New BNPL rules risk regulatory uncertainty: Afterpay

Afterpay has called for Treasury to ‘take all necessary steps’ to align its BNPL regulatory framework with that of New Zealand’s, as the industry braces for tighter lending obligations.

Afterpay’s submission on BNPL regulations warns the new proposed rules risk significant regulatory uncertainty. Picture: NCA NewsWire / Nikki Short

Buy now, pay later operator Afterpay has called for Treasury to “take all necessary steps” to align its BNPL regulatory framework with that of New Zealand’s, as the industry braces for tighter lending obligations expected later this year.

In its submission to Treasury on the government’s move to regulate the BNPL sector, Afterpay warned proposed new rules that aim to bring BNPL operators better in line with other credit providers risked creating “significant regulatory uncertainty, without any incremental consumer protection benefits”.

While supporting a modified responsible lending framework, Afterpay argued for the removal of the proposed requirement for BNPL operators “to seek to obtain information” on income, expenses and any low cost credit contracts. Instead it wants this replaced with an obligation to conduct a “partial” credit check on all contracts for amounts less than $5001.

“There are provisions within the modified framework that have been imported from the traditional responsible lending framework that, in practice, make little sense for low cost credit contract providers, emerging consumer preferences, and resulting consumer outcomes,” Afterpay said in its submission.

“The requirement for BNPL providers to make enquiries into customer income and expenses is unlikely to generate consistent or effective consumer outcomes or aid responsible lending decisions.

“For the purposes of low-value low cost credit contracts that typically provide low initial credit limits (Afterpay customers start on $600), this information is unlikely to provide meaningful inputs into our decision making framework,” the BNPL operator argued.

Acknowledging Treasury’s concern that a partial credit check may not reveal a consumer’s payday loans or consumer leases, Afterpay said it should not be on BNPL providers to seek this information out.

“Instead, payday lenders and consumer lease providers should be required to conduct partial credit checks,” the lender said.

The additional requirement to have a “reasonable belief” in the accuracy of information provided by consumers was labelled by Afterpay as a “disproportionate requirement” for low-value BNPL products.

“We are concerned that the obligation to reasonably believe the information provided by the customer will create significant regulatory uncertainty, without any incremental consumer protection benefits.”

Instead of requiring BNPL providers to obtain information about the customer that may be unreliable, and introducing a new obligation for providers to “reasonably believe” the information, Afterpay urged Treasury to align Australia’s approach with that of New Zealand.

“In New Zealand, BNPL providers will be required (from September 2024) to have a credit policy which lays out how they take into account information from credit reports in lending decisions,” the lender said.

Afterpay also called for caps on late fees to be indexed to inflation, while peer Zip said the caps weren’t high enough.

“The existing fee caps in regulation 51 have not changed since being introduced in 2010 … The cost of providing BNPL products to customers has materially increased since 2010,” Zip said in its submission.

“The proposed modified responsible lending obligations regime will further increase the cost of providing BNPL products both from an application assessment perspective as well as ongoing compliance costs, and the fee caps should make adequate provision for this cost increase.”