The federal government will buy now, pay later regulate the industry to better protect the millions of consumers who use its services.
Financial Services Secretary Stephen Jones will announce Monday morning at the Responsible Lending and Borrowing Summit that “buy now, pay later” will be classified as a credit product.
It requires operators of those services, such as Afterpay, to hold an Australian credit license, adhere to hardship requirements and minimum standards of conduct.
Australians will also have to carry out various checks before they can access the payments – out of concern that customers are withdrawing more money than they can afford to pay back.
Buy now, pay later operators will have to check whether customers can afford the products.
Fees for missed payments will also be capped, while disclosures must be provided to customers informing them what they are signing up for with the service.
Buy now, pay later services such as Afterpay are classified as a credit product under government reforms (stock image)
The industry is currently unregulated and the majority of customers are under
The consultation document found that there were more than seven million active “buy now, pay later” accounts in fiscal year 2021-2022, totaling more than $16 billion in transactions — an increase of nearly 37 percent compared to the year before.
These services are not regulated in the same way as credit cards, leading to a much greater financial risk for consumers.
Mr Jones said change was badly needed as there were “increasing threats to consumers, which have hitherto been largely unregulated and uncontrolled”.
“The plan will protect people from the spiral of harm that unregulated, unrestricted lending can cause,” he explained.
It was revealed that Australian consumers opened multiple accounts to buy now, pay later to access greater debt compared to what was accessible with a credit card or payday loan.
The minister added that there was evidence that some users were also “weaponizing BNPL products in abusive relationships,” such as forcing partners to go into debt.
These risks have been proven to affect women, First Nations people and those on low incomes the most.
A significant number of Australians using these services are also under the age of 35.
Mr Jones said it ‘looks like credit, it behaves like credit, it carries the risk of credit’.
It was revealed that there were more than seven million active “buy now, pay later” accounts in fiscal year 2021-22, totaling more than $16 billion in transactions (stock image)
Financial Services Secretary Stephen Jones (pictured) said reform was desperately needed as there were “rising threats to consumers, which have hitherto been largely unregulated and unmonitored”
Treasurer Jim Chalmers explained that it was time to reform the industry as account numbers exploded.
“They have a role to play, but we have to make sure we manage the risks,” he told ABC News.
And the best way to do that is to legislate — to regulate it as a credit product so we can manage some of the risk around hardship and marketing.
‘We believe that they do have a legitimate role in the system. They are very popular, but we need to make sure we manage them properly because their more serious impacts disproportionately weigh on some elements of our society, and we don’t want that.”
Dr. Chalmers said more consultations were to come.
“But if you make it a regulated credit product under the Credit Act, we can better manage some of the risks that people are aware of and there will be appropriate transitional arrangements,” he said.
“We want people who can afford to get involved now to pay later to access it, but there needs to be the right rules and regulations around it.”
In November it was announced that the “buy now, pay later” industry would be overhauled with plans to subject customers to financial controls.
Concerns were raised that providers undergo minimal credit checks and allow consumers to use their services even if they cannot afford to pay off the debt.
The Australian Securities and Investment Commission surveyed clients and found that 19 percent had cut back on essentials to meet their repayments.