Australia: Buy Now Pay Later Bill – Regulatory Countdown

in short

December 10, 2024 Treasury Act Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 (No.)(“French National Bank Law“) obtained Royal Assent. The BNPL Act contains 6 schedules, which amend a series of regulations, including relevant National Consumer Credit Protection Act 2009 (No.)(“credit law“) regulates the BNPL products industry. BNPL product providers have six months before the new regulatory framework begins to apply for or change existing Australian credit licenses and update their procedures, policies and contracts.

As discussed in our previous client alert, in November 2022, Treasury published an options paper soliciting views on three different approaches to regulating the BNPL industry. In May 2023, the Treasury announced that it would adopt Option 2, which would be to regulate BNPL products as credit products (see customer alert here). Therefore, the Australian government released a consultation draft on BNPL products for public consultation on March 12, 2024. For more information about the exposure draft, please see our previous client alert.

Low Cost Credit Contract (LCCC) and BNPL

• As envisaged in the exposure draft, the BNPL Bill regulates low-cost credit contracts (LCCCs) under the Credit Act.
• Under Schedule 2 of the BNPL Act, an LCCC is defined as a contract under which credit is or may be provided and all of the following conditions are met:
  • The contract is a BNPL contract, or a type of contract specified by regulations
  • The period for which credit is or may be extended under the contract shall not exceed the period specified by statute, if any.
  • The contract meets any other requirements imposed by the regulations, including those relating to fees or charges payable under the contract.
• Additionally, as outlined in the exposure draft, French National Bank Contract Contracts defined as forming part of BNPL arrange Involving customers, BNPL providers and merchants. If the credit is provided by the merchant rather than a third party (i.e. the BNPL provider), the arrangement will not be considered a LCCC.
• Relevant requirements and exemptions currently relied upon by BNPL providers to ensure that BNPL contracts are governed by the Credit Act will be removed.

LCCC Provider Obligations

The BNPL Act imposes a number of obligations on LCCC providers, including:

• Licensing requirements: The BNPL Act does not waive the requirement to hold a credit license, but rather amends the Credit Act to apply to BNPL contracts and LCCCs, requiring providers of these products to:
  • Hold and maintain credit licenses,
  • Comply with relevant licensing requirements and licensee obligations.
• Modified Responsible Lending Obligation (RLO): LCCC providers must take appropriate and proportionate steps to assess the suitability of a product for consumers before entering an LCCC or increasing a consumer’s credit limit. LCCC providers may choose in writing to apply the original version of the RLO or the modified RLO under the Credit Act, which will reduce the regulatory burden on LCCC providers.
• Presumption of applicability of LCCC: The BNPL Bill creates a rebuttable presumption that LCCCs with credit limits below $2,000 (subject to change) are not unsuitable for consumers.
• pre-contractual disclosure: LCCC providers are obliged to provide consumers with a pre-contract statement and an information statement that meets relevant requirements before signing an LCCC.

BNPL providers should start preparing their credit license application documents because in order to be protected by the transitional arrangements that allow BNPL providers to continue to offer BNPL credit contracts, BNPL providers must have applied for (or applied for a change to) a credit license and become BNPL providers by 2025 Become a member of AFCA before 11 March (i.e. six months after Royal Assent, or an earlier date if Proclamation is confirmed).

In addition, BNPL providers should begin drafting their unsuitability assessment policy, pre-contract disclosure statement and information statement, and review contract documents and account statements for applicable changes effective from 11 June 2025.

Our team is ready to assist BNPL providers with this new regime.