 1 of the Credit Act (Credit Code) and the National Consumer Credit Protection Regulations 2010 (Cth) (Credit Regulations).
In March 2024 the Government released an exposure draft legislative package that outlined its proposed amendments to the Credit Act and Credit Regulations.
What changes have been made since the release of the exposure draft Bill?
Importantly, the meanings of "buy now pay later arrangement", "buy now pay later contract" and "low cost credit contract" have not materially changed from the exposure draft. The effect is that it is still proposed that a "buy now pay later arrangement" will still involve an arrangement or series of arrangements under which a merchant supplies goods or services to a consumer, a third person (the BNPL provider) pays the merchant, and the BNPL provider provides credit to the consumer under a contract between the BNPL provider and the consumer.
However, the Bill has materially developed since the release of the exposure draft. In particular:
- provisions have been added to ensure that the Credit Code will apply to "buy now pay later contracts" and other LCCCs, by disapplying relevant requirements and exemptions currently relied upon by BNPL providers;
- provisions addressing what is required to comply with the modified RLO framework have been amended or removed;
- disclosure requirements (including precontractual disclosure requirements) for LCCCs have been modified;
- the Bill now provides that a credit limit under an LCCC may only be increased at the request of the debtor or with the debtor's written consent (regardless of whether or not it is continuing credit contract);
- the Bill allows for the giving of information and documents in connection with an LCCC exclusively via electronic means, including by notifying the recipient that the material is available for retrieval, making the material available for a reasonable period after giving the notification and ensuring that the material can be saved and printed by the recipient.
Changes affecting BNPL providers
The Bill creates the concept of an LCCC and extends the application of the existing credit legislation to LCCCs, with a number of modifications.
Regulated entities
LCCC providers will become regulated under the Credit Act.
It is proposed that LCCCs will include "buy now pay later contracts" but may be extended to include other contracts later.
A "buy now pay contract" will be a contract between a consumer and a BNPL provider who provides credit to the consumer in connection with the supply of goods or services by a merchant (who is not the BNPL provider).
LCCC provider obligations
LCCC providers must hold and maintain a credit licence and comply with the general conduct obligations applicable to credit licensees.
Disclosure and other obligations under the Credit Code will apply to LCCCs, subject to certain modifications.
LCCC providers must elect to comply with either the modified RLO framework for LCCCs or with all the existing responsible lending requirements in the Credit Act (as explored further below).
LCCC providers will also be prohibited from structuring their business models to avoid regulation under the existing anti-avoidance provisions in the Credit Act.
Modified RLOs
If an LCCC provider elects to comply with the modified RLO framework, it will still be required to comply with the core obligations. These include assessing the suitability of credit contracts and taking steps to make reasonable inquiries about the consumer's financial situation and to verify that information, before entering an LCCC or increasing a consumer's credit limit.
However, the modified RLO framework would:
- ease some requirements about the timing of inquiries and verification in relation to the suitability assessment;
- provide that specified risk factors must be taken into account in determining what constitutes reasonable inquiries and reasonable verification;
- clarify that an LCCC provider may conduct inquiries and an assessment for an amount of credit larger than that initially offered to the consumer, and that this assessment will also suffice for any subsequent credit limit increases up to that amount, up to a period of two years; and
- create a rebuttable presumption that LCCCs with a credit limit not exceeding a threshold ($2,000 but subject to change) meet the consumer's requirements and objectives for the purposes of the suitability assessment,
subject to the LCCC provider complying with certain requirements, including to keep a written copy of the election, disclosing the election in each relevant contract, and maintaining and regularly updating an unsuitability assessment policy.