BNPL Regulation: Changes to Expect - NerdWallet Australia

The rise of BNPL: 7 facts

BNPL services allow you to purchase and pay for products later through “interest-free” instalments — at least, that’s how they’ve been promoted. Here are seven facts about BNPL that highlight the context behind the proposed regulatory changes:

Economic contribution: BNPL added $22.9 billion to Australia’s GDP in 2023.[1]
Popular with younger consumers: Nearly half of Australians aged 18-39 used BNPL in 2022, compared to one-third of the population.[2]
Multiple accounts are common: Australians using BNPL often have more than one account. Those in their 30s have over two accounts per person on average.[2]
Income disparity: Less than 10% of BNPL users earn over $100,000 annually, with 44% earning under $40,000.[3]
Merchant fees: BNPL profits primarily come from merchant fees, which are estimated to be two or three times higher than those for credit cards.[4]
Missed payments: In 2018-19, 21% of BNPL users missed a repayment, resulting in over $43 million in fees, a 38% increase compared to the previous financial year.[5]
BNPL debts continue to grow: BNPL-related debt grew eightfold between 2017 and 2021, with 84% of financial counselling practitioners reporting that clients attempted to manage existing BNPL debt by opening new accounts.[6]

Regulatory changes to BNPL

In June 2024, the Australian government introduced legislation to enhance consumer protection regarding BNPL products. Despite previous stop orders issued by the Australian Securities and Investments Commission (ASIC) against popular BNPL providers, consumers have had limited options to address issues, resolve disputes effectively, or access hardship processes.

Under the proposed legislation:

BNPL must be treated as credit. Meaning, BNPL providers (Afterpay, Zip, Klarna, Humm, Brighte, Payright, and Plenti) must hold an Australian credit licence and be regulated by ASIC.
BNPL firms must follow current Credit laws, including running credit checks on borrowers and meeting responsible lending requirements.
A new category of ‘low cost credit’ will be established under the Credit Act to recognise the lower risks and expenses associated with BNPL in comparison to other credit forms.
Low cost credit contracts will be evaluated differently based on whether the credit amount is below or above a $2,000 threshold. For BNPL agreements exceeding $2,000, a more in-depth credit assessment will be necessary for approval.

The proposed changes aim to safeguard consumers, particularly those aged 18 to 25, from entering a cycle of unmanageable debt by using multiple BNPL accounts for shopping, expenses and bills.

BNPL regulation timeline

BNPL regulatory reforms are a long time coming, with initial proposals put forward in 2022 following an independent review of the Buy Now Pay Later Code of Practice. In March 2024, the government announced the exposure draft legislative package with the proposed Credit Act and Credit Regulations amendments.

The Albanese government introduced the proposed changes to Parliament in June 2024, but both houses still need to be passed to become law.

What will change with BNPL service providers?

Under the new law, BNPL providers will be treated as credit providers, like credit card companies. Firms will be subject to the same consumer protection laws followed by banks and other lenders.

Providers must:

hold an Australian credit licence
be a member of the Australian Financial Complaints Authority (AFCA)
implement reasonable caps on fees and charges
clearly articulate their processes for dispute resolution and financial hardship arrangements

As a result, BNPL providers will need to perform credit checks on new customers and ensure the product is affordable. We’ll know more about how it’ll impact everyday consumers once it becomes law, but beyond credit checks, you can expect stricter approval processes for the BNPL product to function more like a credit card.

Some BNPL providers are voluntary members of the AFCA, but the new laws will make it mandatory, leading to greater consumer protections and fairer resolutions. Read the AFCA submission to Treasury consultation here.

All BNPL transactions will require lenders to seek basic information about the individual’s income, expenses, and other short-term debts (BNPL products, payday loans or consumer leases).

What are they saying?

Top BNPL providers, Zip and Afterpay, have spoken out about the impending regulation.

In an April 2024 statement, Afterpay said it “welcomes Treasury’s efforts in designing bespoke obligations for BNPL products” — suggesting Australia aligns regulation with New Zealand’s new BNPL framework.

Afterpay also proposed that all BNPL providers be required to conduct partial credit checks (rather than having to obtain information about a customer’s income and expenses) and that the “requirements and objectives” section of responsible lending be removed.

In June 2024, Zip stated it already holds a credit licence and conducts credit and affordability checks on customers. The company already has two regulated products under the National Consumer Credit Protection Act – Zip Money and Zip Plus.

How advocacy groups are responding to BNPL regulation

Experts have long warned individuals and the industry about the rise in unregulated BNPL providers, raising concerns about debt, credit score risk, hidden fees and coercive marketing tactics that disproportionately affect women, First Nations communities and people on low incomes. So, the BNPL reforms have received a warm welcome from industry bodies and advocacy groups.

According to Stephanie Tonkin, CEO of Consumer Action Law Centre:

“The requirements for Buy Now Pay Later companies to have effective dispute resolution, fee caps and license conditions similar to other credit providers is progress… However, we do have some concerns about the soft touch approach for smaller BNPL loans under $2000 because of the harm that small multiple accounts are having on people who can’t afford them.”[7]

According to Karen Cox, CEO of Financial Rights Legal Centre:

“We also welcome the fact that the proposed laws are flexible enough to capture current and developing credit models like wage advance that we are hearing more and more on our phone lines. Some of the details may need fine-tuning, but getting all providers within the same regulatory regime is a big step forward.”[7]

According to Dr Domenique Meyrick, Co-CEO of Financial Counselling Australia (FCA):

“As we have said for many years, ‘if it looks like a duck and quacks like a duck then it’s probably a duck.” We are very happy that BNPL will finally be treated as credit’… However, we do have some concerns about the weaker requirements for smaller loans because many people have multiple accounts, and we hope this legislation sufficiently protects these people.”[7]

According to Tom Abourizk, Head of Policy at CHOICE:

“We welcome the Government’s move to close the legal loophole in the credit law that buy now pay later was designed to exploit. The loophole has allowed the BNPL industry to ignore the financial hardship it has exacerbated for some users.”[7]

Ways consumers can prepare for new BNPL regulation

Time will reveal the finer details on how BNPL regulation will affect consumer use of these financial products. The new laws will require credit checks and the possibility of lenders needing to report the repayment history of their customers to credit rating agencies — which, in turn, is a good thing for consumers.

Having multiple BNPL accounts and late payments can negatively affect your credit score. All BNPL credit checks are recorded on your credit report as a credit inquiry. With the new laws, credit checks will be mandatory, not optional like it once was.

According to ClearScore, credit inquiries account for approximately 10% of a credit score and payment history impacts 35%. If you have multiple BNPL applications and accounts with missed payments, BNPL debt can influence nearly 50% of your score.

» MORE: 12 questions about credit scores and reports

How to responsibly use BNPL (and the alternatives)

As the BNPL landscape changes with legislation, it’s important to start thinking of these products, such as credit cards. While sold as short-term, low-risk repayment plans with few drawbacks, the new laws will require more thought about what you apply for and how you manage money.

Go back to basics:

revisit your budget and track it closely
research the ins and outs of the different BNPL providers
always read the fine print
avoid multiple BNPL accounts
set up direct debits or autopayments to avoid fees and interest (just like you would a credit card)
stay on top of your credit score — get a free credit report every three months
be critical about short-term loans and repayment plans. There’s always a catch and these businesses are for-profit.

The alternatives:

look into your bank’s BNPL cards — they may come with more protections
research low- or no-fee credit cards with interest-free periods
only make purchases from your debit or credit card
ask a family member or friend for a small loan
explore the reasons why you use BNPL and try to problem-solve that. BNPL could be a band-aid solution for a bigger problem.