‘Like a credit card’: Buy now pay later facing big changes   
The government has announced its plans to regulate the buy now pay later sector and consumers could see some big differences.   


News.com.au
March 13, 2024

The government has announced its plans to regulate the buy now pay later (BNPL) sector and consumers could see some big differences to the fees they pay, how they apply for credit and the impact on their credit rating.

The regulations have come about after concerns that the unregulated nature of BNPL was resulting in lenders charging excessive late payment fees and engaging in unaffordable lending practices that led some customers to experience financial hardship and stress.

The proposed legislation also responds to concerns about unsatisfactory complaint resolution and hardship assistance, and a lack of transparency, disclosures and warnings about the risks of using BNPL.

The new regulations will affect the industry’s biggest player.

Among the biggest change users may see is a longer application process, with providers asking more questions about their credit history, income and expenses.

The government also plans to introduce caps on fees BNPL providers can charge, and apply these across all loans a customer has with the same company, rather than allowing excessive fees to be applied to each BNPL transaction individually.

Under the government’s proposal, default fees will be capped at $10 per month, while a cap on account fees will be set at $200 in first year and $125 in subsequent years, applied across all of a customer’s BNPL loans with the same provider.   

The regulation also features a measure to prevent BNPL providers from forcing customers to close and then reopen a new account, in order to be able to charge the first-year fees again.

Elsa Markula, CEO of Arca (previously the Australian Retail Credit Association) said that with the need for providers to consider all of the loans a customer has with them collectively rather than individually, the product is “going to start to look and feel a lot more like a credit card”.


The new regulations may also lead to more BNPL lenders to report the repayment history of their customers to credit rating agencies, which could affect their ability to loan money in the future.


Under the reforms, BNPL transactions will be officially treated as a low-cost credit contract and providers, such as Afterpay and Zip, will be required to hold an Australian credit licence and comply with the National Consumer Credit Protection Act, in the same way that banks are required to.

BNPL lenders will be required to take “reasonable” steps to assess a customer’s financial position before providing a loan to ensure they are lending responsibly, however it will be up to each provider as to how they do this.

Ms Markula said that if the value of a BNPL transaction is under $2,000, lenders will be required to conduct a negative credit check, which will tell them if the applicant has previously applied for credit, has defaults or court judgments on their credit file or has filed for bankruptcy.

For transactions over $2,000 in value, lenders will be required to conduct a more rigorous partial credit check, which would uncover the same details as a negative credit check, but would also provide lenders with information about any credit accounts the applicant has opened or closed in the previous two years. 

For all BNPL transactions, lenders will need to seek some basic information on the applicant’s income and expenses, as well as whether the customer has other BNPL products, payday loans or consumer leases.

There will also be a requirement on lenders to consider whether the consumer applying to use BNPL to pay for a purchase is likely to be financially vulnerable.

Ms Markula said that by accessing customer repayment history, BNPL providers will be able to “make better credit decisions”.

“And for BNPL customers, it is a great opportunity to demonstrate to other lenders positive credit behaviours,” she said.

Elsa Markula, CEO of Arca said the new regulations will mean buy now pay later is “going to start to look and feel a lot more like a credit card”.

In response to the draft legislation, a spokesman for Afterpay said that the company “ already has many safeguards and customer protections in place”.

Gnads wrote on Mar 17^th, 2024 at 10:37am:


a.k.a. loan sharking....