Australia To Regulate BNPL Services As Credit Products

The Australian government announced on May 22 that it will submit legislation to classify buy-now-pay-later (BNPL) services as credit products, in an effort to protect customers in a largely unregulated market.

BNPL firms often offer on-the-spot interest-free short-term loans with minimum credit checks that spread payments and are mostly used by cash-strapped persons who are taking on debt, sometimes more than they can afford to buy.

"They are very popular, but we need to make certain that we can manage them appropriately," Treasurer Jim Chalmers told ABC television. "The best way to accomplish this is to legislate and regulate as a credit product, so that we can manage some of the risks."

Because they do not charge interest, they are immune from consumer credit regulation, and the sector has seen a spike in activity during an online buying spree fueled by COVID-19 stimulus payments and ultra-low interest rates.

However, repayment problems have grown as Australia confronts high inflation, which is now reaching 30-year highs.

According to local media, Financial Services Minister Stephen Jones will declare in a speech on Monday that the services will be required to have a credit licence, make exemptions for financial difficulty, and have basic standards of behaviour that might subject them to the same rules as credit card companies.

Australia, which has roughly a dozen listed BNPL providers, has about 7 million active accounts, resulting in A$16 billion (US$10.9 billion) in transactions in 2021-22, a 37% increase, according to data.

Afterpay, Australia's largest BNPL company, which was purchased in 2022 by Twitter founder Jack Dorsey's Block Inc, has argued against strict rules, while PayPal Holdings Inc has stated that BNPL loans should be subject to consumer protection law.

According to media reports, the government will release draught legislation for public comment later this year, and the measure will be submitted into parliament before the end of the year.