**Australian Securities**
**and Investments Commission**

Office address (incl courier
deliveries):
Level 5, 100 Market Street,
Sydney NSW 2000

Mail address for Sydney office:
GPO Box 9827,
Melbourne VIC 3001

Tel: +61 1300 935 075

www.asic.gov.au/


Daniel McAuliffe
Financial System Division
Treasury
Langton Cres
Parkes ACT 2600

By email:

creditreforms@treasury.gov.au

10 April 2024


**Buy Now Pay Later (BNPL) regulatory reforms – ASIC’s submission on the exposure**

**draft legislative package**

Dear Mr McAuliffe

ASIC supports the regulation of BNPL arrangements under the National Consumer
_Credit Protection Act 2009 (National Credit Act). We note the Government's_
intention to apply modified responsible lending obligations (RLOs) to BNPL
arrangements and welcome the opportunity to comment on the exposure draft
legislation. This submission suggests a small number of changes to the exposure draft
that would improve ASIC’s ability to take regulatory action to protect consumers
from harm within the proposed framework.

**Emphasis on the BNPL provider’s ability to rely on information provided by the**
**consumer, general policies and presumptions**

Under s130(1)(a), (b) and (c) of the National Credit Act, a licensee must make
reasonable inquiries about a consumer’s requirements and objectives and
undertake reasonable inquiries and take reasonable steps to verify the consumer’s
financial situation. Under proposed s133BXD(6)(a)–(c), a BNPL provider will not fail to
meet these obligations if they rely on information provided by the consumer, follow
a general policy about the inquiries to be made or rely on any presumptions about
the consumer’s requirements, objectives or financial situation.


-----

It is not clear why s133BXD(6)(a)–(c) is required, noting that it in determining whether
the provider has complied with s130, regard already must be given to a number of
factors at proposed s133BXD(3). The provision places excessive emphasis on the
BNPL provider’s ability to rely on information provided by the consumer, general
policies and presumptions. In particular, the reference to policies exacerbates the
concern below regarding the reliance on the existence of policies within the
framework overall.

In order to create more clearly enforceable obligations, ASIC suggests that
s133BXD(6)(a)–(c) be removed. If, however, this provision is retained, ASIC suggests
that:

-  changes be made to proposed s133BXD(6)(a)–(c) to impose a
‘reasonableness’ standard for each practice, or to limit the circumstances in
which these practices can be adopted, for example, to circumstances where
there is an absence of other available information; and

-  changes be made to the provision so that it states that ‘nothing in this Act has
the effect that the licensee cannot satisfy the requirements in paragraphs
130(1)(a), (b) and (c), as they apply in relation to the low cost credit contract
and the consumer, merely because the licensee’ adopts the practices at
s133BXD(6)(a)–(c). The reference to the ‘mere’ adoption of these practices
would make it clearer that adopting these practices does not mean that the
licensee will be taken to have complied with s130 (but that adoption of these
practices means that they have not necessarily contravened s130)1.

Of the issues listed in this submission, we consider this to be the most critical to
improving ASIC’s ability to take regulatory action to protect consumers from harm.

**Reliance on the mere existence of policies**

Under proposed s133BXD(3)(d)–(e), in determining whether the BNPL provider has
met their obligation to make reasonable inquiries about the consumer under s130 of
the National Credit Act, consideration must be given to, among other things,
whether the BNPL provider has ‘any policies in place’ that reduce the risk of it
providing unaffordable credit or reduce harms if the licensee provides credit on
terms that are not affordable for the consumer.

The mere existence of such policies, regardless of their quality or effectiveness,
should not be considered when assessing whether a BNPL provider has made
reasonable inquiries. We suggest that changes be made to s133BXD(3)(d)–(e) to:

-  impose an ‘adequacy’ standard to the policies; and

1 This suggestion is consistent with the Explanatory memorandum (EM) which states at paragraph 1.71 ‘A licensee will
not be presumed to have failed to satisfy section 130 of the Credit Act merely on the basis of having relied on
information or documents provided by the consumer, or having followed a general policy about the inquiries to be
made or the steps to be taken, in certain kinds of cases, or having relied on certain presumptions about the
consumer’.


-----

-  require consideration be given to the degree to which the BNPL provider is
consistently applying the policy.

Like the issue above, we consider this issue is critical to improving ASIC’s ability to
take regulatory action to protect consumers from harm.

**Consideration of the impact of existing debts on the consumer**

Under proposed r28HAD(5)(c), BNPL providers will be required to ask consumers
about the existence of some debts, being small amount credit contracts (SACCs),
BNPL arrangements and consumer leases.

As part of this requirement, ASIC suggests that BNPL providers be expressly required
to make inquiries into the size of those debts, or any defaults associated with them.
Without these additional inquiries, there is a risk of increased financial stress for
vulnerable consumers where they continually cycle through a range of credit
products, with some consumers using high-cost credit to repay their BNPL
arrangements.

**Consideration of the consumer’s requirements and objectives**

Under proposed s133BXF and s133BXG, contracts and credit limit increases of less
than $2,000 are presumed to meet the requirements and objectives of the consumer
for the purpose of s131(2)(b) and s133(2)(b) of the National Credit Act respectively,
unless the contrary is proved.

The purpose of inquiries into requirements and objectives is to understand why a
credit product is sought by a consumer and to determine whether the type, length,
rate, terms, credit limit, special conditions, charges and other aspects of the
proposed contract meet that purpose (see para 3.68 of the EM to the National
Consumer Credit Protection Bill 2009).

It is important that the BNPL provider considers whether, for example, the repayment
size and frequency meets the requirements and objectives of the consumer when
assessing the suitability of the contract. This is because differences in the amount
and frequency of the repayments could create financial stress or otherwise not be
consistent with the consumer’s requirements and objectives.

ASIC suggests that:

-  changes be made to the provision to add potential grounds on which the
presumption could be rebutted. These grounds could include where the BNPL
provider is aware (through inquiries), or should be aware, of information that
shows that the product’s characteristics would not meet the requirements
and objectives of the consumer; and

-  the $2,000 threshold be lowered. As stated at paragraph 1.10 of the EM, ‘BNPL
products that provide spending limits of less than $2,000 are most popular in
Australia’. Therefore, it is likely that a $2,000 threshold means that the
requirement for the BNPL provider to consider the requirements and


-----

-----

