# Treasury Consultation  Buy Now Pay Later Legislation

**Submission by National Legal Aid**

**April 2024**


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Treasury Consultation – Buy Now Pay Later Legislation

**Introduction**
National Legal Aid (NLA), representing the Directors of the eight Australian State and Territory Legal
Aid Commissions (LACs), welcomes the opportunity to make a submission to the Treasury
Consultation on the draft Buy Now Pay Later legislation.

**About National Legal Aid and Legal Aid Commissions**
LACs are independent, statutory bodies established under respective State or Territory legislation.
They are funded by State or Territory and Commonwealth governments to provide legal assistance
services to the public, with a particular focus on the needs of people who are economically and/or
socially disadvantaged.

NLA aims to ensure that the protection or assertion of the legal rights and interests of people are
not prejudiced by reason of their inability to:

-  obtain access to independent legal advice;

-  afford the appropriate cost of legal representation;

-  obtain access to the federal and state and territory legal systems; or

-  obtain adequate information about access to the law and the legal system.

NLA brings together the practice experience of Australia’s eight LACs. Each LAC provides a wide
range of services to people experiencing circumstances of disadvantage. Services include legal
advice, legal task assistance, ongoing legal representation and advocacy, information, legal and nonlegal referrals, community legal education, and social support services.

NLA always seeks to offer policy input that is constructive and is based on the extensive experience
of LAC lawyers in the day-to-day application of the law in courts, tribunals, and Ombudsman
schemes. We believe that this experience provides valuable knowledge and insights into the
operation of the justice system and can contribute to government policy development. NLA also
endeavours to suggest policy options that may enable government to pursue policy objectives in
the most effective and efficient way.

LAC lawyers who work in consumer law have extensive experience providing specialist advice and
representation to vulnerable clients with multiple Buy Now Pay Later contracts. They also provide
advice to clients as well as lawyers and financial counsellors in relation to mortgage stress, housing
repossession, debt, contracts, loans, insurance, telecommunications, and unsolicited consumer
agreements.

**Overview of consumer law experience**
LACs working in consumer law have extensive experience:

(a) Assisting clients who are in financial hardship as a result of one or multiple Buy Now Pay Later

(BNPL) Products. It is not uncommon to see a consumer with up to 10 different BNPL products.

(b) Supporting financial counsellors who are assisting their clients who are in financial trouble as a

result of BNPL products.

Increasingly, LACs are seeing more and more consumers making use of BNPL products for day to
day living expenses. LAC lawyers commonly see BNPL products used by our clients to:


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(a) Purchase household groceries.
(b) Purchase essential services such as dental, school supply and veterinary services.

We see BNPL products specifically marketed as a way of being able to afford to buy food (e.g.
Afterpay is prominently advertised in some supermarkets.

**_Case study 1: Sam is an Aboriginal man. He lives in a remote area and receives a Job Seeker payment_**
_as his source of income. Sam finds it hard to buy everything he needs to live comfortably, such as_
_food, petrol, and electricity. Sam relies on borrowing a few hundred dollars from a buy now pay_
_later provider each month to pay for these essential expenses._

**_Case study 2: Amber is a young mother to three children. She receives Centrelink payments and_**
_works part-time as her source of income. Amber entered into multiple BNPL arrangements within a_
_period of one year to purchase essential goods, like a fridge and mobile phone. The loan amounts_
_were $500 - $1000, totaling over $8,000. When Amber saw the amount owing on her credit file, she_
_did not think it could be hers as she felt she had never borrowed that much money._

More and more consumers are using BNPL products in a similar way to payday lending and small
amount loan products. This includes using BNPL products as means to be able to afford essential
household expenses. As a result, these clients are placed in significant financial hardship.

As a result of the significant and increasing financial harm that BNPL products are causing
consumers, NLA welcomes the draft legislation which will see BNPL products regulated under the
National Consumer Credit Protection Act (NCCP) and National Credit Code (NCC). Most significantly,
it will mean that all BNPL providers will require AFCA membership to continue to operate.

This is a good first step towards properly regulating the harm which is being caused to consumers
by BNPL products.

NLA notes that the draft legislation creates a separate category of Low-Cost Credit Contracts (LCCC)
to regulate BNPL products. Different rules will apply to LCCC products. However, these products
cause similar harms, in that consumers experience similar if not the same outcomes from being
placed into financial hardship, as a result of either BNPL products or other credit products currently
regulated under the NCCP and NCC. As a result, NLA sees no basis for drawing a distinction between
BNPL products and other credit products. NLA suggests there are better outcomes for consumers
if there is consistency in the regulation of all credit products under the NCCP and NCC.

**Specific Comments in relation to the legislation**
(a) 1.47 of Explanatory Memorandum states “Licensees that are LCCC providers will,

_when the Bill takes effect, be required to choose between:_

-  _the current ‘full’ version of the RLOs in Divisions 1 to 4 of Part 3-2 of the Credit Act;_
_and_

-  _the new RLOs for LCCCs, which allow the requirements to expressly scale according to_
_certain risk factors.”_


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1.53 goes on to state that “elections must be in writing, and the licensee making the election
must keep a written copy for the specified period (approximately 6 years, depending on stated
circumstances). Where a licensee does not elect to be subject to the modified regime (or elects
for only certain LCCC products to be subject to the regime), the existing RLO regime will apply
to the extent relevant.”

Further, the table on p.9 of the Explanatory Memorandum states that “LCCC providers must
have and review a written policy (unsuitability assessment policy) that sets out how the
provider will assess whether the contract is unsuitable.”

To ensure transparency for consumers and especially if there is a dispute about the LCCC provider,
NLA recommends that LCCC providers should be required to publish if they elect to comply with the
existing laws or the modified RLO regime. This information should be readily available to relevant
stakeholders, including consumers, their representatives, the regulators and AFCA. Further, if
electing to comply with the modified RLO regime, the company’s Unsuitability Assessment Policy
should be published in plain English and made easily accessible to consumers, their representatives,
the regulators and AFCA.

(b) Regulation 28HAD sets out the requirements on a company to inquire about a consumer’s finan
cial situation. If a LCCC provider is providing an amount of credit to a consumer less than $2,000,
then the LCCC does not need to obtain the consumer’s consumer credit liability information as
part of their suitability assessment.

For LAC clients, even small amounts of debt can cause significant distress. We recommend that
consumer credit liability information be obtained and considered by LCCC providers as part of their
suitability assessment. There should not be a distinction between processes for assessing suitability
regardless of the amount of the credit being sought.

This approach will have the further benefit of simplifying the regime for consumers and industry.

(c) 1.32 of the Explanatory Memorandum provides that the intensity of the suitability assessment

that is required “will be influenced by consideration of a range of factors relating to the risks of
unaffordable lending occurring and expected harm mitigation if unaffordable lending does
occur. These factors primarily relate to the risks arising from the product and target market,
and non-responsible lending processes to mitigate these risks and harms. Broadly speaking,
the factors are expected to operate to effect a reduction in what is reasonably required in
conducting reasonable lending assessments”.

In NLA’s view, the proposed laws are not proscriptive enough about the factors that need to be
considered in developing and applying suitability assessments to ensure that ASIC has the necessary
framework to take appropriate regulatory action.

The proposed laws should equip ASIC to provide relevant guidance to industry and consumers,
especially regarding minimum standards for Unsuitability Assessment Policies, and to take
appropriate enforcement action where LCCC providers are not complying with the intention of the
law.


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**Additional protection for door-to-door sales**
Some LACs have assisted a number of clients who have fallen victim to targeted door-to-door sales
practices involving the sale of solar panels. Clients have included Aboriginal people and older
Australians with limited literacy. Some clients report being told by sales representatives that the
solar panels are _free or are talked out of attempting to exercise cooling off rights by sales_
representatives.

Many clients are unaware that they have signed up to BNPL contracts until they receive letters of
demand or statements of claim. In some cases, the solar panels are faulty or are not installed
correctly meaning that clients are liable to pay ongoing BNPL instalments for goods that don’t
work. We recommend banning door-to-door sales of LCCC in response to this conduct. (Please
refer to case study 3 below as an illustration of this point.) This could be easily achieved by amending
section 156 of the National Credit Code to make it clear that LCCCs fall within the prohibition on
canvassing credit at home.

**156 Canvassing of credit at home**
_Prohibition on canvassing credit at home_

(1) A credit provider must not visit (personally or in the person of an employee or agent) a place

of residence for the purpose of inducing a person who resides there to apply for or obtain credit,
except by prior arrangement by the credit provider with a person who resides there.

Civil penalty: 5,000 penalty units.

_Offence_

(1A) A person commits an offence if:
(a) the person is subject to a requirement under subsection (1); and
(b) the person engages in conduct; and
(c) the conduct contravenes the requirement.

Criminal penalty: 100 penalty units.

(2) A person who visits another’s residence for the purpose of offering goods or services for sale

and who offers to provide or arrange for the provision of credit to finance the sale will not be
taken to have called for the purpose of inducing a person to apply for or obtain credit **unless**
**the credit applied for is a LCCC product.**

**_Case study 3: Our client is a First Nations woman from a remote area of NSW. She was at her home_**
_when a solar panel vendor knocked on her door on a day of about 38 degrees wanting her to sign up_
_to a solar panel contract. Our client was in financial hardship and was still going through grief_
_(following the passing of her mother) at the time that the solar panel vendor approached her. Our_
_client offered the solar panel vendor a glass of water because of the extreme heat but told him that_
_she wasn’t interested because she didn’t have enough money. The solar panel vendor left her_
_property but returned a further three occasions over the coming months until finally she relented_
_and agreed to enter the contract with the solar panel vendor with the financing for the panels to be_
_provided by a third party under a Buy Now Pay Later agreement. The client defaulted on the BNPL_
_agreement within a period of months which resulted in the entire cost of the $15,000 becoming due_
_and payable. This caused extreme stress to our client._


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