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Buy now, pay later products are credit and should be regulated, the MFAA has outlined in its response to the government’s consultation on BNPL.
The Mortgage & Finance Association of Australia (MFAA) has responded to the government’s Regulating Buy Now, Pay Later in Australia options paper, stating that it believes BNPL products should be regulated under the National Consumer Credit Protection Act 2009 (the Credit Act).
Buy now, pay later products have become mainstream in Australia very quickly, accounting for around 2 per cent of Australian card purchases during the 2022 financial year.
According to the Reserve Bank of Australia’s Payments System Board, there were approximately 7 million active BNPL accounts in the FY21–22 and $16 billion in transactions, an increase of approximately 37 per cent on the previous financial year.
However, BNPL products and providers of BNPL products are not required to hold an Australian Credit Licence as they fall under exemptions included in the Credit Act.
“Though these exemptions have supported the growth of BNPL, they were not designed with that outcome in mind,” the Treasury has said.
“This unintended regulatory gap creates the potential for consumer harm due to the absence of key protections.”
As such, in November, the government released for feedback an options paper on regulating BNPL, after finding that BNPL had “unaffordable lending practices”, where some “vulnerable BNPL consumers” were cutting back on essentials to pay BNPL debt, increasing financial stress at a time when cost-of-living pressures are high.
In its response to the paper, seen by The Adviser, the MFAA said broker members had provided anecdotal feedback that BNPL can “act as a barrier or cause delays” when their clients are seeking to purchase a home or to refinance.
The MFAA said that members had observed that while it was easy to take out multiple BNPL agreements from different providers, there was a lack of requirements for BNPL providers to undertake creditworthiness assessments.
Moreover, the lack of visibility on credit files impacted a broker’s ability to easily undertake suitability assessments in line with their own responsible lending obligations.
“The MFAA is committed to credit regulation that mitigates consumer harm and that is scalable across all types of credit products and the channels through which those products are distributed,” its response read.
As such, it concluded that:
- BNPL is credit, therefore like other forms of consumer credit, these products should be regulated under the Credit Act.
- Australia’s credit regulatory framework is fit for purpose to regulate BNPL.
- There should be further education around BNPL for consumers as a credit product.
- The association therefore recommended that the government should adopt Option 3 of its paper (for BNPL to be regulated as credit under the Credit Act, including the requirement for BNPL providers to comply with the responsible lending obligations under the Credit Act and RG 209) and update regulatory guides to address BNPL as a specific subset of credit products.
It also recommended that BNPL should be included in comprehensive credit reporting in the same way as other consumer credit products.
Finally, it urged the government to prioritise financial literacy education to “dispel any misunderstanding of BNPL as anything other than a credit product”.
Why the government is looking at regulating BNPL
The options paper was released by the government last year as a means of ensuring that there are adequate consumer protections in place for BNPL.
It came after the Australian Securities & Investments Commission’s (ASIC) Consumer Monitor monthly survey report for Q122 found that 19 per cent of BNPL consumers surveyed cut back or went without essentials to make BNPL repayments on time.
The paper also noted “inconsistent or inadequate complaint handling procedures” as well as “excessive or disproportionate consumer fees and charges” and “poor product disclosure practices”.
As such, Minister for Finance, Katy Gallagher, said it was “responsible for the Government to have a look at how to regulate it” and “put some guardrails around it”, given the financial stress it has caused consumers.
Submissions received during the consultation process will reportedly inform a future government decision on the regulatory framework for BNPL in Australia.
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