Australia strikes BNPL sector with consumer credit law

Australia declared that new laws would govern buy-now-pay-later services as consumer credit products.

This forces BNPL providers to carry out background checks before lending in what is fast becoming one of the world’s most stringent regimes for the startup sector.

With this change, companies like Jack Dorsey's Block Inc.'s Zip Co. and Afterpay would fall under the jurisdiction of the Australian Securities and Investments Commission (ASIC), putting Australia second only to the UK among nations that have attempted to regulate BNPL as a standard credit product.

BNPL firms typically offer on-the-spot interest-free short-term loans with limited credit checks that spread payments over weeks or months and are largely used by cash-strapped citizens taking on debt, sometimes a lot more than they can afford.

BNPL providers are currently exempt from consumer credit regulation due to the absence of interest charges, and the industry has seen a rise in business due to an online shopping frenzy sparked by extremely low interest rates and COVID-19 stimulus payments.

As Australia struggles with high inflation that is almost at 30-year highs, concerns about repayment have risen. The center-left Australian Labor Party claims that BNPL must be viewed as credit because it has a similar effect on borrowers.

Australia, which has nearly a dozen listed BNPL providers, had almost 7 million active BNPL accounts in 2021–2022, resulting in A$16 billion ($11 billion) in transactions, an increase of 37%.

According to data from the retail industry, Australians spent A$63.8 billion on online purchases in 2022, with 26% of Australians saying they paid with BNPL.