Buy now pay later providers to hold Australian credit licences from 2025
If you engage in credit activities, you will generally be required to have an Australian credit licence and comply with credit laws and licence conditions.
Under the current law, most buy now pay later (BNPL) products are not covered by the National Consumer Credit Act (Credit Act) meaning providers are often not required to hold a credit licence.
The Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024, anticipated to come into effect in 2025, seeks to regulate BNPL products under the Credit Act, requiring operators and providers of BNPL products to comply with existing credit laws. The new legislation proposes to introduce low-cost credit contracts (LCCCs) as a new category of regulated credit, with BNPL contracts a sub-category of LCCCs.
What is a BNPL contract?
A BNPL contract is a part of a BNPL arrangement, this is an arrangement where:
- a BNPL provider directly or indirectly pays a merchant some, or all, of the price of goods or services purchased by a consumer; and
- there is a contract between the BNPL provider and the consumer for the provision of credit in relation to the transaction.
Considerations for BNPL providers and operators
The new legislation will require providers of BNPL contracts to hold and maintain a credit licence. This means BNPL providers may need to apply for a credit licence, or, if they already hold a licence, apply to vary the licence to include the authorisation required to provide LCCCs. BNPL providers will also be required to comply with modified responsible lending obligations (RLOs), exclusively for LCCCs.
BNPL providers would be required to comply with core obligations, including:
- assessing the suitability of the LCCC for the consumer;
- taking steps to make reasonable inquiries about the consumer’s financial situation; and
- verifying that information.
However, for providers of BNPL contracts, the obligations will be modified to reflect the lower risk and cost of BNPL compared with other regulated forms of credit. Importantly, BNPL providers will need to elect in writing to apply the modified RLO framework, otherwise the existing framework will apply.
Preparing for the changes
If passed, the proposed amendments will require BNPL providers to hold an appropriate credit licence from the date the law comes into force, subject to transitional arrangements. ASIC offered guidance in its 2024 licensing and professional registration activities update (Report 797), confirming BNPL providers without an appropriate credit licence would be able to continue to provide BNPL credit contracts if they have applied for an appropriate credit licence authorisation, and it has been accepted by ASIC. ASIC is expected to release further guidance for BNPL providers, including how the transitional arrangements will operate.
BNPL providers should be aware of the proposed changes and understand how the new requirements will apply. Providers should consider what changes are required to ensure compliance with the new regulatory framework to ensure a smooth transition when the law takes effect.
For more information, email cmee@cnmlegal.com.au or amcaliece@cnmlegal.com.au, or call 07 3211 4010.
This paper is produced as general information in summary for clients and should not be relied upon as a substitute for detailed legal advice or as a basis for formulating business or other decisions. CNM Legal asserts copyright over the contents of this document.