9 April 2024

Consumer Credit Unit

Financial System Division

Treasury

[By email: CreditReforms@treasury.gov.au](mailto:CreditReforms@treasury.gov.au)

**Afterpay submission to Buy Now Pay Later exposure draft legislative package**

**Executive summary**

Afterpay welcomes the opportunity to provide a submission in response to Treasury’s
release of the exposure draft legislative package (the draft package) to bring Buy Now
Pay Later (BNPL) into the regulatory framework for credit products in a fit-for-purpose and
tailored manner.

The exposure draft of the Treasury Laws Amendment Bill 2024: Buy Now, Pay Later (the
**draft Bill), National Consumer Credit Protection Amendment (Low Cost Credit)**
Regulations 2024 (the draft Regulations), and accompanying draft explanatory materials
represent substantial progress in the development of a proportionate framework for the
BNPL sector in Australia.

As the explanatory materials observe, BNPL products “offer consumers a cheaper and
easier way to access forms of credit when compared to traditional forms of credit such as
credit cards, payday loans, and consumer leases” resulting in improved “financial
inclusion.” Products, like Afterpay, also “place competitive pressure on traditional forms of
credit, reducing the cost of some products and triggering innovation in product design”
while also generating “increased business for merchants.”

Indeed, according to Mandala analysis conducted in 2024, Afterpay alone generated $138
million in consumer surplus and $139 million in consumer savings from credit card fees
and interest in 2023. The net merchant benefits of Afterpay exceeded $5 billion through
increased sales and cost efficiencies, which helped more than 123,000 small to medium
sized businesses (SMBs) across the country last year. In broader economic terms, Afterpay
contributed $3.9 billion to Australian GDP and supported 39,000 local jobs in 2023.

In terms of managing affordability, the spending limits that apply to many BNPL
products, including Afterpay, are dynamic in nature by reflecting ongoing consumer
behaviour (where customers start on low limits, new purchases are paused when
repayments are not made when due, and limits are increased with proven, on-time
repayment behaviour and tenure). Our approach has consistently delivered better


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consumer outcomes than traditional regulated credit products that are subject to
responsible lending obligations.

These consumer, merchant and economic benefits are the result of genuine innovation in
consumer credit. For Afterpay alone, this innovation is supporting 3.5 million Australians
who are connected with more than 129,000 businesses of all sizes across the country.
Support for innovation requires a forward-looking approach to regulation, and we
welcome Treasury’s efforts in designing bespoke obligations for BNPL products.

With New Zealand having finalised its BNPL regulations in September 2023 (with
commencement in September 2024, a 12 month transition period), we strongly
recommend that Treasury take all necessary steps to align Australia's BNPL regulatory
framework with that of New Zealand’s. The Memorandum of Understanding Between the
Government of New Zealand and the Government of Australia on the Coordination of
[Business Law (the MoU) sets out principles to guide coordination efforts in relation to the](https://www.dfat.gov.au/trade/agreements/in-force/anzcerta/Pages/memorandum-of-understanding-between-the-government-of-new-zealand-and-the-government-of-australia-on-the-coordination-of-bu)
advancement of a trans-Tasman single economic market. One of the principles outlined in
the MoU is that measures should deliver substantively the same regulatory outcomes in
both countries in the most efficient manner. Aligning regulatory approaches would
promote transparency and consistency for consumers and merchants, and enable greater
efficiencies for BNPL providers, many of which operate in both markets.

In particular, significant efficiencies can be achieved for BNPL providers operating
trans-Tasman through alignment on the required affordability checks. In this submission,
we propose that all BNPL providers be required to conduct partial credit checks in
Australia (rather than having to obtain certain information about the customer) and that
the “requirements and objectives” limb of responsible lending be removed.

**Key recommendations**

Our submission focuses on recommendations and amendments to the draft package to
ensure that the right balance is struck between maintaining consumer and merchant
benefits, reflecting the key design features of BNPL products that differentiate them from
traditional credit, and ensuring appropriate and proportionate consumer protections.

Our key recommendations include the following:

**1.** **Definitions: Ensure the definitions of Low Cost Credit Contract (LCCC), BNPL**
arrangement and BNPL contract create a level playing field for all providers,
including merchants that offer their own BNPL products to customers.

**2.** **Modified Responsible Lending Obligations (mRLOs): Create greater scalability**
and tailoring in the mRLOs to account for how BNPL products operate in practice
and the actual risks and benefits generated by these products.

**3.** **Fees: The proposed new cap on late fees should be removed or substantially**
amended given the lack of clear policy rationale and existing consumer


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protections under the law; the proposed cap on ongoing fees is from 2009 and
should be indexed.

**4.** **Flexibility and diversity of BNPL product offerings: Afterpay is concerned that**
the definition of fees and charges does not take into consideration how consumers
use BNPL products and would damage the diversity and commercial viability of
different BNPL products offered by the same provider.

**5.** **Suitability: Remove the unsuitability requirements for all LCCCs or increase the**
rebuttable presumption to contracts of $5,000 or less.

**Detailed overview**

**1.** **Defining Low Cost Credit Contracts (LCCCs) and BNPL arrangements**

**Recommendations:**

- Clarify the definitions of ‘BNPL arrangement’ and ‘LCCC provider’ so that
merchants that offer a BNPL service are captured as LCCC providers.

- Further clarify that a 'BNPL contract' may be used by a consumer to enter more
than one 'BNPL arrangement' and that references to credit that is, or may be,
provided under a LCCC (that is a 'BNPL contract') are references to the credit that
is, or may be, provided under all 'BNPL arrangements' entered into by the
consumer under the BNPL contract.


Afterpay broadly supports the definitions of ‘LCCC’, ‘BNPL arrangement’ and ‘BNPL
contract’. However, as currently drafted, a number of amendments should be considered
to ensure the definitions clearly describe the distinction between a 'BNPL arrangement'
and a 'BNPL contract' and capture the full range of BNPL providers in the market while
also ensuring that BNPL providers can service their customers using different products.
This latter point is expanded on in the ‘fees’ section below.

The definition of ‘BNPL 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. While we are not aware of large merchant businesses that
currently offer a BNPL product directly to their customers in Australia, there is a real risk of
this arising under the new regulatory framework. This could include global e-commerce
companies that sell goods directly to consumers, and technology companies whose
primary market is the sale of hardware (i.e. phones, computers, tablets, etc). Some
companies of this scale have already entered the consumer finance sector and offer BNPL
products, and we are aware of large retailers in the United Kingdom (UK) seeking to
introduce in-house BNPL offerings. As such, we recommend including in the ‘BNPL
**arrangement’, those merchants that provide a BNPL service directly to their**
**customers. To ensure there is a level playing field for all BNPL providers, merchants**


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**offering their own BNPL products should also be captured under the definitions of**
**LCCC and BNPL arrangement.**

This could be achieved by amending paragraph 13D(1)(b) of the Bill to read as follows:

_"(b) under which a person (the BNPL provider):_

_(i)_ _being a third party, directly or indirectly pays the merchant; or_

_(ii)_ _being the merchant, who under a contract that satisfies paragraphs_
_13C(1)(c) and 13C(1)(d), defers payment of,_

_an amount that is some or all of the price for the supply mentioned in paragraph_
_(a); and"_

If Treasury is concerned to exclude small merchants that may offer low scale vendor
financing terms to their customers, the definition above could be amended to carve out
merchants based on the number of customers that are provided with vendor financing,
the size of the small business, or the total amount of financing provided in a year (or a
combination of these criteria).

We understand that the intention of the draft package is to impose obligations on the
overarching contract between a BNPL provider and a consumer as it relates to a BNPL
facility, not on individual BNPL arrangements entered into between the consumer, the
BNPL provider and a merchant (forming part of the overarching contract). That said, an
explanatory note (in the legislation or the explanatory material) should make this
intention explicitly clear. This note should also make it clear that the credit which "is, or
may be provided under the contract" is the total credit that is provided under the
overarching BNPL facility and not each individual BNPL arrangement. Absent such a note,
it is unclear whether Treasury has the power to prescribe a maximum period for a BNPL
contract or a BNPL arrangement.

A note under subsection 13C(1) of the Bill could read as follows:

_"Note: For the avoidance of doubt, if the low cost credit contract is a buy now pay_
_later contract, the contract can be included in one or more buy now pay later_
_arrangements and a reference to credit that is or may be provided under the_
_contract is to the total amount of credit that is, or may be provided under all of_
_those buy now pay later arrangements."_


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**2.** **Fees**

**_Alternative fee proposal_**

**Recommendations:**

- Due to existing consumer protections, remove section 69E of the draft
Regulations relating to the fees and charges of a LCCC.

- The existing dollar-based ongoing fee caps that have remained unchanged since
their introduction in 2009 should be indexed for inflation.


_Late fees_

There is no clear policy rationale for introducing a new and prescriptive cap on LCCC late
fees when existing consumer protection laws adequately constrain the ability of lenders to
charge unfair late fees. BNPL contracts are already subject to the Unfair Contract Terms
(UCT) regime in the Australian Securities and Investments Commission Act 2001 (ASIC
**Act) overseen by the Australian Securities and Investments Commission (ASIC) in relation**
to financial products and services. Late fees are subject to the UCT regime because they
are not part of the upfront price – they are “contingent on the occurrence or
non-occurrence of a particular event” (section 12BI of the ASIC Act). The Court also has the
power to reopen a credit contract (in order to vary or set aside the contract) under the
unjust transaction provisions of the National Credit Code (the Credit Code) if a late fee is
not "reasonably necessary" for the protection of a legitimate interest. These regimes
ensure that late fees are transparent to the consumer, do not cause a significant power
imbalance between the consumer and the provider, are included for the protection of a
provider’s legitimate interest, and avoid causing financial or other detriment in cases
when the late fee terms are relied upon.

The cap on late fees is also unnecessary in the context of the separate cap proposed to
(continue to) apply to ongoing fees for LCCCs. This means that BNPL products – as LCCCs
– will continue to be low cost and safe products for consumers due to a combination of
prescriptive dollar-based caps on ongoing fees, and regulation of late fees under the UCT
regime.

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 way in
which consumers use the core Afterpay product on a repeated basis for different types of
purchases. Under the proposal, a $10 late fee on a $20 purchase would be permissible
(despite representing 50% of the purchase amount), whereas a $20 late fee on a $1,500
purchase would be impermissible (despite being 1.3% of the purchase amount). Afterpay
ensures fairness in the application of its late fees by capping its fees at $68 or 25% of the
purchase price, whichever is less. For a $20 purchase, a customer cannot be charged more


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than $5 in late fees, and for a $1,500 purchase, no more than $68 in late fees can be
charged.

The late fee proposal is also 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).

Furthermore, the BNPL Code of Practice overseen by AFIA (the BNPL Code) currently
mandates a range of actions from BNPL providers in relation to fees and charges. This
includes that late fees are “fair, reasonable and capped.”[1] The BNPL Code has proven to be
successful in this regard, as millions of consumers across Australia choose to use Afterpay
and other BNPL providers whose conduct is governed by the BNPL Code.

We also note that the National Consumer Credit Protection Act 2009 (NCCP Act) does not
impose a cap on the late fees of other mainstream credit products. While BNPL products
will be subject to less onerous responsible lending obligations compared with credit
cards, this does not justify other credit products, like 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 charged, and a product design
construct that encourages consumers to make low minimum repayments and revolve in
debt for long periods of time.

**While Afterpay would support the enshrining of its existing cap on late fees in the**
**law, we do not believe any additional restrictions on late fees are necessary given the**
**longstanding application of the existing consumer protection regimes. There is no**
suggestion or evidence that the existing UCT regime, the BNPL code or the NCCP Act
have failed to appropriately protect consumers from excessive late fees.

_Ongoing fees_

**We support 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 NCCP Act in 2009. Given the passage of time,
and impact of inflation over the past 15 years, Treasury should index 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.

1
[AFIA, BNPL Code of Practice.](https://afia.asn.au/files/galleries/AFIA_Code_of_Practice_for_Buy_Now_Pay_Later_Providers.pdf.)


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**_Greater flexibility to reflect the diversity and use of BNPL business models_**

**Recommendations:**

Amend section 69E of the draft Regulations to allow for the following circumstances:

- If a customer has more than one LCCC with a provider, apply the fee caps at a
customer-level rather than a product-level.

- Remove the exemption for authorised deposit-taking institutions (ADIs) - there
is no policy rationale for this.


Afterpay is concerned that the proposed restriction on fees and charges does not take
into consideration how consumers use BNPL products and would damage the diversity of
BNPL products offered by the same provider. It would also make LCCCs subject to even
more restrictions than other currently regulated credit products, which is inconsistent
with the public policy objectives of these reforms as well as the low-value and low-cost
nature of BNPL contracts.

**The proposed restrictions in the draft Regulations will hinder the ability of BNPL**
**providers to offer a range of products with different use cases that are beneficial to**
**consumers, impacting the customer’s ability to access affordable credit options.**

The draft Regulations remove the ability of BNPL providers to impose fees and charges
(within the proposed caps) on customers if:

-  The customer is already, or was within the previous 12 months, a party to an LCCC
with the credit provider or an associate (neither of which is an ADI).

-  The customer closes an LCCC account and re-opens an LCCC account with the
same BNPL provider within 12 months.

The draft Regulations create an outcome whereby a BNPL provider cannot offer two, very
different, BNPL products to the same customer, because the provisions remove the
economic viability of the second product. For example, a customer may use a BNPL
product with a low spending limit (less than $1500/month) and a $10 monthly account fee.
That same BNPL provider may also offer a high-value BNPL product for larger purchases
(in the $5,000 range) with repayment periods of 6-24 months and monthly account fees.
However, the economic fundamentals of the second product are diminished because the
same consumer could not be charged fees of any kind. At the same time, that same
consumer may have a credit card and a home loan with a single ADI and be subject to
substantial annual rates of compounding interest and no fee caps for either product
under the NCCP Act. Therefore, we recommend applying the amended fee cap at a
**customer-level rather than a product-level.**


-----

Consumers may also close and re-open their BNPL accounts for a range of reasons,
including as a result of pressure from their bank or mortgage broker when applying for a
home loan. Although, in reality, Afterpay should not impact a consumer’s home loan
borrowing capacity (as it is treated as a maximum line of credit of $3,000 when calculating
a consumer’s existing liabilities), banks will typically encourage a consumer to close their
BNPL account (and credit cards with other lenders) during the home loan application
process. The bank will also generally cross-sell that consumer their own credit card
offering. In Afterpay’s experience, it is not uncommon for consumers to seek to re-open
their Afterpay account after they have obtained their home loan.

**The caps on ongoing fees for BNPL arrangements should allow a provider to charge**
**ongoing fees in circumstances where a customer has closed and reopened their**
**BNPL account.**

We suggest that the draft Regulations be amended as follows to insert a standalone
definition of "eligible contract" as Regulation 69E(1A):

_"Eligible contract means the contract, or where there is more than one contract_
_(unless a contract is of a fundamentally different nature and/or for a_
_fundamentally different purpose) all contracts, to which the debtor is a party with_
_the credit provider or an associate of the credit provider."_

This would require amending Regulation 69E(2) to refer to "eligible contract" directly
instead of "the contract (the eligible contract)".

Finally, the draft Regulations import existing fees and charges provisions from the
National Consumer Credit Protection Regulations 2010 (NCCP Regulations), which
provide a blanket exemption for ADIs. There is no policy rationale for this exemption and
**we strongly support its removal. The exemption is particularly concerning given that**
many of Australia’s major banks offer BNPL products and would be handed a distinct and
unjustifiable competitive advantage. To date, the non-ADI BNPL sector has been a bright
spot of innovation and generated competitive tension in the consumer credit market,
which has been previously dominated by a few major banks offering high interest credit
cards. Assigning advantages to certain LCCC providers and not others was not the
Government’s intention and would have significant and deleterious impacts on Australia’s
FinTech sector.


-----

**3.** **Modified responsible lending framework**

**Recommendations:**

- Remove section 28HAD(5) of the Regulations requiring LCCC providers to seek to
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.

- Replace this requirement (in section 28HAD(5)) with an obligation to conduct a
‘partial’ credit check (per section 28HAD(2)-(3)) on all BNPL contracts for
amounts less than $5,001. For amounts more than $5,000, the existing draft of
the modified responsible lending regime should apply.

- Amend section 28HAD(5) to allow LCCC providers to rely on a combination of
reasonable consumer benchmarks (HEM) based on the customer’s income, age
and credit score, and any information provided by the customer regarding their
expenses and income.


Afterpay supports the development of a modified responsible lending framework (the
**modified framework) that is scalable (including the ability for LCCC providers to elect**
whether to be subject to the modified framework in respect of their LCCCs) and focused
on generating positive consumer outcomes rather than complying with prescribed
processes. At a high-level, we are supportive that the modified framework takes into
account:

-  **Flexibility: Giving providers the ability to take into account various risk factors**
(including product design and features) in determining reasonable enquiries and
taking reasonable steps is an essential characteristic of the modified framework, as
is the ability to apply general rules set by the provider. As demonstrated on the
Afterpay platform, the most effective way to ensure good consumer outcomes is
through product design. Afterpay generates consistently high consumer
repayment rates and low loss rates regardless of macroeconomic conditions,
delivering better consumer outcomes than traditional regulated credit products
that are subject to the responsible lending obligations. Afterpay’s practice is to
start consumers on low limits, require the first payment upfront for new
customers, pause accounts when repayments are not made, and only allow limits
to grow with demonstrated repayment behaviour. This allows for continual
assessment of a product's suitability for a particular customer, instead of at a single
point in time during sign up. The acknowledgement of these key design features
and their critical role in both responsible lending decisions and consumer
protection should remain a key tenant of the modified framework.

-  **Proportionality: Giving providers certainty that it is possible to meet the**
‘reasonable steps’ outlined in the draft Regulations solely based on information


-----

provided by a consumer is important and fundamental to the concept of
proportionality and to enabling financial inclusion and access.

-  **Dynamic spending limits: We support the modified 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 two years.
We strongly support this as it will enable and incentivise BNPL providers to start
consumers on lower limits rather than just providing the maximum limit upfront.

There are, however, aspects of the modified framework that can be simplified without any
reduction in consumer protection, while generating a more consistent approach to
responsible lending across all LCCC providers. Importantly, there are provisions within the
modified framework that have been imported from the traditional responsible lending
framework that, in practice, make little sense for LCCC providers, emerging consumer
preferences, and resulting consumer outcomes.

The requirement for BNPL 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 (Afterpay customers start on $600), this information is unlikely to
provide meaningful inputs into our decision making framework.

**Instead of requiring LCCC providers to obtain information about the customer’s**
**income and expenses, a partial credit check should be required to be performed on**
**all customers for credit limits under $5,001. This check gives providers access to a richer**
set of consumer data to assess creditworthiness, and the resulting reciprocity obligations
ensure BNPL data is visible to other credit providers. This recommendation is aligned with
recent research conducted for Afterpay by Mandala, where consumers were asked which
type of affordability check would be most suitable for BNPL. Roughly 48% of consumers
answered that they wanted to be assessed based on their actual performance on BNPL
platforms (i.e. by their repayment history – in line with what Afterpay already does), while
37% indicated support for a rapid credit check. Notably, only 15% of BNPL users thought
that having providers check their income and bank statements was a suitable assessment
of BNPL access.[2]

We understand that Treasury is concerned that a partial credit check will potentially not
reveal whether a consumer currently has payday loans or consumer leases with other
providers, as these providers may not engage with the credit reporting system. The
solution to this problem is not to require BNPL providers to ask a consumer whether they
have payday loans or consumer leases, as the most vulnerable consumers are likely to
conceal this information in order to obtain additional credit. Instead, payday lenders and
consumer lease providers should be required to conduct partial credit checks. Although

2
Afterpay - Regulatory Cost of Option 3 - Research Report, Mandala, December 2022.

10


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these lenders are required to obtain 90 days’ worth of bank statements from consumers,
this more onerous obligation should not obviate the need for them to also participate in
the credit reporting system. This lack of participation means that traditional lenders and
low-risk BNPL lenders cannot easily identify customers who are potentially the most
vulnerable in the community.

Even requiring payday lenders and consumer lease providers to merely conduct negative
credit checks will ensure there is visibility of their activities on consumers’ credit reports.

Further, it is often difficult for consumers to accurately determine their income and
expenses. Many younger consumers may be employed on a casual or part-time basis and
will not have an annual salary that can be easily declared. Consumers also typically do not
have an accurate grasp of their expenses on a weekly, monthly or yearly basis or
understand the difference between discretionary and non-discretionary expenses. Asking
for this information is likely to cause confusion and potentially lead to inaccurate
information about the consumer and their financial situation.

By knowing a customer’s age and performing a partial credit check, an LCCC provider will
be in a strong position to make a credit assessment based on an estimate of what a
reasonable level of expenses would be for that person.

**The additional requirement that an LCCC provider have a ‘reasonable belief’ in the**
**accuracy of this information is also a disproportionate requirement for low-value**
**BNPL products. The case study in the Explanatory Statement outlines an extreme**
scenario in which a customer submits a very high annual income and low expenses,
which the LCCC provider determines to be implausible given the consumer’s credit report
shows a credit score ranked ‘low’, multiple defaults on consumer leases and other credit
products, and several recent inquiries from other credit providers. This suggests that a
reasonable belief can only be determined according to the interplay between customer
declared income, expenses and other debts, and the credit check required by the draft
Regulations.

However, because the example in the Explanatory Statement is an extreme scenario, we
are concerned that the obligation to reasonably believe the information provided by the
customer will create significant regulatory uncertainty, without any incremental
consumer protection benefits. Using that same scenario, it is highly unlikely that an LCCC
provider would make a different lending decision in circumstances where it does not
obtain information about the customer’s income, expenses or other debts, and instead
solely relies on the information in the customer’s credit report.

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 align Australia’s approach
with that of New Zealand. In New Zealand, BNPL providers will be required (from

11


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September 2024) to have a credit policy which lays out how they take into account
information from credit reports in lending decisions.

**4.** **Unsuitability**

**Recommendations:**

- Remove the unsuitability requirements (whether the credit product will meet
the consumer’s requirements or objectives) for all LCCCs.

- Alternatively, increase the rebuttable presumption for LCCCs with a credit limit of
less than $5,000 that the requirements or objectives limb of the unsuitability test
is met, when granting credit or increasing a credit limit.


Afterpay supports removing the unsuitability requirement for all LCCCs given its lack of
utility and contribution to meaningful consumer outcomes. At a minimum, we urge
**Treasury to increase the threshold for the rebuttable presumption to amounts less**
**than or equal to $5,000. This creates a more scalable obligation on larger-value LCCCs**
targeted at more specific high-value purchases, retail sectors or services.

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 Government in
September 2023. The standard New Zealand suitability test requires lenders to make
specific inquiries about the borrower’s needs and objectives – comparable to Australia’s
framework. MBIE’s Regulatory Impact Statement found that the requirement to assess
suitability will have “little impact on financial hardship as suitability requirements would
likely be of little benefit to BNPL applicants... Unlike with other lending products, BNPL
products are offered under varying terms, meaning that one BNPL product is unlikely to
be more or less suitable than another.”[3] The Minister of Commerce and Consumer Affairs
agreed, stating in his Cabinet Paper that “suitability inquiries are unlikely to be useful for
BNPL products. There is a low risk these products will be unsuitable, given the simplicity
of the product, a tendency to be explicitly marketed based on their key features (e.g.
interest free, pay in four payments) and there is no choice of features such as term of the
loan.”[4]

The New Zealand Government reached its decision regarding suitability requirements
despite there being no comparable product suitability framework to the Australian Design
and Distributions Obligations (DDO) regime. Although the DDO regime does not require

3
[Ministry of Business, Innovation and Employment, ‘Regulatory Impact Statement: Applying the](https://www.mbie.govt.nz/dmsdocument/27270-regulatory-impact-statement-applying-the-credit-contracts-and-consumer-finance-act-in-a-proportionate-way-to-buy-now-pay-later-lenders-proactiverelease-pdf)
[Credit Contracts and Consumer Finance Act in a proportionate way to buy now pay later lenders’.](https://www.mbie.govt.nz/dmsdocument/27270-regulatory-impact-statement-applying-the-credit-contracts-and-consumer-finance-act-in-a-proportionate-way-to-buy-now-pay-later-lenders-proactiverelease-pdf)

4
[Minister of Commerce and Consumer Affairs, Cabinet Paper: Fit for purpose regulation of](https://www.mbie.govt.nz/dmsdocument/27268-fit-for-purpose-regulation-of-consumer-credit-proactiverelease-pdf)
[consumer credit.](https://www.mbie.govt.nz/dmsdocument/27268-fit-for-purpose-regulation-of-consumer-credit-proactiverelease-pdf)


12


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providers to assess product suitability at the individual level, it nonetheless represents 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. ASIC has already enforced this regime against BNPL providers](https://asic.gov.au/about-asic/news-centre/find-a-media-release/2023-releases/23-142mr-asic-issued-interim-stop-order-on-humm-following-buy-now-pay-later-review/)
successfully.

Although the average transaction size with Afterpay is around $150, our customers are
increasingly using Afterpay for a wide array of purchases. Our customers can make
individual purchases of up to $2,000, and spending limits can dynamically increase to
$3,000 with a sustained and demonstrated history of on-time repayment behaviour. This
month, we have also enabled long standing customers to apply for a $4,000 spending
limit, subject to them passing a credit check (consistent with the requirements of the
BNPL Code).

Under the proposed approach, where a consumer moves from a sub-$2,000 limit to a
$2,000-plus limit, the LCCC provider will be required to confirm that the LCCC the
consumer has already been using meets their requirements and objectives. It is difficult to
see what benefits this will bring, particularly when all other aspects of the product (apart
from the spending limit) remain unchanged. Consumers are likely to perceive the
practical impact of this regulatory requirement as being equivalent to the pop-up
messages that appear on websites in relation to whether cookies can be used – in other
words, another box to be checked that does not deliver any benefits.

**5.** **Credit limit increases**

As noted above, Afterpay supports 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 two years. This length of time will**
enable and incentivise BNPL providers to start consumers on lower limits rather than
providing the maximum limits upfront, which is common in traditional consumer credit
lending decisions.

**6.** **Credit Act and LCCC obligations**

**_Credit licence and AFCA membership_**

Afterpay is a member of the Australian Financial Complaints Authority (AFCA) and has an
Australian Credit Licence. We support these requirements for all LCCC providers.

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**_Credit representatives, sub-authorisations and credit guides_**

**Recommendation:**

- Insert an amendment to the draft Bill and Regulations or a new note in the
explanatory material or Regulatory Guide 203 Do I need a credit licence? (RG
203) to clarify that a merchant is not 'acting as an intermediary' (and, as such,
providing a 'credit service') if they advertise the availability of BNPL as a payment
method or participate in promotional activities using material approved by a
licensed BNPL provider.


In the ordinary course of an Afterpay BNPL arrangement, the merchant advertises
Afterpay on its website (and sometimes external media), and through its checkout flow
refers customers to Afterpay for the purpose of the customer obtaining credit (though
Afterpay is not the only payment method presented by the merchant at checkout).

The draft legislative package is based on Option 2 in the Treasury Options Paper. That
paper states that this option "would not require merchants who offer BNPL products to
consumers to be an authorised credit representative of the BNPL provider". This
recognises the fact that regulating merchants as credit service providers (particularly in
circumstances where the BNPL provider is itself regulated) would place an unnecessary
burden on such merchants without a clear benefit to the consumer.

We note that the financial services licensing regime explicitly exempts a merchant's
conduct in advertising the availability of a payment method (which would constitute a
regulated non-cash payment facility) from the definition of a 'financial service' (see
regulation 7.6.01(1)(l) of Corporations Regulations 2001). We note that there is also an
exemption in that regime for passing on 'prepared documents' prepared by a third party
in certain circumstances (see regulation 7.1.31 of the Corporations Regulations 2001). The
inclusion of a similar exemption for merchants that introduce their customers to BNPL
contracts has been proposed in the consultation on draft legislation for BNPL in the UK.[5]

**We recommend an amendment to the draft legislative package, or a new note in the**
**explanatory material or RG 203, to clarify that a merchant is not 'acting as an**
**intermediary' (and, as such, providing a 'credit service') if they advertise the**
**availability of BNPL as a payment method or participate in promotional activities**
**using material approved by a licensed BNPL provider.**

[5 HM Treasury Regulation of Buy-Now Pay Later Consultation on draft legislation.](https://assets.publishing.service.gov.uk/media/63ea41a9e90e077bbb30a4fc/BNPL_consultation_on_draft_legislation.pdf)

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**_Removal of interest rates and charges disclosure requirements_**

**Recommendation:**

- Amend the Credit Code to remove the application section 17(10) to LCCC
providers.


The draft Bill amends section 17 of the Credit Code to provide that if a credit contract is an
LCCC and no interest charges are payable under the LCCC, then subsections 17(4) to (6) of
the Credit Code do not apply to the LCCC. This carve-out should extend also to the
**following provisions:**

-  **Statements of Account: Currently section 17(10) of the Credit Code does not apply**
to credit contracts where the annual percentage rate is fixed for the entire term
and there is no provision for varying the rate. In our view, the obligation to provide
statements of account for LCCCs should, then, not apply where there are no
interest charges payable at all. This is consistent with the policy objective of this
requirement, which is to enable customers to readily assess their positions by
reviewing their account online. Alternatively, the maximum period for providing a
statement of account should be 6 months, which is consistent with section 33 of
the Credit Code applying to contracts that are not considered continuing credit
contracts.

-  **Disclosure documents and notices: Certain notices required for current regulated**
credit under the Credit Code and the Privacy Act 1988 (Privacy Act) are not
appropriate for BNPL arrangements. Adjustments should be made to these
requirements to reflect the relative simplicity and transparency of BNPL contracts
(particularly where no interest is charged). For example:

-  Section 36 of the Credit Code - statement of amount owing

-  Section 38 of the Credit Code - disputed accounts notice

-  Section 65 of the Credit Code - notice of repayment changes

-  Section 71(1) of the Credit Code - notice of agreed changes to the contract

-  Section 71(3) of the Credit Code - notice of increase in the amount of credit
provided

-  Section 83 of the Credit Code - statement of payout figure

-  Section 21P of the Privacy Act - notice of decline, where a lender refuses an
application due to credit reporting information

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**_Default notices_**

**Recommendation:**

- Amend the form requirements that apply to an electronic section 87 notice
given by a LCCC provider. The requirements should allow for the provision of a
simpler notice of payment failure by in-app notification.


The draft Bill makes a number of amendments to the Credit Code in relation to the
obligations of a credit provider if a default in payment by direct debit occurs. It seeks to
expand the first time default notice requirements in section 87 to apply beyond direct
debits to cover a broader range of payment types, including creditor-initiated charges on
a credit card and creditor-initiated charges via the New Payment Platform’s PayTo service.

Under this proposal, the requirements in section 87 would apply to Afterpay, as we obtain
authorisation to charge the customer’s nominated payment method. In practice, if
Afterpay’s attempt to charge the customer’s nominated payment method for a scheduled
payment fails, Afterpay provides a message to the customer immediately, and they are
charged a late fee.

We acknowledge that a requirement to give information in writing (such as a requirement
to give a notice) under the Credit Code may be given under the Electronic Transactions
Act 1999 (see section 188(2) of the Credit Code), unless an exemption applies under the
Electronic Transactions Regulations 2020. We note that a section 87 notice is not subject
to an exemption (as is, say a section 88 notice) and, as such, may be given electronically
(such as using an in-app notification). That said, the notice would have to be given using
the prescribed form, currently Form 11A in the NCCP Regulations. This form is very
prescriptive and not suited for an electronic notification (such as in-app messaging). The
**draft Regulations should amend the form requirements that apply to an electronic**
**section 87 notice given by a LCCC provider. They should ensure that the requirements**
that apply to such a notice allow for the provision of a simpler notice of payment failure by
electronic (such as in-app messaging) notification.

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**7.** **Technical comments**

**Recommendation:**

- Structure references to dollar amount thresholds so that LCCC providers can
apply round numbered thresholds.


**As a technical point, we recommend that references to dollar amount thresholds in**
**the draft legislative package be structured so that LCCC providers can apply round**
**numbered thresholds. For example, the Regulations should refer to spending limits of**
“$2,000 or less” or “$5,000 or less” rather than “less than $2,000” or “less than $5,000”. The
former means that there is a category of consumers for whom a spending limit of up to
$2,000 or $5,000 can be offered in a particular way, rather than a spending limit of up to
$1,999 or $4,999.

**8.** **Commencement**

**Recommendation:**

- Commencement 12 months after Royal Assent.


**Given the complexity and resources required to implement these reforms, we**
**recommend a commencement date of 12 months after the legislative package**
**receives Royal Assent.**

The reforms will impact a range of BNPL providers, including smaller FinTechs and more
established providers, which have varying capacities to quickly respond and adapt to
regulatory change, including participation in partial credit checks and the associated
reciprocity obligations. This diversity should be taken into consideration. Further,
implementation will be partly dependent on resource constraints and the availability of
software engineers and other technical roles to design and implement internal product
changes and integrate external requirements, including affordability assessments. In
addition to technical design work, providers will need ample time to conduct commercial
due diligence processes for the procurement of a number of business-critical services.

**Conclusion**

Thank you for the opportunity to make this submission. We look forward to ongoing
engagement with Treasury. Please do not hesitate to contact us if you require further
information.

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