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Tougher buy now, pay later rules coming

Afterpay and Zip sign. Buy now pay later. Australians shopping.
Aussies using buy now, pay later could soon face stricter regulations, including credit checks. (Source: Reuters/Getty)

Millions of Aussies who use buy now, pay later (BNPL) platforms could soon face stricter rules, including credit checks.

The Federal Government has flagged tougher regulation for the industry as part of a new Treasury paper, and one option is to treat them the same way as credit card providers.

There were 7 million active BNPL accounts, including the likes of Afterpay and Zip Pay, in the 2021-22 financial year, an increase of almost 37 per cent on the previous year. The majority of accounts were held by young people aged 18-35.


Financial Services Minister Stephen Jones said the BNPL sector fell outside normal credit laws and had caused some Aussies to rack up unaffordable debts. The paper suggested three different options for regulation.

The strictest option is to regulate the sector under the Credit Act, which currently applies to credit cards and other traditional credit products.

Another option is bringing the industry partially under the Credit Act, where platforms would be required to hold an Australian Credit Licence and follow responsible-lending obligations.

The least-stringent option is strengthening the current industry code (which is voluntary) and adding an “affordability test”.

Jones said the Government was considering credit checks as a minimum.

Aussies cutting back on meals

The paper noted a recent ASIC report that found 20 per cent of BNPL users cut back on or went without essentials (such as food) in order to make their BNPL payments. Another 15 per cent said they took out an additional loan.

Financial Counselling Australia and the Consumer Action Law Centre have been pushing for tougher regulation of the sector.

“One of the insidious design aspects of buy now, pay later is the use of direct debits, which preferences repayments of credit over other essential expenses,” Consumer Action Law Centre CEO Gerard Brody said.

“The practice of providers denying service access to those that fall into arrears can also have perverse impacts, as people respond by prioritising repayments so as not to get kicked off the app.”

Brody said people often had multiple BNPL accounts with repayments coming out at different times, making it harder for customers to stay in control of their money.

“Financial distress is just so clear in calls to financial counsellors at Consumer Action,” he said.

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