Investing.com - The Australian government announced plans on Monday to introduce new laws that would categorize buy-now-pay-later (BNPL) services as credit products, aiming to protect consumers in an industry with limited regulation. BNPL companies typically provide instant interest-free short-term loans with minimal credit checks, allowing customers to spread payments over time. These services are often used by individuals facing financial difficulties who may take on more debt than they can afford.
According to Treasurer Jim Chalmers, while BNPL services have become increasingly popular, it is essential for the government to manage them effectively through proper legislation and regulation as credit products in order to mitigate potential risks.
Up until now, these services have been exempt from consumer credit regulations due to their lack of interest charges. The sector has experienced significant growth during the pandemic-fueled online shopping boom supported by COVID-19 stimulus payments and low-interest rates. However, concerns about repayment capacity have grown amidst Australia's battle against high inflation rates nearing 30-year highs.
Under the proposed legislation, BNPL providers will be required to obtain a credit license and adhere to minimum conduct standards similar those faced by traditional credit card issuers; this includes making provisions for financial hardship situations. Financial Services Minister Stephen Jones is expected elaborate further on these requirements in a speech later today.
Australia currently hosts approximately 12 listed BNPL providers serving around 7 million active accounts which generated AUD16 billion ($10.9 billion) worth of transactions during the 2021-22 fiscal year—a 37% increase compared previous figures.
Notably, Afterpay—the largest Australian-based BNPL company acquired last year by Jack Dorsey's Block Inc—has argued against strict regulations for the industry whereas PayPal Holdings Inc (NASDAQ:PYPL) has advocated subjecting such loans under existing consumer protection laws.The government is set to reveal the draft legislation for consultation later this year, with plans to introduce the bill in parliament by year-end.