Buy now, pay later lenders must hold credit licence as of June 10, sign up to complaints authority

New laws have ended a decade-long fight for buy now, pay later regulation, with providers now subject to rules governing the need to run credit checks for new customers.

Shoppers seeking to use BNPL must now pass credit checks after new laws took effect on June 10. Picture: NewsWire / John Appleyard

New laws governing the buy now, pay later industry arrive on Tuesday, when the Albanese government’s legislative regime finally comes into force after years of combat between lenders and regulators.

Key players in the sector say they are well prepared for the new rules, which require lenders to hold a credit license and join the Australian Financial Complaints Authority.

The Australian Securities and Investments Commission pushed for tougher rules but met resistance from lenders who sought softer standards.

The proposed rules were first floated in November 2022, but only passed as law in December 2024.

Australian Finance Industry Association boss Diane Tate said Tuesday was a “milestone” for the buy now, pay later sector, an example of a “long journey of the industry and government working together”.

Ms Tate, who previously worked at ASIC as well as financial regulator Austrac, said the sector had secured a “good outcome” representing a compromise between lenders, regulators, and consumer groups.

AFIA spearheaded its first voluntary code of practice in March 2021.

Treasury outlined three proposals for how it could regulate the sector, with the Albanese government deciding on a ‘middle path’.

“We’ve landed to the one in the middle, that’s good, targeted, sensible regulations,” Ms Tate said.

AFIA CEO Diane Tate says Australia compromised to regulate BNPL. Picture: NewsWire / Gaye Gerard

Ms Tate hoped the matter of regulation was now settled.

“The worst thing would be another round of regulation when we thought we had regulatory certainty,” she said.

ASIC, which published its information guide for lenders in January, wanted a tougher outcome.

The regulator has warned that lenders who fail to secure a credit license by June 10 risk enforcement action for “unlicensed conduct”.

The situation escalated when ASIC concluded buy now, pay later finance was not covered by the National Consumer Credit Protection Act and this precipitated the need for new rules.

ASIC’s former NSW regional commissioner and financial services executive director Michael Saadat, who worked on buy now, pay later oversight, memorably defected to Afterpay, angering rival lenders.

Now Afterpay international’s head of public policy, Mr Saadat said the lender was pleased with the final regulatory picture.

Some aspects sit at odds with Afterpay’s submissions, including the minimum sums required for credit checks, which kick in at $2000 as opposed to Afterpay’s proposed $5000.

Afterpay International Head of Public Policy Michael Saadat.

Afterpay will comply with credit checks for new customers, and existing borrowers seeking to boost their lending limits will face similar checks.

Mr Saadat couldn’t say how many Afterpay customers will fail their credit checks.

Jack Dorsey’s Block acquired Afterpay in January 2022.

Mr Saadat said most Afterpay users won’t notice the new regulations.

“No doubt most people have better things to worry about,” he said.

He described the rules as a continuation of the shift in how consumer protection works.

“Definitely it’s much more on the supply side, i.e. providers, rather than the demand side, i.e. consumers,” he said.

Rival provider Zip said the new standards aligned the law with the lender’s existing credit check practices.

A Zip spokeswoman said the lender “has been advocating for fit-for-purpose regulation for many years, and we have transparently been conducting ID, credit and affordability checks on our customers since inception”.

Zip had nearly 2.07 million active customers in its Australia and New Zealand business as of March 31, down almost 6.8 per cent on the same time last year.

Originally published as Buy now, pay later lenders must hold credit licence as of June 10, sign up to complaints authority