# Buy Now Pay Later regulatory reforms

**Submission**

**April 2024**


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## About this Submission 

This document was created by FinTech Australia in consultation with its members.

In developing this Submission, interested members participated in roundtables and individual

discussions to discuss key issues and provided feedback to inform our response to the

consultation paper.

## About FinTech Australia

FinTech Australia is the peak industry body for the Australian fintech sector, representing more

than 420 fintech companies and startups across Australia. As part of this, we work with a range

of businesses in Australia’s fintech ecosystem, including fintechs engaging in Buy Now Pay Later,

payments, consumer and SME lending, wealthtech and neobanking, the consumer data right and

the crypto, blockchain and Web3 space.

Our vision is to make Australia one of the world’s leading markets for fintech innovation and

investment. This submission has been compiled by FinTech Australia and its members in an

effort to advance public debate and drive cultural, policy and regulatory change toward realising

this vision, for the benefit of the Australian public.

FinTech Australia would like to recognise the support of our Policy Partners, who assist in the

development of our submissions:

-  Allens;

-  Cornwalls;

-  DLA Piper;

-  Gadens;

-  Hamilton Locke;

-  King & Wood Mallesons; and

-  K&L Gates.


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## Introduction

FinTech Australia supports the Australian Government’s proposal to undertake legislative reform

in respect of Buy Now, Pay Later (BNPL) arrangements. The proposed legislative reform has

been released in the form of a draft bill accompanied by an explanatory memorandum, and

draft regulations accompanied by an explanatory statement (Legislative Package).

This follows the options paper released by the Australian Government in November 2022,

“Regulating Buy Now, Pay Later in Australia” (Options Paper).

The draft legislation amends the National Consumer Credit Protection Act 2009 (Cth) (NCCPA) and

the National Consumer Credit Protection Regulations 2010 (Cth) (NCCPR), with the effect that BNPL

will be subject to the existing regulatory framework for other credit products.

We understand that the Government’s aim is to introduce amendments to ensure that BNPL is

regulated in a way that is:

-  flexible;

-  adaptable; and

-  proportionate to the risk of consumer harm.

FinTech Australia supports the Government’s aim to provide a framework which meets the

above objectives, but at the same time, we submit that any legislative reform needs to ensure

that the Australian fintech landscape can continue to foster and encourage innovation, and

continue to remain competitive on a global scale. This is consistent with our vision to make

Australia one of the world’s leading markets for fintech innovation and investment.

In this sense, FinTech Australia would encourage the Government to take an approach to

legislative reform in respect of BNPL arrangements that:

-  protects consumers while ensuring appropriate guardrails are in place within which to

safely foster innovation;

-  adopts the approach of similar activity, similar risk, same regulatory outcome;

-  remains technology neutral; and

-  ensures consistency with the international community by bringing specific activities into

the regulatory perimeter.

In this regard, we encourage the Government to spend appropriate time in developing a set of

regulatory principles and guidance, to provide clarity and certainty to providers of BNPL

products and arrangements in determining:


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-  whether they have made reasonable inquiries about the consumer’s requirements and

objectives and the consumer’s financial situation; and

-  whether they have taken reasonable steps to verify the consumer’s financial situation.

Without this additional clarity and certainty, there is some concern as to whether the modified

Responsible Lending Obligations (RLO) framework effectively provides any relief from the

requirement to adopt a full-scale approach to RLOs. In other words, without sufficient clarity

and certainty, some providers of BNPL products and arrangements will err on the side of caution

and adopt a full-scale approach to RLOs – thereby negating what would otherwise be the

potential benefit of offering an opt-in RLO framework.

The proposed legislative reforms also contemplate broad regulation-making powers, in the

context of the NCCPA and NCCPR. While we recognise and understand the need for regulation
making powers, as a means of efficient and effective administration of legislation – we

encourage the Government to carefully consider the circumstances in which it would use these

regulation-making powers.

In particular, we would encourage the Government to avoid use of regulation-making powers to

bring other types of consumer credit (in addition to BNPL) within the scope of the NCCPA,

without proper consultation along the lines undertaken in connection with the Options Paper

and the Legislative Package. Care should be taken to ensure regulatory intervention is balanced

with providing an innovation enabling environment for novel fintech products which can offer

consumers greater choice, flexibility and a better deal when managing their finances.

We have other suggestions in relation to the operational implementation of the Legislative

Package – which are set out in detail below.

FinTech Australia looks forward to continuing to engage with the Government as the new

regulatory framework develops.


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## 1 Scope of Legislative Package

**1.1** **LCCCs**

The Legislative Package proposes to amend the NCCPA and the Credit Code (ie Schedule 1 to the

NCCPA) to provide the means for regulating “low cost credit contracts” (LCCC), which include

“buy now pay later arrangements” and “buy now pay later contracts”.

LCCCs are proposed to be defined by reference to new section 13C of the Credit Code, as having

the following features:

-  credit is, or may be, provided under the contract; and

-  the contract is:

`o` a buy now pay later contract; or

`o` a contract prescribed by the regulations for these purposes; and

-  the period during which credit is, or may be, provided under the contract is no longer

than the period (if any) prescribed by the regulations for these purposes; and

-  the contract satisfies any requirements prescribed by the regulations for these purposes

that relate to fees or charges that are, or may be, payable under the contract; and

-  the contract satisfies any other requirements prescribed by the regulations for these

purposes.

As currently drafted, there are a number of amendments that should be considered to ensure

the definitions capture the full range of BNPL providers in the market, while also ensuring that

BNPL providers can service their customers using different products offered by the same

provider. This latter point is expanded on further below.

**_Considering how fees and charges should be applied_**

FinTech Australia submits that the Government should (on an ongoing basis) have due regard to

appropriateness of time periods, fees and charges – relative to industry standards and practice

at the relevant time. A “set and forget” approach is not necessarily appropriate in our view, as

this will inadvertently hamper the ability of providers of BNPL products and arrangements to

maintain relevance and continue to provide products and arrangements that are beneficial to

the lives of the Australian public.

On that topic, FinTech Australia would encourage the Government to carefully consider whether

the fees and charges included in proposed Regulation 69E (Definition of low cost credit


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contract—fees and charges) remain appropriate. This is explored in greater detail in section 3

below.

As a related matter, there currently does not appear to be any indexation contemplated in

respect of the maximum fees and charges that can be charged by providers of BNPL products

and arrangements. Without providing indexation of maximum fees and charges (or otherwise

allowing a degree of flexibility for providers of BNPL products and arrangements, in determining

the level of fees and charges that can be applied), this may have an impact from the perspective

of those providers being able to continue to compete and innovate.

In addition, the demarcation of fees based on whether there is one, or more than one, contract

in place with the relevant provider is not necessarily the most appropriate basis on which fees

should be levied. In this regard, FinTech Australia would encourage the Government to consider

whether the thresholds should be determined on a “per customer” basis – ie rather than

different fees applying for multiple accounts, there should instead be a more holistic approach

to be implemented in terms of the maximum fees and charges that can be charged to a

customer, without having an impact on whether the arrangement is (or is not) captured by the

Legislative Package. Similarly, we consider that it would be an inadvertent (and unintended)

outcome if a provider of BNPL products and arrangements could selectively charge a different (ie

higher) fee or charge, and have the relevant product or arrangement excluded from the

Legislative Package altogether. For example, if such provider were to charge $1 higher than the

maximum fee and/or charge contemplated under the Legislative Package and achieve an

outcome where the relevant product or arrangement was no longer covered by the Legislative

Package (and potentially not covered by any regulatory requirements at all), then this would be

contrary to the policy outcome of seeking to protect consumers.

The ”per customer” approach proposed above appears to be more consistent from the policy

perspective of ensuring that a particular product is suitable for a particular customer – and

depending on the time that elapses between the first and second contracts being entered into,

there might be no material changes to the customer’s financial circumstances during the interim

period – so it might be more appropriate for the reasonable inquiries (about the customer’s

requirements, objectives and financial situation) and reasonable steps (to verify the customer’s

financial situation) to be determined by reference to the overall position as it relates to the

customer, rather than being determined by reference to the second contract being entered into.

We are also concerned that the lack of flexibility within Regulation 69E, as it relates to the

prescriptive nature of fees and charges that can be applied, fails to account for the different

ways consumers use BNPL products - and that this would potentially damage the diversity of

BNPL products offered by the same provider.

This lack of flexibility also fails to acknowledge that BNPL providers may offer consumers a range

of BNPL products over a number of different time horizons. Providing for a prescriptive model

of fees and charges, as is represented by maximum fees and charges per contract as set out in


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Regulation 69E, does not give BNPL providers adequate flexibility to tailor different products to

customers’ specific needs in different circumstances. An increased level of flexibility in this

regard would encourage BNPL providers to offer a range of products with different consumer

use cases, which enhances the customer’s ability to access affordable credit options in different

circumstances.

Likewise, many BNPL providers offer a number of BNPL products to their customers to account

for different use cases. Some BNPL contracts operate with monthly accounting fees with credit

limits of under $2000 that consumers use instead of a credit card, while others offer longer

repayment periods for higher-value purchases. Others, like the low-value and low-limit “Pay-in
4” model, generate the vast majority of revenue from merchants and allow customers to

purchase generally discretionary products and services. Providers offer a range of BNPL

products to serve the specific needs and requirements of their customers, depending on a range

of factors, including their cash flow, the value of the purchase, and repayment periods.

If there is a concern that some providers may seek to circumvent the caps on fees by creating

multiple contracts, then we submit that this risk is perhaps better addressed via the modified

RLOs. For example, it may be that the proposed presumption that a BNPL contract for under

$2,000 will meet the requirements and objectives of the consumer, should only apply to the first

contract held by the consumer.

**_Impact of regulation-making powers_**

Regulation-making powers should only be used to provide for appropriate parameters in terms

of (i) the period during which credit is (or may be) provided under the contract, and (ii) the level

of fees or charges that are (or may be) payable under the contract.

FinTech Australia would encourage the Australian Government to avoid use of regulation-making

powers to bring other types of consumer credit (in addition to BNPL) within the scope of the

NCCPA, without proper consultation along the lines undertaken in connection with the Options

Paper and the Legislative Package.

Further detail is set out on this topic in section 4 below.

Further, we query the need for inclusion of the words “the contract is … a contract prescribed by

the regulations for [these] purposes” – as this potentially goes beyond mere ease of

administration of legislation, and potentially allows an avenue for inclusion of non-BNPL

contracts to be included without proper consultation.

For similar reasons, we query the need for the words “the contract satisfies any other

requirements prescribed by the regulations for [these] purposes”. If there are legitimate

categories of distinguishing features (along the lines of time periods, fees and charges – which

are expressly provided for in the definition of “LCCC”), then it might be worthwhile to have

separate sub-clauses for any such categories.


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In addition, we query what requirements will be prescribed by the regulations in respect of fees

and charges that are (or may be) payable under the contract, for the purposes of determining

whether the relevant contract is an LCCC. In particular, if providers of BNPL products and

arrangements were able to avoid being subject to the Legislative Package simply by charging

higher fees and/or charges, then this should be an inadvertent outcome (and avoided). In this

regard, we note that there are some definitions that currently do not appear to operate as

intended in the context of other definitions. For example, while the definition of short term

credit contract has been amended (i.e. s5(1) of the Act), the short term credit exemption from

the Credit Code (in section 6(1) of the Code) remains. Careful consideration needs to be given to

ensuring that providers of BNPL products and arrangements are not able to leverage any

regulatory arbitrage left by inadvertent gaps between relevant definitions in the context of the

Legislative Package. However, we also note there may be a benefit in retaining some form of

short term exemption from the Code for highly innovative offerings which have been

inadvertently captured by the LCCC definition. We are happy to separately provide examples of

some of these edge cases.

Finally, we note that some products and arrangements that would typically be considered part of

the BNPL landscape would potentially be excluded from the definition above, on the basis that

they constitute a revolving line of credit. If there is a period prescribed by the regulations, as

being the maximum period during which credit is (or may be) provided under the contract, then

revolving lines of credit (and similar products with no end date or time period attaching to them)

would be excluded from the definition of LCCC.

**1.2** **BNPL arrangements and BNPL contracts**

BNPL arrangements and BNPL contracts are proposed to be defined by reference to new section

13D of the Credit Code, as set out below.

**_BNPL arrangements_**

A “buy now pay later arrangement” is an arrangement, or a series of arrangements:

-  under which a person (the merchant) supplies goods or services to another person (the

**retail client); and**

-  under which a third person (the BNPL provider) directly or indirectly pays the merchant

an amount that is some or all of the price for the supply by the merchant to the retail

client mentioned above; and

-  that includes a contract between the BNPL provider and the retail client under which the

BNPL provider provides credit to the retail client in connection with the supply by the

merchant to the retail client mentioned above.


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For the purposes of the above definition, and to avoid doubt:

-  it does not matter whether any fees or charges are payable by the retail client or the

merchant in connection with the arrangement or series of arrangements; and

-  it does not matter whether the payment by the BNPL provider occurs before, at or after

the time when the goods or services are supplied by the merchant to the retail client;

and

-  it does not matter whether the contract between the BNPL provider and the retail client

is a continuing credit contract; and

-  it is not necessary for the arrangement or series of arrangements to include any contract

to which the merchant, retail client and BNPL provider are all parties.

However, an arrangement or a series of arrangements of the kind described above is not a “buy

now pay later arrangement” if the principal business of the merchant is the supply of

administration, brokerage, management, collection or recovery services, or other incidental

services, in connection with the provision of credit under credit contracts.

**_BNPL contracts_**

A contract is a “buy now pay later contract” if:

-  it is part of a buy now pay later arrangement involving a retail client, a BNPL provider and

a merchant; and

-  it is a contract, between the retail client and the BNPL provider, under which the BNPL

provider provides credit to the retail client in connection with the supply by the merchant

to the retail client mentioned above.

FinTech Australia has the following comments on the definitions referred to above:

-  **Merchants providing BNPL services: We suggest that there should be clarity in the**

definitions of “buy now pay later arrangement” and “low cost credit contracts”, to the

effect that merchants that offer a BNPL service are potentially captured as LCCC

providers. The definition of “buy now pay later arrangement” describes a BNPL provider

as a ‘third person’ that indirectly or directly pays the merchant an amount that is some or

all of the price for the supply of goods and services.

Under this definition, merchants that provide a BNPL service directly to their customers

appear to be exempt, and could continue to offer an unregulated BNPL product.

Examples could include offshore players selling goods directly to consumers and,

consumer finance providers offering BNPL products, and retailers seeking to introduce

in-house BNPL offerings. It would seem to be an unintended consequence for these


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providers to be inadvertently excluded from the definitions of LCCC and BNPL

arrangement.

On the other hand, if this is to be permitted – there should be clear guardrails within

which it should be allowed – eg on the basis of a short-term maximum duration during

which credit may be made available. As part of this regulatory and policy analysis, we

submit that Treasury should bear in mind that more established players in this area will

more easily be able to sustain the compliance costs in connection with an Australian

credit licence – however smaller merchants will not be able to do so, so this will create a

competitive disadvantage and may drive poor competition outcomes.

In addition, on the basis of the definition as currently proposed, merchants could

potentially offer their own BNPL arrangement as part of a pre-agreed debt-factoring

arrangement where there is an intention upfront that a third party BNPL provider (or any

other third party, for that matter) will immediately buy the debt on its creation – in other

words, this is a BNPL arrangement from an operational perspective, but it does not meet

the definition of “buy now pay later arrangement” on the basis of a technicality; the BNPL

provider never provides credit to the customer, but the customer still ends up owing the

BNPL provider because the merchant provides credit and then the BNPL provider "buys"

the debt from the merchant so that the consumer then owes the BNPL provider. In

these circumstances, we would submit that merchants should not be able to leverage

any such regulatory arbitrage in this regard – as this would seem contrary to the policy

objective underpinning the Legislative Package, based on our interpretation and

understanding.

FinTech Australia recognises however, that there is a policy question at play as to

whether merchants being captured as LCCC providers would affect their ability to offer

terms of trade and/or lay-by arrangements, and whether this would then consequently

affect their ability to compete (and whether this would have flow-on effects for

consumers). Similarly, we also recognise that in some cases, it would be cost-prohibitive

for merchants to obtain an Australian credit licence – which could also compound the

difficulties that merchants would face in this regard.

It is also possible for some BNPL providers to have multiple arrangements with

customers, some of which fall within the definition of LCCC and some that do not meet

the definition (for example, because there is no payment to the merchant) but otherwise

fall within the existing short-term credit exemption or continuing credit exemption. In

such circumstances, it would be beneficial to confirm that a BNPL provider can continue

to have both arrangements and that the fee caps and late fee caps will continue to

operate independently.

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**Providers inadvertently caught by the requirements: On the other hand, there are**

various products and arrangements that are currently exempt under the short-term

credit exemption in the context of the NCCPA. However, with the new LCCC definition,

there could potentially be an inadvertent capturing of products and arrangements that

are likely not the target area of the market to be regulated.

It seems that this creates a strange policy outcome where ordinary credit arrangements

(which potentially strategically leverage an inadvertent loophole in the definitions and

charge higher fees and charges, and thereby remove themselves from the operation of

the Legislative Package) would still remain exempt, while other (usually more innovative,

shorter term and lower cost) providers might inadvertently be brought within scope of

the NCCPA and NCCPR – and these providers would then require credit licensing and

compliance with the new obligations. We recommend Treasury pay close attention to

these “edge cases” where some providers might be inadvertently brought within the

scope of the proposed amended NCCPA and NCCPR (while other, more traditional,

arrangements are allowed to exclude themselves from the operation of the Legislative

Package – simply by charging higher fees and charges than are contemplated as being

the outer limits applicable to LCCCs).

**Multiple uses of the term “retail client”: The use of the term “retail client” is potentially**

going to create confusion and ambiguity across multiple different legislative references.

For example, there are discrepancies against what would constitute a “retail client” for

the purposes of the Corporations Act 2001 (Cth), what would constitute a “retail client” for

the purposes of design and distribution obligations (DDO) in respect of relevant financial

products (in particular, credit products), and what would constitute a “retail client” in

everyday usage. In these circumstances, we submit that a reference to a “customer”,

rather than a “retail client”, would be more appropriate in relation to LCCCs to avoid

further ambiguity in the use of “retail client”.

**Reference to “indirect” payments to merchants: We query the use of the word**

“indirectly” in the context of the definition of “buy now pay later arrangement”, as being a

mechanism by which BNPL provider can pay a merchant for some or all of the price for

the supply by the merchant to the retail client mentioned above. While we appreciate

the need for flexibility and expansiveness in terms of legislative application, we are not

aware of any providers of “indirect” credit in the context of BNPL products or

arrangements. In those circumstances, we would encourage closer scrutiny of the use of

the word “indirectly” – to avoid unintended consequences in terms of application of the

definition of “buy now pay later arrangement”.

**Interaction with continuing credit contracts: In determining whether an arrangement**

is a “buy now pay later arrangement”, the Legislative Package provides that it does not

matter whether the contract between the BNPL provider and the retail client is a

continuing credit contract. While we do not necessarily have any objection to this

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exclusion (and we agree that if something satisfies the definition of a “buy now pay later

arrangement”, then it should not necessarily be excluded from the application of the

relevant provisions simply on the basis that it is also a continuing credit contract), we

would encourage a detailed review to ensure that an arrangement of this type does not

become inadvertently subject to more onerous obligations than if it were either a BNPL

arrangement or a continuing credit contract (but not both). It may be that the solution

here is to insert a prevailing clause – by which there is legislative certainty that the Credit

Code applies to LCCCs notwithstanding the application of (what would otherwise be) the

continuing credit contract exemption in section 6(5) of the Credit Code or the short term

credit exemption in section 6(1) of the Credit Code. We would welcome the opportunity

to review proposed drafting in respect of proposed new section 13B of the Credit Code in

this regard.

**Debt factoring: Finally, we would be interested in discussing whether Treasury has given**

consideration to how providers might use debt factoring as a model for BNPL

arrangements. In particular, the key question is whether any such providers would be

covered by the above definitions, given that they do not provide credit to the consumer,

rather they purchase the debt at a discount from the merchant.

If that is the case, then the question becomes whether they should be included in the

first instance, because they are active participants in the BNPL industry – and if they are

not captured by the definitions, whether this gives rise to a risk of anti-avoidance. Debt

factoring is often used for purposes like white-labelling (ie merchants offering the facility

under their own name), which could become an example of a product or service

inadvertently being left out of the operation of the Legislative Package.

As a related point, it would be worth considering whether arrangements such as this

should be the subject of a transitional arrangement of some description (eg the

Legislative Package only applies in respect of new merchants being signed up to the

relevant platform), assuming that the underlying debt factoring arrangements were set

up legitimately and in full compliance with all legislative requirements that existed at the

relevant time.

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## 2 Responsible Lending Obligations

**2.1** **Insufficient guidance in respect of modified RLO framework**

As outlined above, FinTech Australia notes that there is currently further scope for development

of a set of regulatory principles and guidance, to provide clarity and certainty to providers of

BNPL products and arrangements in determining:

-  whether they have made reasonable inquiries about the consumer’s requirements and

objectives and the consumer’s financial situation; and

-  whether they have taken reasonable steps to verify the consumer’s financial situation.

Without this additional clarity and certainty, there is some concern as to whether the modified

RLO framework effectively provides any relief from the requirement to adopt a full-scale

approach to RLOs.

In particular, RLOs are already scalable. The only difference with the new RLO framework

proposed to apply in respect of BNPL arrangements is that the new framework is proposed to be

scalable by reference to a specific set of matters to be prescribed in legislation – however,

because RLOs are already scalable, there is arguably no meaningful difference between the

scaleability of the different frameworks, and therefore no substantive difference as against the

existing RLO framework as it applies to entities licensed under the Credit Code. The current

approach will create uncertainty, make it difficult to implement compliant procedures and leave

much of the ‘heavy lifting’ to ASIC guidance (which will come much later in the implementation

timeline).

The Australian Securities and Investments Commission (ASIC) has released ASIC Regulatory

Guide 209 (RG209), which sets out ASIC’s approach in respect of responsible lending conduct in

credit licensing. In particular, ASIC notes in RG209:

-  Credit licensees must comply with certain responsible lending obligations. The key

concept of these obligations is that credit licensees must not enter into or assist a

consumer with a credit product that is unsuitable for them.

-  Credit licensees must decide how they will meet the responsible lending obligations, and

RG209 sets out ASIC’s views on what the obligations require and steps credit licensees

can take to minimise the risk of non-compliance.

-  RG209 outlines the responsible lending obligations and gives an overview of ASIC’s

guidance.

The key concern is that providers of BNPL products and arrangements will be forced to either

comply with full-scale RLOs (as provided for in RG209), or otherwise run the risk of non
compliance by opting-in to comply with the modified RLO framework (by inadvertently

committing a breach, on account of there being insufficient guidance in terms of how the

modified RLO framework is intended to be implemented).

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There is also some concern among members of FinTech Australia, that without sufficient clarity

and guidance in this regard, providers of BNPL products and arrangements may even become

subject to an RLO framework that is even more onerous than that imposed on other credit

licensees. In particular, if providers of BNPL products and arrangements are subject to

obligations unique to BNPL contracts and arrangements (as is indicated by the reference in the

Explanatory Memorandum to “some modifications to ensure regulation is proportionate”), and

such providers also perceive that they must also comply with full-scale RLOs (as provided for in

RG209) – then such providers will become subject to an inadvertently high compliance standard.

For any providers of BNPL products and arrangements that choose to comply with full-scale

RLOs (as provided for in RG209), the increased complexity and compliance burden is likely to

cause practical difficulties and lead to an increase in compliance costs. This will likely have a

flow-on effect of making it harder for such providers to continue to compete and innovate,

and/or will lead to increased costs for consumers. FinTech Australia recommends Treasury

carefully considers this.

This position also likely creates a demarcation between providers of BNPL products and

arrangements that already have an Australian credit licence (for example, to the extent they are

already providing credit in other parts of their business), and those that do not. For the latter

category of providers of BNPL products and arrangements, this likely further compounds against

their ability to compete and innovate, as compared with any of their competitors that are already

providing credit. Again, FinTech Australia recommends Treasury carefully considers this.

Another potential issue that will arise among providers of BNPL products and arrangements that

already have an Australian credit licence is that they will need to consider whether they should

either (i) have one RLO policy that applies to all forms of credit they provide (BNPL and other

forms of credit), or (ii) have an RLO policy that applies to BNPL, and a separate (more onerous)

RLO policy that applies to other forms of credit being provided.

In the context of (i), again this gives rise to the key concern that providers of BNPL products and

arrangements will be forced to either comply with full-scale RLOs (as provided for in RG209), or

otherwise run the risk of non-compliance by opting-in to comply with the modified RLO

framework (by inadvertently committing a breach, on account of there being insufficient

guidance in terms of how the modified RLO framework is intended to be implemented).

In the context of (ii), this likely gives rise to additional complexity in terms of application and

administration of the two policies. It will likely involve the same staff members making

assessments across both policies (or otherwise relying on technology to appropriately

demarcate between the two policies) – and this exposes the potential for misapplication of

consumers under the policies (eg the less onerous compliance obligations and requirements

being inadvertently applied where the more onerous compliance obligations and requirements

should have been applied instead). Again, this likely negates what would otherwise be the

benefit of offering an opt-in model for a modified RLO framework.

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**2.2** **Unsuitability policy**

The Legislative Package states that the new regulatory framework for LCCCs is intended to

maintain the benefits of consumer access to these kinds of credit products (ie BNPL), while

providing appropriate and proportionate protections. One of the ways it seeks to achieve this

outcome, is by modifying the existing RLO framework to create an opt-in RLO framework that

scales better with the risks posed to consumers, including requiring providers of LCCCs to

develop and review a written policy on assessing whether the contract will be unsuitable for the

consumer.

In respect of the proposal for providers of BNPL products and arrangements to have a separate

policy as to whether a contract will be unsuitable for a consumer, FinTech Australia submits that

there is not necessarily any practical advantage to be gained from having a separate policy of

this nature – especially in circumstances where the modified RLO framework does not appear to

provide any practical benefits in its current form.

In addition, there was some concern raised that a requirement for an unsuitability policy (in

addition to the relevant RLO framework in place) increases the possibility of ASIC audits –

without necessarily providing for increased benefits for consumers.

Rather, we are of the view that the modified RLO framework should have regard to concepts of

unsuitability – and this should be sufficient from the perspective of legislative compliance. This

would be more reflective of the approach taken by industry in practice – ie establishing a

responsible lending policy appropriate to each product line being offered, with credit

assessment criteria specific to each such product line. Having an overarching policy relevant to

unsuitability does not appear to achieve any practical purpose or benefit, but rather it simply

imposes the requirement for another policy to be established and maintained.

**2.3** **Comparative approach based on international jurisdictions**

We note BNPL regulations have recently been introduced in New Zealand, which serve as

a useful comparison in terms of relevant matters covered by the Legislative Package.

Applying more scalable and proportionate suitability requirements aligns with recent BNPL

regulations passed in New Zealand. The New Zealand Department of Business, Innovation and

Employment (MBIE) recently considered the issue of suitability and its application to BNPL

contracts as part of regulations passed by the New Zealand Government in September 2023.

MBIE’s Regulatory Impact Statement found that the requirement to assess suitability - which is

highly comparable to Australia’s suitability regime – will have little impact on financial hardship,

as suitability requirements would likely be of little benefit to BNPL applicants.

The New Zealand government reached its decision regarding suitability requirements despite

there being no comparable product suitability framework to the Australian DDO regime - a

significant form of outcomes-based consumer protection that ensures that providers design

products with consumers in mind, and ensure that products are distributed to an appropriate

target market. In New Zealand, BNPL providers must make reasonable inquiries, before entering

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into an agreement with a consumer, and before making relevant material changes to any such

agreement, so as to be satisfied that (i) it is likely that the credit or finance provided under the

agreement will meet the borrower’s requirements and objectives, and (ii) that the borrower will

make the payments under the agreement without suffering substantial hardship (Affordability

Principle). In addition, BNPL providers must assist the consumer to reach an informed decision

as to whether or not to enter into the agreement and to be reasonably aware of the full

implications of entering into the agreement. To achieve a similar approach in Australia,

consideration could be given to imposing a partial credit check to a broader range of LCCCs and

removing the section 28HAD(5) requirement that LCCC providers obtain information that the

provider reasonably believes to be substantially correct in relation to income, expenses and any

low cost credit contracts, small amount credit contracts or consumer leases to which the

consumer is currently a party.

**2.4** **Credit limit increases**

We support the framework allowing providers to conduct inquiries and an assessment for an

amount of credit larger than that initially offered to the consumer, and that this assessment will

also suffice for any subsequent credit limit increases up to that amount, up to a period of 2

years.

**2.5** **Regard to technology more broadly**

The Legislative Package would benefit from further reference to technology that is being used, or

that may be used in the future, in the context of providers of BNPL products and arrangements

in maintaining compliance with their legislative obligations.

The Explanatory Statement released as part of the Legislative Package uses the example of

“IntervalCash”, an Australian credit licensee designing a new webform for consumers to use

when applying for credit. In the example, IntervalCash is stated as planning to use the webform

to obtain the required information about each consumer’s income, expenditure and use of other

credit products, and in doing so, that its options include:

-  asking the consumer to supply a response in a free text field;

-  asking the consumer to upload documents such as payslips and bank statements; and

-  asking the consumer to authorise IntervalCash to access the consumer’s information

through a third party banking transaction data service.

There is some concern among FinTech Australia’s membership base that this is not necessarily

reflective of the technologies available to providers of BNPL products and arrangements, in

terms of making reasonable inquiries (about the consumer’s requirements, objectives and

financial situation), and in taking reasonable steps (to verify the consumer’s financial situation).

A broader regard for technological advancements (both to present day, and which may be

experienced in the future) would likely put the Legislative Package in a better position to respond

to changes in the way that compliance obligations are attended to in practice. While we

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recognise that the Australian Government is not able to predict the different technologies that

will emerge in coming years, we encourage a more modern and tech-savvy approach when it

comes to developing guidance for providers of BNPL products and arrangements, in terms of

how they can comply (and how they do comply, in practice) with their legislative obligations.

**2.6** **More nuanced approach to obtaining customer data**

Further, we recommend a more nuanced approach in terms of day-to-day legislative compliance;

including one that moves away from the notion of stated income, less stated expenses, equals

capacity for borrowing. Without additional context as to unsuitability of the relevant product

(which is largely tied to affordability for the relevant consumer), information as to income and

expenses only presents part of the picture. Ambiguity in terms of application of relevant rules in

this regard might be avoided to an extent, by prescribing the reasonable enquiries to be made

(in particular, the type of information to be collected) in certain circumstances, by certain BNPL

providers and in respect of certain consumers – and providing that the resulting contract cannot

be deemed unsuitable based on any information not required to be collected. This would allow

a risk-based approach to the concept of unsuitability, and would foster a greater degree of

certainty for BNPL providers in complying with these requirements.

Further, the requirement for providers to make enquiries into customer income and expenses is

unlikely to generate consistent or effective consumer outcomes or aid responsible lending

decisions. For the purposes of low-value LCCCs that typically provide low initial credit limits

(and/or where the LCCC leverages the short term credit exemption and has separate loan

contracts for each transaction as part of an instalment plan, each of which does not have a

"credit limit" at all that can be later increased), this information is unlikely to provide meaningful

inputs into BNPL providers’ decision making framework.

Some consumers (eg consumers employed on a casual or part-time basis, or who otherwise do

not have an annual salary that can be simply declared) may find it difficult to accurately

determine their income and expenses. Other consumers might not necessarily have certainty or

predictability over their expenses on a weekly, monthly or yearly basis, or otherwise might not

necessarily distinguish between discretionary and non-discretionary expenses in the same way

that traditional credit checking models dictate. Without flexibility in responding to different

scenarios such as these (and without adequate guidance as to how these difference scenarios

should be treated), there is likely to be unintended consequences in terms of how different

information and circumstances are treated. Further, the friction created by requiring customers

to supply all of this information in these circumstances (and then verify it in some cases) is

disproportionately burdensome for small purchases. This is likely to deter consumers from

using BNPL in those circumstances.

Instead of requiring BNPL providers to obtain information about the customer which is likely to

be unreliable, and introducing a new and uncertain obligation for BNPL providers to “reasonably

believe” the information, we urge Treasury to consider aligning Australia’s approach with that of

New Zealand. In New Zealand, BNPL providers will be required (from September 2024) to have a

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credit policy which lays out how they take into account information from credit reports in lending

decisions.

Further, a BNPL provider is exempt from the application of the Affordability Principle in respect

of a BNPL contract if (a) they first obtain information from a credit report on the borrower in a

manner permitted by the relevant provisions, and that report includes, where available, all

information set out in the relevant provisions (including the type of credit account of the

borrower, the amount of credit extended to the borrower, and the capacity of the borrower), (b)

they provide all relevant information to the credit reporter, (c) while the BNPL contract is in force,

they disclose to the borrower (in a manner that is clear, concise, and likely to bring the

information to the attention of a reasonable person), at the time of each purchase made by the

borrower using a BNPL contract between the BNPL provider and the borrower, the dates and

amount of payments required for the purchase, and details of any default fees that may be

payable under the contract, including how and when those fees would become payable, and (d)

while the BNPL contract is in force, the BNPL provider has in place at all times a credit policy that

explains how credit report information will be used by the BNPL provider when assessing

whether or not to provide credit to a borrower, that such credit policy is complied with by the

BNPL provider, and that such credit policy is available to the commission on request.

**2.7** **$2,000 threshold for determining relevant checks**

The Legislative Package provides that an LCCC licensee must seek to obtain relevant information

from a credit reporting body about the financial situation of a consumer who is, or will be, a

debtor under an LCCC that has a value of less than $2,000 (ie a ‘negative credit check’).

The Legislative Package provides that if the value of the LCCC is $2,000 or greater, and the

consumer is an individual, the licensee must seek to obtain from a credit reporting body, the

information required by subsection 28HAD(2), as well as information about consumer credit

(within the meaning of the Privacy Act 1988 (Cth)) provided to the individual that is consumer

credit liability information (within the meaning of the Privacy Act 1988 (Cth)) (ie a ‘partial credit

check’).

As part of consultation with members of FinTech Australia, there has been some concern

expressed that the threshold should be changed slightly, so that a ‘negative credit check’ should

be performed in respect of an LCCC that has a value of $2,000 (or less), and that a ‘partial credit

check’ should be performed in respect of an LCCC that has a value of more than $2,000. This

would provide for greater ease of administration, in that providers of BNPL products and

arrangements would be dealing with a threshold of up to $2,000, rather than a threshold of up

to $1,999.99.

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## 3 Fees

**2.8** **Concerns around prescriptiveness of late fees**

Regulation 69E provides some detail on maximum fees and charges that are to be levied in the

context of LCCCs, before an arrangement is no longer captured by the Legislative Package. While

this is not necessarily a “cap” on fees per se, for ease of reference we refer to these as caps on

fees.

During consultation with members, significant concerns were raised about whether there is a

clear policy rationale for introducing a new and prescriptive cap on late fees, in circumstances

where existing consumer protection laws adequately constrain the ability of lenders to charge

unfair late fees. The key concern in this regard is that BNPL contracts are already subject to the

Unfair Contract Terms (UCT) regime in the Australian Consumer Law (overseen by ASIC in

relation to financial products and services). Overlap in terms of regulatory regimes will likely not

lead to any benefit for consumers, but rather will likely create ambiguity and confusion for

providers of BNPL products and arrangements.

Concern has also been raised that the proposed approach to late fees is also problematic

because it is disproportionately restrictive and unduly complex; it is too restrictive because it

fails to account for the ways in which consumers use low-value BNPL products on a repeated

basis for different types of purchases, and it is unduly complex because it is in addition to the

existing caps on ongoing fees which will continue to apply on a yearly (not monthly) basis (noting

that a higher cap applies in the first year of a BNPL arrangement).

We do not believe additional restrictions on late fees are necessary given the longstanding

application of the UCT regime. There is no suggestion that the existing UCT regime has failed to

appropriately constrain the late fees of BNPL providers.

Furthermore, the BNPL Code of Practice overseen by the Australian Finance Industry Association,

currently mandates a range of actions required from BNPL providers in relation to fees and

charges. This includes that late fees are “fair, reasonable and capped”. The BNPL Code of

Practice has proven to be successful in this regard, as millions of consumers across Australia

choose to use BNPL providers whose conduct is governed by the BNPL Code of Practice.

The NCCPA does not impose a cap on the late fees of other mainstream credit products. While

BNPL products will potentially be subject to less onerous responsible lending obligations

compared with credit cards, this does not justify credit cards being treated differently in relation

to late fees. Credit cards are justifiably subject to the existing responsible lending obligations

due to the very high rates of interest that are charged, and a product design construct that

encourages consumers to make low minimum repayments and revolve in debt for long periods

of time.

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**2.9** **Ongoing fees**

Fintech Australia supports caps on ongoing fees for BNPL arrangements. Since ongoing fees are

not subject to the UCT regime, and the policy intent is for BNPL arrangements to remain as “low

cost” credit contracts, an appropriately designed legislative cap is warranted.

The proposal will, however, continue to apply dollar-based caps that have remained unchanged

since the introduction of the NCCPA in 2009. Given the passage of time, and impact of inflation

over the past 15 years, Treasury should consider indexation of the existing caps. This will allow

BNPL products to vigorously compete in the market for consumer credit, while continuing to

offer consumers a simple and low cost alternative to traditional credit products.

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## 4 Breadth of regulation-making powers

The proposed legislative reforms contemplate broad regulation-making powers, in the context of

the NCCPA and NCCPR. While FinTech Australia recognises and understands the need for

regulation-making powers, as a means of efficient and effective administration of legislation, we

encourage the Australian Government to carefully consider the circumstances in which it would

use these regulation-making powers.

FinTech Australia has no concern with the use of regulation-making powers for the purposes of

ensuring continued appropriateness of fees, charges and interest levels, as well as time periods

that apply in the context of the NCCPA and NCCPR. However, to the extent that regulation
making powers would be proposed as a means of expanding the application of the NCCPA and

NCCPR to different sub-sectors, this would be problematic in our view.

For example, the Options Paper refers to other types of consumer credit (in addition to BNPL)

that fall outside of the current scope of NCCPA, including wage advance products, certain types

of bridging finance, certain types of invoicing facilities and in-house instalment payment plans,

certain types of finance for marketing costs for the sale of residential property, and certain loans

for rent payments and rental bonds.

We would encourage the Australian Government to avoid the use of regulation-making powers

to bring other types of consumer credit (in addition to BNPL) within the scope of the NCCPA,

without proper consultation along the lines undertaken in connection with the Options Paper

and the Legislative Package.

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## 5 Transitional arrangements

Members are concerned that the transitional period of 6 months from royal assent would be

insufficient to comply with the new framework. This is due to a number of factors, principally:

-  the need for providers of BNPL products and arrangements to review and consider any

guidance from ASIC (yet to be published) in respect of how the modified RLO framework

should be applied in practice, or otherwise undertaking the necessary preparatory steps

in readiness for full-scale RLO compliance;

-  to the extent that a provider of BNPL products and arrangements needs to apply for an

Australian credit licence, there is a significant volume of work (in terms of application and

preparing the necessary compliance framework internally) to be done in a relatively

short space of time;

-  ASIC’s capability to process applications within 6 months (unless there is an exemption

from the requirement to hold an Australian credit licence, to the extent that an

application has already been lodged with ASIC before the relevant deadline); and

-  the applicant’s ability to meet compliance obligations, including obligations which ASIC

may set out in any yet to be published ASIC regulatory guides.

We expect there will be an influx of many applications for new Australian credit licences, and

applications for variation of existing Australian credit licences. This will require significant work

from the businesses themselves, to meet relevant obligations, and ASIC, to process applications

– and this is a novel area, from the perspective of being the subject of new legislation.

We also note the context of new licensing frameworks being implemented for payment service

providers and digital asset platforms. These will add to the already significant burden on ASIC’s

capabilities, particularly in licensing and the development of complex regulatory guidance.

To alleviate this, FinTech Australia recommends:

1. phased transitional arrangements to require a person to apply for, rather than obtain, an

Australian credit licence by a certain date; and

2. ASIC publish any draft regulatory guidance (and amendments to other regulatory

guidance) as soon as possible, and well in advance of the Legislative Package being

considered for approval.

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**5.1** **Phased transitional arrangements**

FinTech Australia recommends phasing the transition to allow for a period in which an 'apply by'

rather than a 'licensed by' date is set, as follows:

-  prospective Australian credit licensees receive a 12-month transitional period to prepare

and lodge their application or variation;

-  prospective Australian credit licensees which have made their application by the end of

this transitional period will then receive limited transitional relief until the earlier of the

day the application is withdrawn or the day ASIC has dealt with the application, provided:

(a) the application has already been made and has not been withdrawn by the

applicant or dealt with by ASIC before the end of the 12-month transitional

period; and

(b) the person is a member of the Australian Financial Complaints Authority (AFCA).

Our proposal for a phased transition is drawn from the transitional arrangements used for

bringing 'debt management services' into the credit licensing framework as a new credit activity

in 2021[1] and insurance claims handling as a financial service following the recommendation of

the Royal Commission. It is intended to provide consumer protections and recourse to the

ombudsman, while easing the burden on ASIC, minimising disruption to businesses and

acknowledging that some providers already hold a credit licence. It is also intended to provide a

level playing field for entities regardless of whether they are making an application for a new

Australian credit licence or seeking a variation in respect of an existing Australian credit licence.

**5.2** **ASIC guidance**

FinTech Australia members request sufficient information be provided regarding how they may

comply with initial licensing and meet ongoing compliance obligations when entering into LCCCs,

entering into BNPL contracts and when making BNPL arrangements available.

FinTech Australia recommends ASIC publish draft regulatory guidance as soon as possible, and

well in advance of the Legislative Package being adopted. This will assist businesses to ‘get their

house in order’, and will also provide greater clarity around whether businesses need to adhere

to the full-scale RLO framework, or otherwise whether they can comply (with confidence) with a

modified RLO framework. This process should be expedited and prioritised over any

forthcoming broader review of RG 209.

1 National Consumer Credit Protection Amendment (Debt Management Services) Regulations 2021.

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Beyond ASIC guidance, FinTech Australia also encourages AFCA to provide updated guidance

regarding its approach to complaints involving BNPL products and arrangements, to assist

industry to manage these appropriately.

**5.3** **Enhanced Regulatory Sandbox**

FinTech Australia recommends an urgent review of the Enhanced Regulatory Sandbox (ERS) with

the aim of increasing uptake and ensuring it is suitable for innovative lending products, including

those which will now be considered LCCCs. A review would provide an opportunity to address

the current limitations and consider new cohorts which could benefit from this model,

particularly those previously benefiting from Code exemptions that are now captured as LCCC

providers. Fintech Australia believes the ERS regime can be expanded, improved and better

promoted.

As set out in our recent Pre-Budget Submission, other changes to the ERS that could be

considered include:

-  Providing for an expanded ‘international entrant’ sandbox for firms entering Australia

which are already licensed in a recognised overseas jurisdiction (e.g. the UK or

Singapore) – the sandbox could offer them a ‘bridge’ to start launching while their full

licence is being assessed and approved;

-  Expanding the current threshold restrictions on time, funds held and customers

permitted, while balancing the need for consumer protection;

-  Increasing awareness by better promoting the ERS and Innovation Hub and its benefits

relative to alternative licensing pathways, like becoming a representative;

-  Improving guidance around ASIC’s discretion in relation to ‘innovative’ and ‘use of

technology’ requirements to reduce uncertainty and risk of early termination (i.e. some

form of authorisation model); and

-  Making the sandbox process a clearer path to full AFS or credit licensing – the UK takes

this approach and has significantly better uptake and outcomes.

As the ERS has now been in place for almost four years, it is the right time to conduct a review

process with broad consultation focused on current and past users, businesses which enquired

but did not utilise the sandbox and legal advisers (who are often serve as the decision maker on

the ERS’ viability when advising on licensing matters). Alongside a revised ERS, consideration

should also be given to bolstering ASIC’s Innovation Hub to ensure it can provide greater

guidance and support for newly regulated LCCC providers.

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**5.4** **Industry Funding Model levy**

Upon commencement, it will be relevant to consider how the ASIC Industry Funding Model (IFM)

applies to this new cohort of regulated LCCC providers. FinTech Australia supports the proposal

in the recent Review of the Australian Securities and Investments Commission Industry Funding Model

_- Final Report that “costs relating to regulating emerging sectors and providers should be_

allocated across and recovered from all of ASIC’s regulated population in recognition of the

wider industry benefits of ASIC’s regulatory activity”.

When next reviewed and updated, the IFM regime should consider the novel nature of BNPL

businesses and the significant increase in compliance which has been undertaken previously to

comply with the existing AFIA Code and to commence operations under this new regime. The

cost burden of applying the new levy arrangements, particularly for small, innovative providers,

should be carefully considered and calibrated to ensure innovation by new entrants is not

stifled.

## Conclusion

FinTech Australia and its members thank Treasury for the opportunity to provide their views on

such an important suite of issues. We greatly appreciate Treasury’s ongoing efforts to engage

with the sector, including through the Options Paper and the Legislative Package, and over the

many past consultations with FinTech Australia and its members. We look forward to continuing

to engage as the draft legislation is further considered and consulted on.

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