New regulations to Buy Now Pay Later protect consumers

New legislation is holding Buy Now Pay Later providers to Australian credit licence standards in an attempt to protect consumers.

Buy Now Pay Later providers are facing tougher new regulations in a bid to protect consumers from potentially harmful credit contracts.

The Australian Securities & Investments Commission (ASIC) has proposed modifications to the responsible lending obligations of BNPL services in order to regulate them under the Credit Act.

The changes will seek to balance the “competitive benefits of low cost credit contracts for consumers and the economy” with the financial wellbeing of the shopper.

Customers using buy now pay later services could be better protected if new rules come in. Picture: Newswire/ Gaye Gerard

A recent survey conducted by Compare the Market revealed that more than 1000 Australian adults have less than $100 in their savings accounts.

“We don’t want to see people taking out credit cards, personal loans or relying on Buy Now, Pay Later schemes to cover everyday expenses or those unexpected costs,” Compare the Market spokesman Chris Ford said.

“These types of services typically attract high interest rates, which could see you drowning in debt for longer.”

To prevent consumers from financial stress or being harmed by unaffordable credit contracts, the regulation will enforce credit licensees to comply with responsible lending conduct obligations.

Legislation was introduced in June 2024 by the Albanese government to have BNPL operators regulated as consumer credit.

The new legislation required BNPL providers to hold an Australian credit license, comply with existing credit laws regulated by ASIC, and establish a new category of ‘low cost credit under the Credit Act.

“We want Australians to enjoy the benefits of BNPL, while knowing there are strong consumer protections in place,” Assistant Treasurer Stephen Jones said.

Assistant Treasurer Stephen Jones is hoping to safeguard buy now pay later guidelines. Picture: NewsWire / Nikki Short

“Our changes are balanced and proportional and maintain the consumer benefits afforded by BNPL products,” he said.

The changes to BNPL regulations have been welcomed by consumer groups, such as CHOICE.

“The new laws will greatly reduce the risk of people being signed up to unaffordable BNPL loans that leave them worse off,” CHOICE chief executive Ashley de Silva said.

Financial Rights Legal Centre chief executive Karen Cox echoed the sentiment.

“The important guardrails that these laws introduce will go a long way to reigning in some of the unaffordable lending practices that we have seen,” she said.

ASIC will enforce that BNPL providers do due diligence on consumers to prevent them from financial stress, as outlined in their consultation paper.

“The National Credit Regulations set out mandatory inquiries about a consumer’s financial situation that providers must make for low cost credit contracts, including in relation to the consumer’s income, expenditure and any low cost credit contracts.”

ASIC is urging BNPL providers to apply for a credit license before the new laws come into place on 10 June 2025.