Buy Now Pay Later legislation passes Parliament, credit bodies say it is ‘a good outcome for both consumers and industry’
Arca, the peak industry association focussed on the use of credit reporting and consumer data, has shown its support for the Federal Government’s legislation to regulate the buy now, pay later (BNPL) industry, which passed through Parliament on Thursday evening.
Michael Blyth, General Manager, Policy & Advocacy at Arca (previously the Australian Retail Credit Association), said, “Arca welcomes the passage of the BNPL reforms, as we have been long-standing supporters of the need to bring the BNPL sector into the existing credit framework.”
Under the legislation, which comes into effect in six months, BNPL providers will need to be licensed by ASIC and comply with the same general obligations that apply to banks and other lenders. This includes complying with a ‘modified’ form of responsible lending obligations, which focuses on minimising the risk of harm to customers from the provision of the BNPL product. The reforms mean that BNPL providers that offer facilities over $2,000 will need to take part in credit reporting at the ‘partial’ level.
“This is a good outcome for both consumers and industry. However, we continue to urge BNPL providers to fully participate in the credit reporting system, and share account data and also payment data,” said Blyth.
“Getting access to and reporting information about customer accounts and payments will mean BNPL providers can make better credit decisions. And for BNPL customers, it is a great opportunity to demonstrate to other lenders positive credit behaviours, which should make it easier for them to get credit in the future. Comprehensive credit reporting promotes financial inclusion, which is especially good news for customers who are young or new to the credit system.”
Arca believes the approaches for BNPL credit should apply to all forms of credit. In particular, all lenders should be able to scale their responsible lending checks to reflect the nature of credit and impact of that credit on the individual.
Furthermore, all lenders should be able to apply a risk-based assessment to how it does these checks; ensuring that people who are clearly identified as ‘less risky’ can be subject to less onerous checking processes. This helps reduce the overall cost of credit, which ultimately means credit is less costly for consumers.
Arca emphasised that the reforms need to operate to encourage positive innovation in credit products and consumer offerings, but equally to include appropriate checks on ‘innovation’ which potentially exploits legal loopholes.
“These reforms are quite complex and we consider the best way to manage the risk of poor outcomes is a regular review of this law, and certainly a review within 12 months of operation,” added Blyth.
