The Australian government has introduced a new legislation aiming to enforce credit checks on users of buy now, pay later (BNPL) services, potentially reshaping the landscape of consumer credit in the country. If passed, this law will mandate companies like AfterPay, Zip, and Klarna to conduct basic credit assessments on new customers to ensure their ability to afford the services they opt for.
Under the proposed legislation, BNPL service providers will be brought under the umbrella of the existing Credit Act, requiring them to obtain a credit license. This move marks a significant step in regulating an industry that has, until now, operated with minimal oversight.
BNPL services allow consumers to purchase goods and defer payment, typically settling the amount in installments over several weeks, without accruing interest. However, late payments can result in additional fees.
Assistant Treasurer and Minister for Financial Services Stephen Jones emphasized that the proposed regulations aim to strike a balance between consumer protection and maintaining the innovative features and competitive nature of the BNPL sector. By instituting basic credit checks, the government seeks to prevent irresponsible lending practices while ensuring accessibility to credit for those in need.
While acknowledging that BNPL services are not akin to traditional loans, Mr. Jones stressed the importance of mitigating risks associated with excessive debt accumulation, particularly among users with multiple accounts.
The proposed legislation has been met with support from industry players such as Zip, which already conducts credit checks and holds a credit license. The Australian Finance Industry Association (AFIA) also expressed approval, citing the legislation as a crucial step towards enhancing consumer trust and enshrining protections into law.
Despite these positive reactions, some advocates argue that the proposed measures may not go far enough in safeguarding vulnerable consumers. Stephanie Tonkin, chief of the Consumer Action Law Centre, highlighted concerns about individuals falling into debt spirals due to multiple accounts and frequent payments, urging for more comprehensive protections.
As the proposed changes move through the parliamentary process, they represent a significant shift in the regulatory landscape surrounding BNPL services, with potential implications for millions of Australians who utilize these payment options.