The call to regulate the buy now, pay later (BNPL) industry has come from far and wide. Federal Treasury has revealed that major banks including ANZ and Westpac, and industry groups including the Mortgage and Finance Association of Australia and the Australian Retail Credit Association, have recommended bringing platforms such as AfterPay, Zip, Klarna, Humm and others under the National Credit Act.

They join consumer advocacy groups CHOICE, the Consumer Action Law Centre, Financial Counselling Australia and the Financial Rights Legal Centre in making submissions to the government in support of proposed reforms. The new laws would require BNPL companies to comply with the same consumer protections as required of credit card and personal loan providers

Reform needed to protect consumers

In its submission to Treasury, Australia and New Zealand Bank (ANZ) head of public policy Dr Martin Joy said bringing buy now, pay later products under the Credit Act would “help ensure predictable and consistent customer protections”, adding that the responsible lending obligations inscribed in the act “are intended to accommodate different circumstances and products, and could effectively be applied to buy now, pay later products”.

Westpac’s submission says “more than 50% of customers who speak to us about hardship solutions also have a liability to buy now, pay later. Within the group’s customer assist function, we see customers resorting to BNPL facilities to help them get by with their day-to-day expenses, which can exacerbate their financial situation.”

“With some buy now, pay later providers lending up to $30,000, it’s unfair and unsafe to allow them to avoid safe lending laws,” says CHOICE CEO Alan Kirkland. “They need to operate on a level playing field with credit cards and personal loans. As cost of living pressures rise, it is even more important that people are protected from rogue lenders.”

In December last year, CHOICE was one of 22 organisations that signed on to a joint submission to the federal government calling for the regulation of buy now, pay later credit products.

Consumers in favour of regulation

Many consumers also think the time has come to impose safe lending rules on an upstart industry that has rapidly expanded.

In December, CHOICE asked over 6000 people about their experiences with buy now, pay later products and their views on the industry.

“It’s simple, people are getting into more and more debt with this new method of buying items,” one respondent said. “It is still purchasing on credit and accordingly should be covered by the same legislation as credit cards.”

Another consumer told us: “Buy now, pay later products target and exploit the most vulnerable people in our community. It’s purely a business exercise for the companies involved. There is no reason why they should not be compelled by the same rules as banks, in order to protect vulnerable people.”

Close lending loopholes  

Financial Counselling Australia CEO, Fiona Guthrie, says the government review of the matter is a critical moment that should not be lost.

“We’ll only get one chance to get the regulation of BNPL right. And this is it. As the banking royal commission showed in spades, loopholes in the law are disasters. Buy now, pay later is credit. It should be regulated like all other credit products.”

Financial Rights Legal Centre CEO, Karen Cox, agrees, saying “a broad sweep of stakeholders agree that buy now, pay later needs to be fully regulated as credit. The government must act to close this regulatory loophole now and make sure the same guardrails apply to BNPL as apply to other types of personal credit.”

Consumer Action Law Centre CEO, Stephanie Tonkin, makes the point that buy now, pay later products are especially dangerous when people are facing cost of living pressures from many sides.

“The cost-of-living crisis means people are falling into debt traps faster than ever, and having easy access to multiple buy now, pay later products just adds to the pressure and financial distress we hear about on our helplines every day. Unsolicited credit increases are already banned for credit cards, so we are calling for a level playing field, treating all consumer credit products like buy now, pay later the same. People need real safeguards and consistency.”

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