Treasury releases 'Buy Now, Pay Later' Regulatory Reforms for consultation
13 March 2024
13 March 2024
On 12 March 2024, the Treasury released for consultation a package of long awaited reforms introducing a new framework to regulate Low cost credit contracts (LCCCs), which include Buy Now, Pay Later (BNPL). The package comprises a proposed amending Bill, Treasury Laws Amendment Bill 2024: Buy Now, Pay Later (the Bill) which amends the National Consumer Credit Protection Act 2009 (Cth) (Credit Act) and proposed Regulations, and the explanatory memorandum and statement.
The new regulatory framework is designed to:
Submissions on the reform package are to be made by 9 April 2024.
The objective of the Bill is to regulate LCCCs by bringing them within the scope of the Credit Act and the Credit Code.
The proposed reforms incorporate the activities of LCCC providers within the Credit Act and will:
LCCC providers who do not hold an Australian credit licence will need to obtain one;
LCCC providers who have an existing Australian credit licence will need to apply for a variation of authority to allow them to provide LCCCs;
They also expand the default notice requirements in section 87 of the Credit Code beyond direct debt to ensure that they cover a more extensive range of payment types (including creditor initiated charges on a credit card).
While the regulatory framework has been set up to apply to BNPL contracts and arrangements, the future intention is that the framework will be able to capture other classes of LCCC (such as wage advances).
Not all requirements of the Credit Act will apply, including :
There are proposed limits on fees and charges for LCCCs. In particular:
However, if when the contract was entered into the consumer has another LCCC with that provider or its associate or had one in the last 12 months, the maximum amount that can be charged in both cases is zero.
This reflects the current limitation on fees applying under Section 65(5) of the Credit Code, with the addition of a maximum limit on default fees and charges.
LCCC providers will be able to elect to:
LCCC providers must make their election in writing. Different elections can be made for different LCCC products.
The core obligations to make reasonable enquires as to the requirements, objectives and financial situation of the consumer, and to take reasonable steps to verify their financial situation will still apply.
However, the modified RLO framework allows the LCCC provider to take into account various risk factors (termed relevant matters) in determining what is reasonable. These risk factors are discussed below:
The draft Explanatory Memorandum provides that:
1 relevant matters relating to product design that may influence what is required may include:
the amount of credit made available; and
other terms of the contract including the amount of any default fees (and circumstances in which are payable) and the time provided for making repayments.
2 Other relevant factors include whether the target market includes certain classes of financially vulnerable consumers, as well as data (such as bad debt
rates, arrears, hardship arrangements and complaints on unaffordability) in relation to vulnerable cohorts.
The Regulations provide that an LCCC licensee must seek to obtain:
Identification information (as defined in the Privacy Act 1988 (Cth) (Privacy Act).
Details of any information requests (as defined within Privacy Act) that have been made in relation to the individual.
Payment information (within the meaning of the Privacy Act) about the individual.
Personal insolvency information (within the meaning of the Privacy Act) about the individual.
Information about the individual that is information covered by paragraph 6N(k) of the Privacy Act (which covers certain kinds of publicly available information).
New arrangement information (within the meaning of the Privacy Act) about the individual.
Court proceedings information (within the meaning of the Privacy Act) about the individual.
In addition, if the value of the LCCC is $2000 or greater, the LCCC licensee must also obtain from the credit reporting body information about consumer credit (within the meaning of the Privacy Act).
Under the modified option, LCCC licensees must have and review a written policy (unsuitability assessment policy) that sets out how they will assess whether the contract is unsuitable. The Regulations require an LCCC licensee to prepare and conduct regular reviews of its unsuitability assessment policy (s28HAF(1)). LCCC licensees are also required to make changes to their unsuitability assessment policy if they have identified that such changes are necessary (s28HAF(5)).
The package has been released for consultation, so there is a window of opportunity to have input on the reforms. To make submissions, you'll need to review the package carefully and make submissions by 9 April 2024.
Authors: Narelle Smythe, Partner; and Ankita Rao, Lawyer.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.
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