In mid- 2022, the Australian Government’s announced public consultation to improve the regulation of consumer credit in Australia.
The Government then published a consultation paper and called for feedback on future regulatory framework for buy now, pay later (BNPL) arrangements under the National Consumer Credit Protection Act 2009 (the Credit Act).
In December 2022, Way Forward made a submission calling for regulation of BNPL products.
From our experience working directly with people in financial hardship, we believe the BNPL industry promote products that are designed to appeal to people who have no other credit options and continue to push people further into a debt spiral.
Way Forward’s submission draws upon the research we conducted earlier this year, documented in the report ‘Balancing act: How financially vulnerable people are using BNPL to “dig their way out of debt’, which investigates the experience of our client’s – people experiencing financial hardship – with using BNPL.
From this research, we have found that the sources of harm our clients experience as a result of using BNPL can be categorised into the following:
- Excessive ease of access
- Lack of support for vulnerable individuals
- The inability of BNPL users to understand and manage all the transactions
- What goods and services BNPL is being used for
- Poor mental health outcomes as a direct result of unmanageable debt
- BNPL companies have failed to self-regulate and industry needs to be regulated by government.
Currently, BNPL is not regulated under the Credit Act because they fall under the exemptions available to certain types of credit in Schedule 1 to the Credit Act (the National Credit Code).
BNPL products are also not subject to responsible lending standards or other requirements of the Credit Act and BNPL providers do not need to hold an Australian Credit Licence (ACL).
As these products are unregulated, the potential for consumer harm is evident.