CBA calls for BNPL safeguards, endorses ‘middle ground’ regulation

CBA is endorsing a model for buy now, pay later regulation that is Treasury’s middle ground option, but the lender also wants other safeguards included.

CBA chief executive Matt Comyn has previously called for BNPL products to be regulated given the sector‘s growth rates and that it is essentially a credit service.

Commonwealth Bank is endorsing a model for buy now, pay later regulation that is Treasury’s ­middle-ground option, but the ­nation’s biggest home lender also wants credit score reporting and other safeguards included.

The bank’s submission to a Treasury review supports regulatory intervention to address potential consumer harm, although emphasises users should continue to benefit from BNPL products.

‘‘We believe BNPL can meet consumer expectations for a safe and contemporary form of short-term credit. However, a current lack of regulatory oversight is ­resulting in some consumers accessing credit in ways that are problematic for them,” a CBA spokesman said. “CBA supports all BNPL providers being licensed under the Credit Act, with requirements to assess suitability and engage with credit bureaus. We consider this a pragmatic approach that balances the benefits BNPL has brought consumers with the need to address inadequacies in the regulatory protections currently in place.”

The bank supports the second option under Treasury’s proposed three regulatory models. The second option requires players to obtain and keep a credit licence, and abide by responsible lending rules that would be specific to BNPL products. That would see firms determine if instalment products were unsuitable for consumers.

CBA’s submission also calls for some of the requirements in the strictest model – option three – to be implemented. They include credit reporting and tougher restrictions on credit limit increases.

Treasury’s third option seeks to regulate the sector in the same way as other credit products, such as home loans and credit cards. That requires players to hold a ­licence and conduct responsible lending checks to assess whether a customer can afford repayments.

The first option proposed by Treasury would amend the Credit Act to impose an industry-specific requirement for BNPL providers to check that a product was not unaffordable before it was offered.

That would rely on co-regulation and the strengthening of an existing industry code, but players would not require a licence.

MoneyMe chief executive Clayton Howes.

Treasury called for feedback on the issue of regulation and the three proposed models late last year, setting a deadline for submissions on December 23.

The first option was initially the preferred model of Afterpay, owned by US company Block. The company has said that would balance innovation and consumer protection. Rival Zip initially highlighted option two as its preferred model.

CBA estimates that 40 per cent of Australians using BNPL have more than one account, which means unless the products are regulated banks do not have a line of sight into whether consumers are making repayments and managing their debts.

The bank operates its own version of a BNPL product called StepPay, which in December had 300,000 customers. It launched in August 2021. CBA also owns a stake in Klarna.

The bank’s chief executive, Matt Comyn, has previously called for BNPL products to be regulated given the sector’s growth rates and because he sees it essentially as a credit service.

Westpac’s submission on BNPL regulation urged the government to impose the same rules on the sector as those covering products such as credit cards and home loans, under the third option. National Australia Bank’s submission backed Treasury’s second option, but the lender is understood to be open to certain elements included in the third option such as mandatory BNPL credit score reporting, the licence requirement and consistency in hardship provisions.

NAB is a lender to the BNPL sector while Westpac owned a stake in Zip before selling out in 2020 for a sizeable profit.

MoneyMe is supporting capturing BNPL in the same regulatory net as other credit products, saying it would level the playing field and plug credit score “blind spots”.

The non-bank lender’s chief executive, Clayton Howes, told The Australian firms were often making decisions about a customer’s ability to repay without knowing their BNPL debts, because players in the sector were not compelled to provide credit reporting data.

MoneyMe supports Treasury’s third option and was involved in industry consultation and roundtables on the regulation, but did not lodge a submission.

Consumer advocates lodged a joint submission to the Treasury review – signed by 22 organisations – which urged option three to be the model followed in Australia, albeit with additional safeguards.

Other markets such as New Zealand and the United Kingdom are also clamping down on the BNPL industry through regulation.

In November, New Zealand’s government proposed rules that would require BNPL to conduct an affordability check on customers before agreeing to a loan. The new requirements would apply to loans of more than $NZ600 ($560).

The UK Treasury last year outlined plans to require affordability checks on BNPL customers and to ensure advertisements were “fair, clear and not mis­leading”.

BNPL products are lightly regulated in Australia because they draw on an exemption for interest-free offerings and short-term loans, meaning they sit outside the Credit Act.