BNPL Regulation News – Guidelines Imposed on Australian companies

Australia has set new rules for the  Buy Now Pay Later (BNPL) Industry; They are the first country to regulate the fast-developing industry. The emerging lending service will receive these rulings for their customers’ safety and to look out for unfair loan companies.

These new industry regulations from the Australian Finance Industry Association (AFIA) will be imposed starting this Monday. Companies are expected to observe these rulings in the name of customer rights and fair trade practices.

BNPL companies will now have to closely follow these new impositions; Among these include thorough financial checking of customers, the upholding of the legal age, and caps on customers’ late installment fees to their loans, among others.

Eight of the big BNPL leaders in the local industry have signed on to these changes:

• Afterpay
• Brighte
• Humm
• Klarna
• Latitude
• Openpay
• Payright
• Zip

It is to uphold better customer experience – something they have already prioritised early on. Previously, the BNPL players in the industry have avoided being inquisitioned as credit companies, despite the government not agreeing so.

Upholding new regulations

These new regulatory changes stemmed from previous issues between the government and the BNPL industry. Years of dialogue between the two allowed for avoiding the regulation of BNPL companies like they were credit companies; Something that the companies contested as not.

For years, they have been out of the jurisdiction of the National Consumer Credit Protection Act since they were not considered credit companies. However, their definition in the Australian Securities and Investments Commission (ASIC) Act is clearly as a credit company. Hence, after careful checking, these regulatory changes were introduced to properly regulate their practices.

BNPL companies have been given the green light to operate with self-regulation. Yet, reportedly, there were violations and lax following of their rules, such as upholding the legal age limits and the mentioned late fees that may hit customers hard. The AFIA states that these rulings will be carried out however there are no hard consequences or penalties involved.

For any cases of complaints, the Australian Financial Complaints Authority (AFIC) will carry out disciplinary actions. Delinquent and untrustworthy companies will be named and shamed nationwide. Although some industry and government reactions are mixed, one of the bigger BNPL companies, Afterpay states that this is enough to warrant a bad rep for any rulebreakers. The effect will be substantial for their name and business.

Inconsistencies raised by consumers and legal centers

The BNPL industry has been shaken up as to the way these rulings are going to be carried out in the industry. On one hand, the changes to benefit customers are being emphasised for their protection. On the other hand, minor inconsistencies are being questioned – BNPL is also credit, and as such, needs to be under regulations as credit companies. And that these new regulatory guidelines are not extensive enough to give me safety and financial security to many Australian lenders.

This is something that major BNPL companies have reasoned against as they don’t consider their business under a credit company’s definition. Many consumers reacted, stating that the regulation of these BNPL entities is beneficial but more thorough checking of its details has to be included.

Reactions from representatives of the  Consumer Action Law Centre and the Financial Rights Legal Centre are the same, as they state that these changes are welcome; however, there remains the need to be more thorough with the details of these regulations to protect customers from possible issues, including spending more finances, possible debt traps, late fees, and more possible financial difficulties incurred on many Australian borrowers. Also, the lack of real penalties for these bad cases from bad-performing BNPL lenders is another concern they raised.