Yahoo Finance Calls for major buy now, pay later changes: What it means for you
The way you use buy now, pay later (BNPL) may change in a big way if providers are forced to comply with responsible-lending laws.
Major banks, industry associations, regulators and consumer advocates have come together to call for an end to “lending loopholes” allowing BNPL providers to avoid safe-lending laws.
The proposed reforms will require companies such as Afterpay, Zip and Humm to comply with “common-sense and well-established consumer protections”, in line with other credit products such as credit cards and personal loans, according to CHOICE.
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CHOICE CEO Alan Kirkland said some BNPL providers were lending up to $30,000 to individuals.
“It's unfair and unsafe to allow them to avoid safe-lending laws. They need to operate on a level playing field with credit cards and personal loans,” Kirkland said.
“As cost-of-living pressures rise, it is even more important that people are protected from rogue lenders.”
Financial Counselling Australia CEO Fiona Guthrie said it was paramount BNPL providers should have to comply with the same regulations as other lenders.
“We’ll only get one chance to get the regulation of BNPL right. And this is it. As the banking royal commission showed in spades, loopholes in the law are disasters. BNPL is credit. It should be regulated like all other credit products,” Guthrie said.
What would the laws mean for consumers?
Currently, a person can simply open an account with a BNPL provider, attach their account to their banking information and you can start spending. But, if BNPL providers have to obey responsible-lending laws, that would change.
Cowell Clarke Commercial Lawyers associate Emma Johnson told Yahoo Finance much more information would need to be provided by the consumer.
“From a practical perspective, a consumer would have to provide certain information to the BNPL so the BNPL can undertake a credit check and ensure the loan is not ‘unsuitable’,” Johnson said.
“This would add time to the application process and also result in a number of the consumers having their applications rejected.
Despite the hassle of having to provide more personal financial information, Johnson said it could also help consumers.
“Regulation would provide consumers with more protections in cases of loss for the issue of unsuitable loans,” she said.
Johnson said, while increased regulation could place a higher financial burden on the BNPL companies, she didn’t expect the consumer would have to pay more.
“There is a risk that additional costs are passed to the consumer but, considering the revenue BNPLs currently make from merchants, I expect the financial impact to be minimal,” Johnson said.
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