The Australian government announced on Monday that it would be introducing laws to consider "Buy Now, Pay Later' services as credit products, in an effort to protect consumers in an unregulated industry.
Regulation BNPL Services
Buy Now Pay Later Finance companies are now set to be regulated by the government of Australia under credit laws. According to a report from Bloomberg, this draws the line on a process that will take up to several months in order to tighten requirements in this industry, especially as it develops and matures day by day.
As per AU Minister for Financial Services Stephen Jones, companies will be needed to lend obligations and hold credit licenses in Australia. They will also be facing a range of minimum standards on conduct and products.
"Our plan maintains the benefits of BNPL that many Australians enjoy, and we must ensure that providers will have appropriate safeguards in place, and we must ensure that they operate honestly, efficiently, and fairly, in line with other regulated credit products," he stated.
BNPL has provided competition between traditional credit products like credit cards and payday loans. He believes that as these new opportunities come, danger might occur to consumers, which is why the authorities needed to regulate and check the services.
Treasury's Request
The regulation comes after the Treasury in November published a consultation paper that seeks feedback on how the sector should be regulated, offering three broad options. Wall Street Journal reported that this includes one where providers are subject to the same regulation as other credit products.
However, the authorities opted for the second option that details providers must comply with statutory product disclosure and other information that they will be obligated to release, as well as Responsible Lending Obligations. Under this new plan, the Australian Securities and Investments Commission will be given enforcement abilities.
The new laws will affect consumer credit companies like Zip and Afterpay, which usually compete with banks to provide credit without interest that is typically repaid in installments. This type of service boomed during the pandemic but faced struggles in recent months due to the soaring interest rates and implementation of stricter regulations.
In response to this, Zip welcomed the government reforms as they described the company as a sensible balance between protecting consumers and promoting competition. Zip Chief Operating Officer Peter Gray stated that the company would only be impacted in a very minimal manner.
"We have been advocating for fit-for-purpose regulation, so we do really have a very good understanding of their financial circumstances prior to offering them any of our services," the COO added.
Meanwhile, Reuters reported that Afterpay argued against the tough regulations, along with Paypal saying that the company would want BNPL loans subjected to consumer protection law.
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