Buy Now Pay Later: A snapshot into the reforms

Co-authored by Marissa Parel, Associate

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Buy Now Pay Later: A snapshot into the reforms

Buy Now Pay Later: A snapshot into the reforms

Co-authored by Marissa Parel, Associate

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March 12, 2025

Key points

From 10 June 2025, Buy Now Pay Later (BNPL) products will be regulated as a new type of credit - ‘low cost credit contracts’ (LCCC) - under the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) and National Credit Code (NCC).
BNPL providers will be required to comply with a suite of licensing and responsible lending obligations originally only applicable to traditional credit providers.
ASIC issued Consultation Paper 392 – Low cost credit contracts and draft Regulatory Guide 000 (RG 000) – Low cost credit contracts and sought feedback from industry.

Introduction

On 10 December 2024, the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024 (BNPL Act) received royal assent, marking a significant shift in the regulatory landscape for BNPL products.

In summary, the BNPL Act regulates BNPL products and imposes regulatory obligations on BNPL providers similar to those required of traditional credit providers. The reforms are stated to be aimed at balancing the advantages of BNPL products for consumers and the economy while minimising the harm caused by unaffordable lending practices.

What’s changed

The BNPL Act introduces several key changes to the current regulatory framework that BNPL providers must navigate, such as:

(Licensing Requirements) Most BNPL products will be regulated as an LCCC. Even if a BNPL product does not meet the definition of an LCCC, it will be regulated as a credit contract under the NCC. Accordingly, all BNPL providers will be required to obtain and hold an Australian Credit License (ACL);
(Modified Responsible Lending Obligations (RLO) framework) LCCC providers will have the option to ‘opt in’ to a modified RLO framework - a ‘scaled down’ framework tailored to the lower risk profile of LCCCs. Otherwise, the provider will be required to comply with the existing RLO framework; and
(General Conduct Obligations) LCCC providers will be required to comply with the general conduct obligations of credit holders under the NCCP Act and NCC including pre-contractual disclosure.

When do the changes apply?

Pracically, these new obligations come into effect on 10 June 2025.

What are Buy Now Pay Later arrangements?

A buy now pay later arrangement is a category of a LCCC under which:

a merchant supplies goods or services to a consumer;
a third person (BNPL Provider) directly or indirectly pays the merchant some or all of the price for those goods or services;
the BNPL Provider contracts with the consumer for the provision of this credit; and
it does not matter whether any fees or charges are payable by the consumer or merchant in connection with the arrangement or whether the goods or services have been supplied.

See below some of the key differences between LCCCs entered into before commencement (pre-commencement contracts) and LCCCs entered into on, or after commencement:


	Pre-commencement contracts	On or after commencement contracts
Are they considered LCCCs under the BNPL Act?	Yes This means consumers can still make hardship applications or lodge complaints through internal dispute resolution processes for contracts entered into before the regime’s commencement.	Yes
Do the responsible lending obligations apply?	No, unless the credit limit increases on or after commencement.	Yes
Are they required to comply with fee cap requirements?	Yes, from commencement	Yes

In the future, types of credit (e.g. wage advances) may also be captured under the regime.

New obligations of BNPL Providers

Licensing Requirements

By 10 June 2025, BNPL providers will need to meet the following key licensing requirements:

(Obtain an ACL) BNPL providers will be required to obtain and hold an ACL authorising them to engage in credit activities. If a provider is already licensed for a different type of credit activity, it may be required to vary its license to include other credit activities;
(ASIC Approval) Providers must ensure their ACL application is accepted by the Australian Securities and Investments Commission (ASIC). ASIC has recommended BNPL providers lodge their applications by 11 May 2025 to benefit from the regime’s transitional arrangements, which allow BNPL providers to continue to provide BNPL credit contracts pending approval from ASIC; and
(AFCA Membership) License holders must be a member of the Australian Financial Complaints Authority (AFCA).

NCCP Act Compliance

As licence holders, BNPL providers will now be required to comply with the general conduct obligations of license holders including:

Acting efficiently, honestly and fairly;
Ensuring competence (including of representatives) to engage in credit activities;
Having appropriate resources (including financial, technological and human resources) and risk management systems;
Ensuring clients are not disadvantaged by any conflicts of interest;
Implementing a dispute resolution procedure that complies with ASIC-approved standards and requirements; and
Having appropriate arrangements and systems to ensure compliance.

BNPL providers must also comply with obligations specific to traditional credit providers, including (but not limited to):

Holding and complying with the relevant conditions of its ACL; and
Complying with pre-contractual disclosure obligations requiring the BNPL provider to provide certain documents to customers containing information on the credit activities of the BNPL provider.

The anti-avoidance provisions in the BNPL Act prevent LCCC providers from structuring their business models to avoid regulation by the NCCP Act.

With one of ASIC’s enforcement priorities this year being ‘business models designed to avoid consumer credit protections’, BNPL providers should be careful when structuring their products to avoid breaching the scheme.

Compliance with modified RLO framework

Perhaps the most substantive change arising from the BNPL Act is the requirement for BNPL providers to comply with responsible lending obligations. Under the existing RLO framework, credit providers must assess whether entering into a credit contract or increasing a consumer’s credit limit is unsuitable for the consumer.

The BNPL Act introduces modification to the existing framework which allows BNPL providers to opt in to a “scaled down” version of the framework to reflect the lower risk profile of LCCCs compared to traditional credit products. BNPL products that are not LCCCs will be required to comply with the existing RLO framework.

Below are the main differences between the traditional framework and the modified framework.

Traditional RLO framework	Modified RLO framework
Make reasonable inquiries about the consumer’s requirements, objectives and financial situation Take reasonable steps to verify consumer’s financial situation.	Providers are similarly required to make reasonable inquiries about the consumer’s financial situation and take reasonable steps to verify it. However, to determine what constitutes ‘reasonable’ inquiries and verification, a ‘safe-harbour’ of sorts is prescribed, requiring that the provider must consider several factors. This includes the nature of the product, target market and TMD, whether the consumer is financially vulnerable and whether the provider has any procedures to reduce the risk of the product being unaffordable for that consumer and to mitigate any harm it could cause. These factors are intended to be scalable how they apply from case to case. Considering whether the consumer is vulnerable requires consideration of the consumers circumstances (unlike the other factors). This could include some for of credit check. The risk reduction procedures may include (for example) protocols that will apply to avoid continued borrowing when payments are late or how harshly debt-collection is applied.
Assess whether the credit product or credit limit increase is unsuitable for consumer. Prohibited from into a credit product or increasing the credit limit of a contract if the contract is unsuitable.	Providers must still assess if a contract or credit limit increase is unsuitable and are prohibited from entering into one if it is. Notably, there is a rebuttable presumption that contracts of $2,000 or less will be ‘not unsuitable’ (i.e. will meet the consumer’s requirements and objectives). However, providers will still need to evaluate the consumer’s ability to meet the financial obligations under the contract.
Do not make unconditional representations.	This obligation does not apply.
If requested, give a copy of the assessment to the consumer.	Same obligation applies.
Comply with time limits when making inquiries, verification and assessments.	Time period for reasonable inquiries, verifications and assessment has been eased, with the timeframe being extended up to 120 days before entering into the LCCC. If a provider enters into a contract or increase a credit limit after commencement and rely on assessments or verifications made before, they must have been done within 90 days prior to the contract.
No equivalent provision.	Providers must have a written policy setting out how they will comply with assessments of unsuitability.

Next steps

BNPL providers should act early and ensure their licensing, policies and practices are compliant to avoid the risk of engaging in unlicensed conduct and receive the benefit of the transitional arrangements.

Our team can assist with all aspects of compliance including:

preparing credit license applications;
reviewing policies and all relevant documentation (including unsuitability assessment policies and pre-contractual disclosure statements); and
advising on the modified RLO framework.

Please contact our team if you would like advice about these matters.