### Submission to Treasury

## Buy now pay later exposure draft materials


April 2024


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# Contents

**Contents** **2**

**INTRODUCTION** **3**

**RECOMMENDATIONS** **4**

**Aspects of the ED Materials we strongly support** **8**

**Improve unsuitability assessments** **9**

Income and expenses verification underpins responsible lending 9

Increased risk of fraud or financial abuse without verification 11

Require inquiries about the source of income 12

Include more examples of situations where further verification is required 12

Require inquiries about MACCs as well as SACCs 13

Relying on credit reporting in unsuitability assessments 13

Mandate comprehensive credit reporting for all forms of credit 14

Mandate partial credit checks for all BNPL loans 14

Requirements and objectives presumption for loans under $2,000 16

Addressing foreseeable problems in dispute resolution 17

Elections to comply with the Modified RLOs need to be disclosed 17

Unsuitability assessment policies need to be accessible 17

**Steps to ensure BNPL products are lower risk** **18**

Safeguards for high value BNPL products 18

Door-to-door selling of solar panels financed by BNPL 19

Safeguards for all BNPL products 23

Additional protections to address risk of financial abuse 23

Remove exemption from 48% annual cost cap 24

Remove exemption from comparison rate disclosure obligations 25

Addressing increased risks of existing accounts 27

Other concerns with aspects of the ED Materials 28

Issues with definitions 31

ASIC should review this regime in 18 months 32


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## INTRODUCTION

We welcome the opportunity to provide feedback on the Exposure Draft materials proposing to

regulate buy now, pay later products (BNPL) as credit. This is a joint submission made on

behalf of the following organisations:

-  CHOICE

-  Financial Rights Legal Centre

-  Consumer Action Law Centre

-  Indigenous Consumer Assistance Network

-  Brotherhood of St Laurence

-  The Salvation Army

-  Financial Counselling Australia

-  Financial Counselling Victoria

-  Consumer Credit Legal Service

-  Redfern Legal Centre

-  LawRight

Our organisations have long advocated for BNPL to be regulated as a credit product under the

_National Consumer Credit Protection Act 2009 (NCCPA), and so we welcome the major step_

towards achieving this outcome that the Exposure Draft materials (ED Materials) represent. We

urge the Government to finalise this legislation as a matter of priority to ensure that the

framework is passed this year.

We continue to hear from people who have been pushed towards, or deeper into, financial

hardship, by unaffordable BNPL debts. For example, as it is currently one of the easiest forms of

credit to obtain, BNPL routinely features in the debt mix of victims/survivors of family violence.

Borrowers, financial counsellors and lawyers continue to report difficulties in getting proper

hardship responses from even major BNPL companies, which exacerbates the financial and

emotional toll that being in debt has on a person. BNPL is causing the same harms as other

forms of credit products and needs regulation that provides the same consumer protections.

We welcome the requirement for BNPL providers to hold an Australian Credit Licence, be

members of the Australian Financial Complaints Authority (AFCA), comply with hardship

obligations and caps on permissible default fees and enabling the extension of the regime to

capture other unregulated credit models, such as wage advance products, in the future.


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Requiring BNPL providers to undertake unsuitability assessments in some form is also a vital

step. However, we have significant concerns about the modified unsuitability assessment

regime (Modified RLOs) proposed in the ED Materials. The Modified RLOs would not deliver

the same assurances for BNPL lending as the current safe lending laws do for other credit

products. As drafted, there are obvious and concerning flaws in the modified safeguards.

The Modified RLOs and the approach taken to bringing BNPL within the credit law is also very

complex and we are concerned that in practice, aspects of the regime will not do what is

intended. The ED Materials leave too much discretion to the BNPL industry which to date has

not provided good outcomes for many consumers in financial difficulty. We are not convinced

that the intention of proportionate regulation that introduces meaningful safeguards has been1

achieved. To remedy this, the ED Materials must be amended so that BNPL products present

less risk for consumers. If BNPL is going to be sold with only partial safe lending laws applying,

the laws need to do more to ensure BNPL products are actually safer.

This submission provides a number of recommendations aimed at improving the ED Materials

so they will better achieve their stated objectives.

## RECOMMENDATIONS

1. Finalise the ED Materials as a matter of priority, and introduce legislation to Parliament

to regulate BNPL as credit.

2. Mandate the verification of income and expenses as part of the unsuitability assessment

process for all BNPL products.

3. Introduce safeguards to reduce the risk that verification documents not being obtained

under the Modified RLOs will make it easier to commit financial abuse or identity theft.

4. Specifically require Low Cost Credit Contract (LCCC) providers to obtain information

about the source (and not just amount) of a prospective borrower’s income.

5. Provide more examples in the Explanatory Memorandum or Explanatory Statement

about when a BNPL provider should not rely on stated income and expense figures

without undertaking further verification.

1

[https://ministers.treasury.gov.au/ministers/stephen-jones-2022/speeches/address-responsible-lending-bor](https://ministers.treasury.gov.au/ministers/stephen-jones-2022/speeches/address-responsible-lending-borrowing-summit)
[rowing-summit](https://ministers.treasury.gov.au/ministers/stephen-jones-2022/speeches/address-responsible-lending-borrowing-summit)


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6. Amend regulation 28HAD(5) to require that LCCC providers obtain information they

reasonably believe to be substantially correct about any MACCs to which a potential

borrower is a party.

7. Mandate comprehensive credit reporting for all forms of regulated credit, including

LCCCs and BNPL.

8. Amend regulation 28HAD of the Draft Regulations to require a partial credit check for

LCCC/BNPL loans under $2,000.

9. Remove the presumption under section 133BXF of the Draft Bill that a LCCC with a

credit limit of under $2,000 will not be unsuitable for consumers. All BNPL lending needs

to meet the requirements and objectives of consumers.

If this recommendation is not accepted, the Explanatory Memorandum should be

updated to provide specific examples where presumption should not be relied upon.

10. Clarify in section 133BXA of the Draft Bill that licensees that make an election under

section 133BXA(1) must disclose that fact publicly, including via inclusion in contracts

and other disclosure documentation.

11. Clarify in the Draft Bill that licensees must provide any unsuitability assessment policies

established in compliance with section 133BXH to complainants in relevant disputes.

12. Ban the unsolicited selling of BNPL products, at least where the BNPL provider has

elected to comply with the Modified RLOs. Require BNPL providers to release

consumers from contracts entered into via unsolicited sales.

13. Impose an upper limit of $5,000 on the value of LCCCs/BNPL contracts that can be sold

under the Modified RLO regime. Ensure multiple contracts cannot be entered into to

avoid this cap.

14. Prohibit LCCCs entered into under the Modified RLO regime from being secured over

assets in any circumstance.

15. Require credit representatives engaging in credit activity relating to LCCCs to be

members of AFCA.

16. As a matter of priority, the Government should take steps toward removing the point of

sale exemption, in line with recommendation 1.7 of the Financial Services Royal

Commission.

17. Amend the Draft Bill so BNPL providers are required to take meaningful steps to reduce

the risk of their products being used to perpetrate financial abuse, including by ensuring

the risk of financial abuse is a matter to be considered under section 133BXD(3).

18. Amend the Draft Bill so it does not exempt LCCCs from the 48% annual cost rate cap at

section 32A of the NCC.


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19. Amend the Draft Bill so it does not exempt LCCCs from the comparison rate obligations

contained in Part 10 of the NCC.

20. Prohibit the advertising and promotion of BNPL to purchase essential goods or pay

essential bills. This should include groceries, medicine, fuel, utilities and any health

services that Medicare or health insurance may cover.

21. Mandate that LCCCs provide consumers with a credit limit reduction entitlement,

consistent with the requirement for credit cards under section 133BF of the NCCPA.

22. Further restrict the permissible default fees on BNPL accounts that exist before the

legislation comes into effect, unless an unsuitability assessment is completed based on

the account holder’s finances.

23. Provide more guidance in the Draft Bill to ensure that section 133BXD actually mandates

LCCC providers using the Modified RLOs to take genuine steps to make their products

safer.

24. Revise section 133BXD(6) so it does not give a green light to LCCC providers to

undertake minimal verification as standard practice.

25. Amend the Explanatory Statement to require LCCC providers to undertake annual

random checks of a sample of applications to determine if any assumptions in their

lending model are accurate and appropriate.

26. Ensure ASIC is resourced and suitably empowered to review and undertake

enforcement for deficient reviews of unsuitability assessment policies.

27. Delete section 133BXE of the Draft Bill. Failing this, introduce meaningful safeguards for

the extent to which LCCC providers can make ‘protected increases’, such as by:

-  Imposing a $2,000 upper limit on the maximum credit limit that may be reached

via protected increases;

-  Reducing the period for which protected increases are permitted, to six months;

and

-  Prohibiting protected increases on accounts where defaults have occurred during

the protected period.

28. Review all of the provisions in the ED Materials relating to the definition of LCCC and

BNPL, to ensure that there are no inadvertent loopholes that will allow rogue lenders to

avoid the operation of the legislation.

29. Include a provision in the ED Materials requiring ASIC to undertake a review of the new

LCCC regime 18 months after it has commenced. The review should be focused on

consumer outcomes.

30. The Government should provide additional funding to resource ASIC to oversee the

implementation of the new laws applying to BNPL, including specific funding for a


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recurrent data collection right for ASIC to undertake reviews to ensure the effectiveness

of the regime.


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## Aspects of the ED Materials we strongly support

We strongly support treating BNPL as credit and regulating it as such under the NCCPA.

Passing the framework contained in the ED Materials represents a dramatic improvement in the

oversight of BNPL. Subjecting BNPL providers to a form of responsible lending obligations and

empowering ASIC to regulate BNPL as credit is a necessary step that will reduce consumer

harms currently being caused by BNPL.

Specifically, we particularly support the following aspects of the ED Materials:

-  requiring BNPL providers to hold an Australian Credit Licence and be members of the

Australian Financial Complaints Authority (AFCA). These are fundamental obligations

that ensure ASIC has the appropriate kind of oversight powers of BNPL, and that

consumers have a free and accessible path for dispute resolution - this is vital to good

consumer outcomes

-  requiring BNPL providers to comply with the hardship obligations in the National Credit

Code (NCC). This will require BNPL providers to give fair consideration to hardship

requests, and respond promptly and transparently to requests for hardship. It should

reduce the prevalence of inadequate and inconsistent hardship responses reported by

consumers and consumer representatives.

-  setting a cap on permissible default fees. BNPL providers can set borrowers up to fail by

providing them with too much credit, and default/late fees disproportionately impact

people who are already in financial hardship. This is an important safeguard particularly

while the industry continues to claim that it is a low cost option.

-  applying anti-avoidance provisions to BNPL. BNPL is designed to fall within loopholes to

avoid being treated as credit under the NCCPA. It should be expected that the industry

will consider ways to avoid the regime, so the anti-avoidance provisions are an important

safeguard.

-  Establishing the low cost credit contract (LCCC) regime in such a way that will allow the

Government to extend its application to other unregulated credit models in future. We

particularly urge the Government to consider extending the regime to capture wage

advance products as a matter of priority.

-  Subjecting BNPL providers to the responsible lending obligations (albeit in a modified

form) and requiring BNPL providers to undertake unsuitability assessments. While much

of the remainder of the submission below addresses concerns we have with the Modified

RLO regime proposed, it is vital that there is some form of assessment of whether a


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borrower can afford the repayments on BNPL products as part of the approval process.

In particular, we consider obliging BNPL providers to seek information about whether

prospective borrowers have any current payday loans, consumer leases or other BNPL

products to be very important.

##### Recommendation 1

Finalise the ED Materials as a matter of priority, and introduce legislation to Parliament to

regulate BNPL as credit.

## Improve unsuitability assessments

The bulk of our concerns with the ED Materials relate to the Modified RLO process that

LCCC/BNPL providers can make an election to comply with under section 133BXA of the Draft

Bill. The assessment BNPL providers would be required to make before lending to someone

under the Modified RLOs as drafted would not ensure responsible lending occurs.

In the ED materials it appears that the key difference between the current safe lending laws and

the Modified RLOs is that generally the latter reduces the steps required to verify financial

information provided to BNPL providers by a prospective borrower about their financial situation.

We understand that BNPL providers will be obliged to enquire about a person’s income and

expenses and reasonably believe that information to be correct, but the regime will not2

necessarily require any steps be taken to verify this information beyond minimum mandated

credit checks, unless discrepancies are identified. This is confirmed at 1.57 of the EM that

states that “it is possible to meet these reasonable steps solely based on the information

provided by a consumer, if the circumstances support it.” This risks many assessments being

made on incomplete and/or incorrect information, with few checks in place which will weaken

the value of the unsuitability assessment as a consumer protection.

#### Income and expenses verification underpins responsible
 lending

The most important part of the unsuitability assessment is having the credit provider take steps

to ensure the cost of the product will not cause the borrower substantial hardship. The best way

2
Per Draft Regulation 28HAD(5)


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to ensure that an unsuitability assessment achieves this is to base it on accurate income and

expenses figures.

Existing responsible lending laws require credit providers to obtain documentation to reasonably

verify the income and expenses of prospective borrowers. Verification of income in particular is

not onerous. Obtaining a pay slip or bank statements can make this a simple process, and at

least confirms if it is conceivable that a borrower could afford loan repayments.

The Modified RLOs allow BNPL providers in some circumstances to accept a self-declared

income figure without necessarily making further inquiry, unless the lender has a reason to

believe it is not correct. Since lenders will have few (if any) points of reference to check the

stated income and expenses figures against, only very extreme answers would ever justify

further inquiry.

Obtaining a correct income figure is crucial to the integrity of the assessment process. The risks

of relying on self-declarations of income include:

-  it gives no certainty about the borrower’s terms of employment (and whether the income

can be relied on in future);

-  missing fluctuations in income, e.g. with casual or gig-economy workers;

-  overestimates of income due to cognitive biases such as optimism bias and imperfect

self-control;

-  the risk that consumers do not understand their own income;

-  misrepresentations by people perpetrating fraud including financial abusers;

-  mistakes due to mental illness or intellectual disabilities;

-  overstatements of income by people in desperate circumstances; and

-  other well-established behavioural distortions.

Asking consumers to provide expense information in a LCCC application without checking that

information also removes a responsibility that traditionally sits with the expert credit provider,

and places all of the burden on the consumer. This will not necessarily lead to improved lending

outcomes. People are generally poor at estimating their own expenses. They will be even less

accurate if they are doing this ‘on the run’ in order to complete a relatively small purchase and

will be more focused on getting over the hurdle than providing the most accurate information.

Those experiencing financial hardship already will be those most motivated to pass the

assessment regardless of the risk, and therefore prone to a low estimation bias.


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The proposed regime also has no effective mechanism to identify errors in self-declared income

or expenses. Credit checks do not offer any information about a person’s income or expenses

beyond liabilities, so creditors may instead assume stated income and expenses are

substantially correct. The only example offered in the Explanatory Statement of where a creditor

could not reasonably accept a stated income is an extreme one involving very rare

circumstances and obvious red flags.

People who are most likely to get their stated income and expenses wrong are also likely to be

those most harmed by unaffordable credit - such as people on variable incomes or people with

low financial literacy. The absence of income verification in the Modified RLOs is a major

concession to industry’s complaints about friction that may dramatically undermine the intended

effect of the RLO regime. We urge the Government to reconsider this approach.

##### Recommendation 2

Mandate the verification of income and expenses as part of the unsuitability assessment

process for all BNPL products.

##### Increased risk of fraud or financial abuse without verification

The framework allowing credit approval with minimal, if any, verification documentation in certain

circumstances will make it easier for credit products to be taken out fraudulently.

BNPL is likely to remain an easier form of credit for perpetrators of financial abuse to take out in

a victim’s name. This is because the proposed regime will not require steps to verify a

borrower’s financial situation. It means a perpetrator does not have to prove the victim has an

income, or has money in their bank account. It also makes it less likely other loans taken out in

the victim’s name will be identified, particularly as many debts do not show up at all on

Australia’s credit reporting system.

It will also make LCCC/BNPL products easier to obtain for perpetrators of identity theft. Identity

documents may be required for lenders to conduct credit checks, but these documents have

been compromised for many Australians, by way of numerous large-scale recent data breaches.

Requiring recent documentary evidence of income and expenses also makes it far more likely

that the borrower is actually who they say they are. The Modified RLOs do nothing to address

this existing susceptibility in BNPL industry practices, when compared to other forms of credit.


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##### Recommendation 3

Introduce safeguards to reduce the risk that verification documents not being obtained

under the Modified RLOs will make it easier to commit financial abuse or identity theft.

##### Require inquiries about the source of income

In recent legislative reform aimed at reducing the harm of small amount credit contracts
and consumer leases, the Government introduced a specific requirement for relevant3

credit licensees to confirm whether credit applicants were receiving social security
payments. This was in recognition that people who predominantly receive their income
from Centrelink or a similar source are generally on limited budgets, and that credit fees
can have a significant impact on their financial wellbeing.

The ED Materials contain no recognition of this increased risk, and the reforms appear to
give LCCC/BNPL providers a broad latitude to only find out the bare minimum about the
source or nature of someone’s income. The ED Materials should be amended to make
clear that inquiry about the source of a prospective borrower’s income is required under
regulation 28HAD(5) of the Draft Regulations.

##### Recommendation 4

Specifically require LCCC providers to obtain information about the source (and not just

amount) of a prospective borrower’s income.

##### Include more examples of situations where further verification is required

We would welcome more guidance in the Explanatory Statement or Explanatory
Memorandum about when LCCC providers should not accept information provided by a
prospective borrower at face value without taking additional steps to verify their financial
situation.

More specific examples should be included in the Explanatory Statement to help clarify
when LCCC/BNPL providers will not have a reasonable basis to accept financial
information stated, such as:

-  if an applicant has an application for a BNPL refused, then reapplies within a
short time but provides different income and expense figures;

3
_Financial Sector Reform Act 2022 and supporting regulations_


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-  where an applicant denies that they have any existing payday loans, consumer
leases or BNPL products, but a credit check shows records of two recent
inquiries made by lenders that operate in these markets;

-  if an applicant has told a lender they need BNPL to pay for household essentials,

4 but they are on a low fixed (for example, Centrelink) income. Further inquiry

should be expected to understand how the applicant plans on paying the loan off,
and why a loan with extra fees would not just leave them worse off over time.

##### Recommendation 5

Provide more examples in the Explanatory Memorandum or Explanatory Statement about

when a BNPL provider should not rely on stated income and expense figures without

undertaking further verification.

##### Require inquiries about MACCs as well as SACCs

Regulation 28HAD(5) should also be amended to specifically require that licensees also obtain
reasonably reliable information about any medium amount credit contracts (MACCs) to which a
consumer is currently a party, as it does for SACCs. MACCs are also a form of extremely high
cost credit and all the same justifications for inquiries about SACCs exist for MACCs. Their use
can indicate a person is at risk of financial hardship. Frontline caseworkers have reported a risk
in the uptake of MACCs in recent years, and particularly since the Financial Sector Reform Act
_2022 came into effect and increased regulation of SACC lending. These lenders are also_
unlikely to appear in any form of credit check, as many do not engage with the credit reporting
system.

##### Recommendation 6

Amend regulation 28HAD(5) to require that LCCC providers obtain information they

reasonably believe to be substantially correct about any MACCs to which a potential

borrower is a party.

#### Relying on credit reporting in unsuitability assessments

Our understanding of the structure of the Modified RLOs is that the obligation to reasonably
verify the expenses of a prospective borrower will generally be satisfied by undertaking a credit
check - a negative credit check for LCCC/BNPL loans under $2,000, and a partial credit check
for loans above $2,000.

4
Although this information generally would not be provided in applications for LCCCs under $2,000 due to
the rebuttable presumption that it will meet the requirements and objectives of the applicant - see
recommendation 9.


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As set out in the submission by the Close Lending Loopholes alliance to Treasury’s options
paper in 2022 (Options Paper), using credit checks (regardless of the level of inquiry) for5

unsuitability assessments is a process with obvious flaws. Reliance on credit reports alone or
credit scoring is neither appropriate nor effective in ensuring responsible lending outcomes.
Credit reports and credit scores are not designed to assess whether loan repayments will cause
hardship. Credit reporting is designed to give creditors an indication of the likelihood of a person
repaying a debt (that is, to help assess the lender’s credit risk).

A system reliant on credit checks as a safeguard to identify consumer expenses will always be
limited. However, if this aspect of the policy behind the Modified RLOs has been decided, we
urge the Government to consider the following issues it creates, in particular.

##### Mandate comprehensive credit reporting for all forms of credit

Only a small number of credit providers are required to participate in credit reporting and a
limited number voluntarily participate. This means that many credit products are not visible via
any kind of credit check, and this includes high cost credit like payday loans and consumer
leases.

Participation in credit reporting needs to be mandated for all forms of regulated credit for
responsible lending (including the Modified RLOs) to work as intended. This should be done
through the Government process that follows from the independent review of Australia’s credit
reporting framework that is currently underway. Incomplete credit reporting paints only a partial
picture of someone’s credit history and situation, and this can unfairly harm the terms on which
consumers access credit. A more complete credit reporting system would be fairer and would
make reliance on partial credit checks to verify expenses more possible.

##### Recommendation 7

Mandate comprehensive credit reporting for all forms of regulated credit, including

LCCCs.

##### Mandate partial credit checks for all BNPL loans

Even if comprehensive credit reporting is mandated across the credit market in future, the
negative credit check the ED Materials mandate for LCCCs under $2,000 will still not be an
effective safeguard because of the significant limits on the information it provides.

A negative credit check will only inform a credit provider about inquiries made by other creditors
and listed defaults. Crucially, it will never confirm:

5
[See https://treasury.gov.au/sites/default/files/2023-02/c2022-338372-joint_consumer_group.pdf, page 51](https://treasury.gov.au/sites/default/files/2023-02/c2022-338372-joint_consumer_group.pdf)


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-  whether enquiries made (including by other LCCC/BNPL providers) have actually
resulted in an account being opened; or

-  The value or limit of any existing credit products.

These are vital pieces of information necessary for verification to have any material value at all.
This approach suggests that credit under $2,000 is immaterial - a position that makes little
sense considering the extra safeguards deemed necessary to reduce the harm small amount
credit contracts can cause.

By comparison, BNPL providers issuing loans above $2,000 and obtaining consumer credit
liability information via partial credit checks will be able to see any information on the system
about the subject’s liabilities. Due to current reciprocity obligations in credit reporting, these
BNPL providers would also be required to list the value/limit of any existing BNPL (or other
credit) products issued by them as well, so others can also see the outcome of those BNPL
applications. Having all BNPL loans report this level of detail would make credit reports provide
a clearer picture of a person’s true liabilities - which is a vital part of making an unsuitability
assessment reliable.

Another major problem is that negative credit checks are not currently reported across credit
bureaus. If one credit provider undertakes a negative credit check on one credit bureau (eg
Equifax), it will only be visible to providers undertaking future checks on the same bureau, and
not on others (eg Illion or Experian). This is a huge flaw that means for loans under $2,000,
BNPL providers will not necessarily even be aware of where another BNPL provider has
undertaken a check. It presents the real possibility that a person can take out multiple BNPL
loans which quickly add up and cause the harms we have been seeing on our frontline services
for years. It also presents an obvious incentive for BNPL providers to avoid the intended goal of
the credit check (identifying other potential BNPL loans) by trying to use the credit bureau used
the least by other BNPL providers.

Considering these issues with negative credit checks, mandating them achieves little in terms of
meaningful verification or safeguards. The partial credit check standard that applies to BNPL
loans over $2,000 should be the requirement for all LCCCs.

##### Recommendation 8

Amend regulation 28HAD of the Draft Regulations to require a partial credit check for

LCCC/BNPL loans under $2,000.


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#### Requirements and objectives presumption for loans under
 $2,000

Section 133BXF of the Draft Bill introduces a rebuttable presumption that BNPL loans under
$2,000 are not unsuitable in meeting the requirements and objectives of the borrower.

Retaining the obligation to make reasonable inquiries about the requirements and objectives for
BNPL loans under $2,000 could help stop situations where advertised uses of BNPL can
actively cause people harm. For example, if a person is obtaining a BNPL product to pay for a
utility bill they cannot afford, there is a strong argument to suggest that this would:

1. Put the lender on notice that the person may be at greater risk of financial hardship (and
therefore trigger a need to make further inquiry); and

2. Be a sign that the product may leave the person worse off. For example, a person
struggling to pay an energy bill should always reach out to their energy provider in the
first instance - this industry has strong hardship obligations. Turning instead to pay a bill
on time using BNPL means the person is not availing themselves of the utility provider’s
hardship processes, but will also wind up with more fees to pay in the long term.

The requirements and objectives limb of responsible lending also provides an opportunity to
identify a risk of financial abuse, if a borrower’s stated reason for getting the loan suggests they
may not be receiving any benefit from it. We urge the Government to rethink its policy position
on this issue.

If this is not accepted, at a minimum the Explanatory Memorandum should be updated to
include explicit examples of information or situations that would rebut the presumption at the
time of the application for credit. This should include situations where the BNPL provider should
be able to identify that the BNPL would be used for purchases that may indicate the borrower is
at risk of hardship, such as using it to:

-  purchase essentials such as food;

-  purchase gift cards that can be used at supermarkets; and

-  pay a utility bill.

##### Recommendation 9

Remove the presumption under section 133BXF of the Draft Bill that a LCCC with a credit

limit of under $2,000 will not be unsuitable for consumers. All BNPL lending needs to

meet the requirements and objectives of consumers.

If this recommendation is not accepted, the Explanatory Memorandum should be updated

to provide specific examples where presumption should not be relied upon.


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#### Addressing foreseeable problems in dispute resolution

##### Elections to comply with the Modified RLOs need to be disclosed

One major issue with the ED Materials that must (and can easily) be addressed is improving
transparency around what law actually applies to LCCCs/BNPL unsuitability assessments.
Section 133BXA of the Draft Bill allows credit providers to elect to comply with the modified
responsible lending regime for particular types of LCCCs. Whether or not a licensee makes
such an election results in a significant change in the consumer protections that will apply by
law to the contract.

There must be a requirement to ensure these elections are made public. Without them,
borrowers (and their advocates) will not know which part of the NCCPA applies to a contract. It
would mean borrowers would not be capable of properly understanding their rights under the
contract, and is likely to lead to all kinds of problems through the dispute resolution process. For
example, if the election is not disclosed this may elongate disputes by having to argue both RLO
scenarios, and it could make outcomes opaque, even through AFCA. There is also no
reasonable basis for claims that such an election should be kept commercially confidential - the
elections do not involve any kind of trade secrets or strategy.

##### Recommendation 10

Clarify in section 133BXA of the Draft Bill that licensees that make an election under

section 133BXA(1) must disclose that fact publicly, including via inclusion in contracts and

other disclosure documentation.

##### Unsuitability assessment policies need to be accessible

The Draft Bill should also be amended to specify that written unsuitability assessment policies
(UAPs) developed under section 133BXH must also be made available to consumers and their
representatives in disputes about whether a relevant credit product was unsuitable.

These policies will directly impact the question of whether a LCCC provider has met their
obligations under the Modified RLOs. The following scenario is likely to arise for consumers who
have sought out assistance from one of our organisations:

-  Firstly consumer representatives will collect evidence we believe should have been
identified by an LCCC licensee and should be addressed in a UAP - although we do not
know what is in their UAP

-  The consumer is rejected at IDR and subsequently takes their complaint to AFCA


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-  AFCA then request the LCCC licensee for the UAP

-  AFCA receives the UAP, then shares it with the consumer and subsequently their
representative.

-  The consumer then needs to assert that the original argument is addressed by the UAP
and the LCCC licensee didn’t meet their own requirements – or it wasn’t considered in
the UAP at all but should have been.

-  AFCA makes its decision.

This is an unwieldy process that can simply be made easier by requiring UAPs to be public in
the first place. Delays in resolving complaints can also benefit lenders as additional fees can
accrue while a complaint is on foot.

At a minimum, these policies should be made available to borrowers that raise a dispute or
complaint with the credit provider that relates to the suitability of a product through the IDR
process.

##### Recommendation 11

Clarify in the Draft Bill that licensees must provide any unsuitability assessment policies

established in compliance with section 133BXH to complainants in relevant disputes.

## Steps to ensure BNPL products are lower risk

The ED Materials should also be further strengthened to include safeguards that actually ensure
BNPL products pose a lower risk to consumers than other credit products. Beyond the fee caps
that apply to LCCCs, the ED Materials contain few, if any, clear safeguards to this effect.

#### Safeguards for high value BNPL products

BNPL is increasingly being promoted to finance a range of high cost goods and services. This is
resulting in great harm by encouraging people on low incomes to acquire unaffordable or
unsustainable BNPL debt. It also creates the risk of enticing people in highly emotional
situations to purchase more products who wouldn’t normally if they were required to pay for the
cost upfront, such as for funeral services where BNPL is being offered for amounts up to
$10,000.[6]

6
For example, see:
https://mccartneyfunerals.com.au/funeral-finance/


-----

##### Door-to-door selling of solar panels financed by BNPL

Consumer representatives are seeing concerning door-to-door sales practices employed by
solar companies leading to vulnerable and low-income households being signed up to large,
unaffordable BNPL loans to pay for solar products. There has been a significant increase in
these cases across the country within the last two years, with contracts typically ranging from
$5,000 to $15,000. Consumer Action Law Centre has a systemic regulator complaint on foot
against solar company National Solar and BNPL provider Payright in circumstances like this.

The harm associated with door-to-door and other forms of unsolicited selling has been well7

documented and has already been addressed for financial products and consumer leases. In8

casework involving BNPL funded solar panel sales the harms include:

-  clients report being pressured into buying solar panels financed with BNPL;

-  clients are often misled (including about the cost, loan, rebates and cooling off rights) or
do not understand the terms of the BNPL arrangement;

-  many of the consumers reporting problems with solar panels and BNPL arrangements to
our services live regionally, are elderly, or receive an age or disability pension. First
Nations clients have also been reporting that they are being harmed by the conduct of
BNPL/solar panel providers;

-  the products are often of poor quality - consumers have reported being sold unsuitable
solar panels for their home, panels that are faulty or not installed properly, or which do
not feed back into the energy grid; and

-  even where the solar panels are successfully installed, the substantial BNPL repayments
far exceed any reduction in the consumer's energy bills.

Consumer Action Law Centre is currently providing legal and financial counselling assistance to
11 solar sales cases with linked BNPL financing.

-  In 9 of these 11 cases, the client is living in regional or remote Victoria

-  In 7 of the 11 cases, the client has a physical, intellectual and or mental disability

-  In 9 of the 11 cases, the client is dependent on some type of Centrelink payment

-  In 10 of 11 cases, the client is not employed.

7
For example, see:
https://consumeraction.org.au/telemarketing-and-doorknocking-ban-under-the-victorian-energy-upgradesprogram/

8
See for example the anti-hawking ban in s 992A and 992AA Corporations Act and the bans on
unsolicited communications regarding SACCs (section 133CF NCCPA), and canvassing of consumer
leases (section 179VA NCC)


-----

If the consumer cannot pay the instalments as they fall due, lawyers and financial counsellors
have observed BNPL providers using aggressive debt collection practices including the
on-selling of debt to collection agencies that initiate legal proceedings to recover outstanding
costs and fees quickly. Misconduct by door-to-door sellers is also difficult to prove due to the
absence of call recordings or documents.

After testing the proposed draft legislation against the cases we are seeing, for people in this
situation, the ED Materials:

-  do little to deter the systemic use of BNPL through the unsolicited selling of solar panels
to vulnerable customers;

-  fail to provide an effective means of redress for consumers, as BNPL providers are not
directly involved in the initial unsolicited sale and the customer has no option to take the
solar company to an external dispute resolution scheme such as AFCA; and

-  do not contain safeguards to reduce the risk of these arrangements ending in serious
consequences, such as putting borrowers at risk of losing the home the panels are
installed on.

Better safeguards are needed in the ED Materials to ensure the risks BNPL poses in these
situations is reduced, rather than leaving it largely to industry to decide their own risk appetite.
Door-to-door selling of BNPL should be banned altogether and particularly for lenders that elect
to rely on the Modified RLOs. Nobody should be making a decision to sign up to finance for any
product on the spot in circumstances where pressure selling is known to be an issue, and
particularly if no verification of their finances is guaranteed.

The ban should be supported by a presumption that the BNPL provider will release a consumer
from their credit contract and be jointly liable with the retailer to compensate consumers where
sales have been conducted through unsolicited approaches such as door-to-door sales.

There should also be an upper cap on the value of LCCCs that can be entered into under the
Modified RLO. We recommend a $5,000 cap, reflecting the lower range of loans related to solar
panels. Credit at or above this value is not low risk in any sense. LCCCs above $5,000 are
particularly high risk for people who could lose their home or other assets. This would also align
with the cap on MACCs.

The Government should also prohibit BNPL loans from being secured over property or other
assets, where the Modified RLOs are applied by the lender. Not doing so leaves consumers at
risk of losing their home (or car) due to a genuine underestimation of their finances.
Consequences of this nature should be limited to situations where lenders have performed
genuinely responsible lending assessments in compliance with the safe lending regime.

The amendment to section 65 of the NCCPA in the Draft Bill excluding credit representatives
from the obligation to be members of AFCA when engaging in credit activity regarding LCCCs


-----

should also be reconsidered for high value LCCCs in particular. The impact high value LCCCs
can have on a person’s finances and the active role sellers can play in signing people up to
credit, contradicts the conclusion in the Explanatory Memorandum that the costs of this
registration obligation outweigh the benefits. We also urge the Government to take steps toward
removing the point of sale exemption for retail dealers from the NCCPA, which remains an
outstanding recommendation of the Financial Services Royal Commission, and also leads to9

poor consumer outcomes.

**Consumer Action Law Centre case study 1**
Naomi* is a retired woman living regionally, relying on the Age Pension as her only income. A
solar panel sales representative visited her home three times trying to sell her solar panels. She
turned them down twice, but on the last visit in late 2022 Naomi signed a contract. Tradies
attended Naomi’s house and installed the panels two days later, without any prior notice. This
was within the cooling off termination period of 3 days provided in the contract – which is less
than the 10 days required for unsolicited sales contracts.

Naomi tells us that the salesperson made representations that she would save significantly on
her electricity bill and would receive a government rebate against the cost of the panels. It is not
clear that a rebate was applied to the purchase price, and Naomi wasn’t eligible for the Victorian
Solar rebate. She found that the panels, while feeding back into the grid, did not reduce her bills
as much as represented when the repayments were taken into account.

Naomi also says she wasn’t aware she would be signed up to a BNPL provider to finance the
panels. She later discovered the cost of the solar panels through the BNPL contract was $9,900
with fortnightly repayments of $80. The BNPL provider says that Naomi received a text message
with a link, and when she opened the link she confirmed she was applying for the finance with
them.

Following a complaint, the BNPL provider maintained that Naomi was aware of the purchase
price and that no representations as to savings on her energy bill were made.

In late 2023, they eventually offered a financial hardship arrangement to reduce her payments to
$50.

This wasn’t an acceptable resolution for Naomi and she rejected the offer.

The BNPL provider eventually agreed to refund Naomi’s payments and waive the remaining

debt. It took two different community organisations and more than a year for Naomi’s dispute to
be resolved.

_*name changed._


9
Recommendation 1.7:
[https://www.royalcommission.gov.au/system/files/2020-09/fsrc-volume-1-final-report.pdf, see page 88](https://www.royalcommission.gov.au/system/files/2020-09/fsrc-volume-1-final-report.pdf)


-----

**Consumer Action Law Centre case study 2**

Our First Nations client Steven* lives in regional Victoria and his only income is the Disability
Support Pension. Early last year he was visited by a solar panel company sales representative at
his home. Steven says he tried to tell him he was busy and did not have time to speak to him, but
the representative persisted. Steven says he told the representative he couldn’t afford the initial
offers provided to purchase solar panels for $15,000 and then $9,000.

The representative then told Steven he could purchase the panels for $95.95 per fortnight over
60 months. Steven signed the paper on the understanding that it was a quote.

A week later, trades attended Steven’s house and installed the panels. Steven says he asked
them to stop, but they didn’t speak English and couldn’t understand him. Steven then discovered
he had been entered into a contract with a BNPL provider without his knowledge. He also found
that his energy bill was only decreasing by 30 cents a week.

The payments put Steven in financial hardship and he doesn’t want the panels – he didn’t agree
to the installation and they’re not suitable for his energy use. The solar panel company also isn’t
a part of the government Solar Victoria scheme, which means Steven can’t get rebates for the
purchase.

Steven sought assistance from Consumer Action, who helped him write to the BNPL provider to
terminate the contract as an unsolicited consumer agreement. The provider continued to seek
payments from Steven until Consumer Action wrote to them on his behalf.

We understand that the BNPL provider has agreed to cancel the contract and refund the debt
some weeks after we first raised our concerns with them.

_*name changed._


##### Recommendation 12

Ban the unsolicited selling of BNPL products, at least where the BNPL provider has

elected to comply with the Modified RLO. Require BNPL providers to release consumers

from contracts entered into via unsolicited sales.

##### Recommendation 13

Impose an upper limit of $5,000 on the value of LCCCs/BNPL contracts that can be sold

under the Modified RLO regime. Ensure multiple contracts cannot be entered into with

different providers to avoid this cap.


-----

##### Recommendation 14

Prohibit LCCCs entered into under the Modified RLO regime from being secured over

assets in any circumstance.

##### Recommendation 15

Require credit representatives engaging in credit activity relating to LCCCs to be

members of AFCA.

##### Recommendation 16

As a matter of priority, the Government should take steps toward removing the point of

sale exemption, in line with recommendation 1.7 of the Financial Services Royal

Commission.

#### Safeguards for all BNPL products

##### Additional protections to address risk of financial abuse

Consumer groups have provided extensive evidence to Treasury over the last two years around

the risks of use of BNPL as a tool to perpetrate financial abuse. We are disappointed that we do

not see any specific references to the issue, particularly considering the Modified RLOs reduce

the barriers that may prevent this conduct.

**Consumer Action Law Centre case study 3**
Casey* is a single woman with full time employment. She recently escaped a long term abusive
relationship. After she escaped, she discovered her ex-partner had taken out loans in her name
without her knowledge. These included numerous BNPL loans, with some over $10,000.

She contacted the BNPL companies to inform them of her financial hardship and how her
ex-partner had used the BNPL loans to abuse her economically. Despite receiving this
information, they arranged payment plans for these loans, even though they were a result of
economic abuse. When she contacted Consumer Action she was considering bankruptcy, due to
being unable to meet these payment plans and debts amounting to over $30,000.

_*name changed._


We urge the Government to give consideration to how the legislation could be amended to

ensure BNPL providers must take steps to reduce the risk of their products being used to

perpetrate financial abuse and family violence. One way to do this may be to add the


-----

consideration of the risk of financial abuse to the matters LCCC providers are required to have

regard to at s 133BXD(3) of the Draft Bill.

One way to address this would be to add a new subsection to 133BXD to refer to "vulnerability"

as a broad category, with reference made in the Explanatory Memorandum to family violence

and economic abuse, in a list of types of vulnerability that should be taken into account under

the reasonable inquiries process. This list should be non-exhaustive but provide a wide range of

examples - many similar lists exist elsewhere (eg the Banking Code of Practice).

##### Recommendation 17

Amend the Draft Bill so BNPL providers are required to take meaningful steps to reduce

the risk of their products being used to perpetrate financial abuse, including by ensuring

the risk of financial abuse is a matter to be considered under section 133BXD(3).

##### Remove exemption from 48% annual cost cap

We also strongly urge the Government to reconsider the need for particular exemptions from

cost-related protections in the NCCPA that are proposed to be provided to LCCCs in the ED

Materials.

Section 32A of the NCC applies a cost cap on nearly all forms of regulated credit. Set at 48%

per year of the amount borrowed, this cost cap does not ensure anyone gets a ‘good deal’ on a

credit product, even in times of high inflation. For the most part, the only products it has an

impact on are extremely high cost credit products such as payday loans, where borrowers

perceive themselves to have no other options or negotiating power in determining the terms of a

contract. The Draft Bill proposes to exempt LCCCs from this cap.

The Explanatory Memorandum offers no explanation for this exclusion, and it is difficult to

understand how BNPL can be simultaneously described as ‘low cost’ while also being excluded

from the already very high 48% annual cost cap for credit products. Any credit product that

comes with fees anywhere near the 48% cap is categorically not low cost. It does not matter

what time period the contract is repaid over, or whether fees are calculated using an interest

rate. This exclusion must be removed as a matter of priority.

##### Recommendation 18

Amend the Draft Bill so it does not exempt LCCCs from the 48% annual cost rate cap at

section 32A of the NCC.


-----

##### Remove exemption from comparison rate disclosure obligations

Similarly, we urge the Government to reassess its decision to exclude LCCCs from the

obligations in the NCCPA around disclosing comparison rates. Comparison rates are intended

to assist consumers make comparisons in a complex market.

The justification in the Explanatory Memorandum for this exclusion is that comparison rates are

only likely to confuse consumers if provided for a product that does not charge interest. The

NCC only mandates that a comparison rate is displayed where an annual interest rate is used in

advertising. If BNPL providers are using or advertising an interest rate to explain their fee

structure, a comparison rate is an entirely appropriate safeguard and is not likely to mislead

consumers - it is the use of an interest rate without comparison rates that would confuse them.

BNPL providers can very easily avoid this issue by not referring to interest rates in their

marketing material.

##### Recommendation 19

Amend the Draft Bill so it does not exempt LCCCs from the comparison rate obligations

contained in Part 10 of the NCC.

##### Banning the advertisement and promotion of BNPL for food and
 essential items

Financial counsellors report an increasing number of clients in financial difficulty who have used
BNPL to cover essential items. The ease of access to BNPL is diverting consumers from
accessing cost-free support services provided by government and charities that may be harder
to access or simply out of mind. BNPL is also widely accessed by consumers who find
themselves in extreme or emergency circumstances, with BNPL often marketed or promoted by
businesses as a quick fix instead of more appropriate support or financial hardship assistance.

The promotion of BNPL to purchase essentials10 is a worsening trend that allows private

industry to profit from the most financially vulnerable in our society. This includes BNPL products
being relied upon or used as a tool to perpetrate financial abuse, which is a common form of
domestic and family violence.

10
For example, see:
[https://au.finance.yahoo.com/news/afterpay-lifeline-offered-to-aussies-in-disgraceful-supermarket-move-0](https://au.finance.yahoo.com/news/afterpay-lifeline-offered-to-aussies-in-disgraceful-supermarket-move-045902081.html)
[45902081.html](https://au.finance.yahoo.com/news/afterpay-lifeline-offered-to-aussies-in-disgraceful-supermarket-move-045902081.html)


-----

A recent Consumer Action Law Centre interview analysis of First Nations clients also found that
almost half of those interviewed (45%) were regularly relying on BNPL for everyday essentials
such as petrol and groceries. Most also reported that when they had attempted to access
hardship arrangements or change their payment schedules with BNPL providers due to
extenuating circumstances, their requests had either been denied; they were unable to make
contact with the appropriate person to process the request; or the request was misunderstood
and the full account balance was made due at the next payment date. This left clients suddenly
no longer able to purchase their everyday essentials, with their BNPL accounts adding to their
overall and unmanageable debts. One client stated:

_“I was really good with my Afterpay payments, I would pay off everything I could,_
_about $200 a fortnight or a week on the purchases I had made because I would_
_rely on this for like food shopping and stuff, I could go out and buy gift cards with_
_it. So this was my main stability thing of going 'ok cool, I can get this thing and_
_then pay that back later'._
_(When my wallet was stolen) I asked them to move all of my payments back a_
_fortnight. They agreed but when that fortnight came around it was for the whole_
_balance. I can’t pay $2,000 in one hit like that because I did not have money to_
_pay that...”_

**Consumer Action Law Centre case study 4**
Lisa* is a single woman living on the Youth Allowance payment, who had been living in a rental
with her partner. She had to move out of the home to escape from her partner, who was
perpetrating family violence against her. While they were living together, all the utility bills were in
her name.

Since escaping her now ex-partner, Lisa moved in with a friend to recover from the family
violence and economic abuse she had experienced. She struggled to meet essential costs. She
resorted to using BNPL, because it was easy to access despite it being unaffordable, and
pawned her belongings to buy food.

_*name changed._


##### Recommendation 20

Prohibit the advertising and promotion of BNPL to purchase essential goods or pay

essential bills. This should include groceries, medicine, fuel, utilities, and any health

services that Medicare or health insurance may cover.

##### Mandate ability for consumers to voluntarily reduce credit limit

Under section 133BF of the NCCPA, credit cards are required to come with the ability for a
consumer to choose to reduce their balance (including to nil). As most BNPL products are most


-----

similar to credit cards, the same obligation should apply to LCCCs (or at least BNPL contracts).
If consumers wish to reduce their credit limit, they should be able to do so.

##### Recommendation 21

Mandate that LCCCs provide consumers with a credit limit reduction entitlement,

consistent with the requirement for credit cards under section 133BF of the NCCPA.

#### Addressing increased risks of existing accounts

One limitation of the ED Materials is that affordability safeguards will not apply to any existing

BNPL accounts, unless and until credit limits are increased. We appreciate that there are

logistical challenges to applying these laws to existing accounts, but considering the millions of

accounts this includes, there should be some regulatory incentive built in to try to address this

issue. Without any such incentive, the onset of regulation will also likely create a major motivator

for BNPL providers to sign as many new customers in the months prior to the regulation coming

into effect.

A fix that would be somewhat targeted at existing account holders likely to be at greater risk of

financial difficulty would be to impose obligations or restrictions on default fees where payments

are missed on existing accounts. For accounts that exist prior to the new laws coming into effect

and have not been subject to any form of unsuitability assessment, we urge the Government to

consider:

-  reducing maximum default fees; and

-  mandating that a missed payment triggers an obligation to conduct an unsuitability

assessment before any future default fees are charged.

Without any protection of this kind, pre-existing customers of BNPL providers will be largely left

behind by this legislation and stuck in revolving debt, with late fees making their circumstances

worse. While the $10 default fee cap may be reasonably low for one product, if a person on a

low income is in revolving debt with multiple BNPL products, these fees could eat up a

significant portion of their income. This is an issue that financial counsellors regularly see, and it

is unacceptable for the legislation to simply leave these people behind.

##### Recommendation 22

Further restrict the permissible default fees on BNPL accounts that exist before the

legislation comes into effect, unless an unsuitability assessment is completed based on

the account holder’s finances.


-----

## Other concerns with aspects of the ED Materials

A number of the issues in this section largely stem from the decision to regulate high level
processes, rather than focusing on outcomes. We are concerned that this approach leaves
loopholes and makes it difficult for misconduct to be identified by ASIC.

##### Section 133BXD

The intent behind the process prescribed for considering a range of factors under the Modified

RLOs in section 133BXD(2)-(3) needs to be made more explicit. We believe the goal of this

provision is that the matters listed at section 133BXD(3) should be collectively considered by the

LCCC provider and the result should be that the LCCC poses a reduced risk of harm to the

consumer. However, the law does not explicitly clarify anywhere that safer products, or

approaches to lending, are the goal.

This aspect of the Modified RLOs is novel and it asks LCCC providers to make different

considerations to unsuitability assessments for existing RLOs. For example:

-  subsection 133BXD(3)(c) prescribing consideration of financial vulnerability is important,

11 but under the Modified RLOs, this assessment is likely to be made based on less

actual information about the consumer than is normally obtained under RLOs; and

-  considering high level policies under subsection 133BXD(3)(d) and (e) in individual

lending decisions is a new concept, particularly for policies that relate to downstream

consequences of lending decisions (like hardship). It is not clear how this would operate

in practice. The provision also doesn’t appear to require consideration of whether these

policies are complied with.

Section 133BXD needs to clearly impose more direction to BNPL providers about how these

factors must be considered if a reduced approach to financial verification is to be applied. The

Draft Bill needs to contain an explicit requirement to clarify the effect of this section is that LCCC

providers must have a reasonable basis for concluding that its LCCC product overall is safer

than other forms of regulated credit, or pose a lower risk, to consumers.

We are also concerned that the effect of subsection 133BXD(6) is to effectively give the green

light to LCCC providers complying with the Modified RLOs regime to adopt an approach where

11
Noting we recommend this be expanded to consider additional types of vulnerabilities, as per
Recommendation # above.


-----

the status quo is that no financial verification (apart from a credit check) is undertaken unless

obvious inconsistencies arise. This would not be a good outcome for consumers and should be

revised.

##### Recommendation 23

Provide more guidance in the Draft Bill to ensure that section 133BXD actually mandates

LCCC providers using the Modified RLOs to take genuine steps to make their products

safer.

##### Recommendation 24

Revise section 133BXD(6) so it does not give a green light to LCCC providers to

undertake minimal verification as standard practice.

##### Unsuitability assessment policy framework and review process

The obligation to have an unsuitability assessment policy under section 133BXH and the

obligation to review the policy under regulation 28HAF should also be strengthened in

consultation with ASIC, to ensure the regulator is able to set clear expectations and exercise its

enforcement powers in this space if necessary to reduce harmful LCCC lending behaviour.

Further, in addition to the minimum data expectations relating to reviews listed at Page 8-9 of

the Explanatory Statement, this review process should require LCCC providers to undertake

annual random checks of a sample of applications where further verification information is

obtained to determine if assumptions made are actually correct.

Additionally, where unsuitability assessment policies are found to be deficient, there should be a

process where ASIC can direct licensees to review its records and remediate customers who

have been impacted by the deficiency - such as by refunding any fees charged where the loan

would not have been written under a competent policy.

##### Recommendation 25

Amend the Explanatory Statement to require LCCC providers to undertake annual

random checks of a sample of applications to determine if any assumptions in their

lending model are accurate and appropriate.

##### Recommendation 26

Ensure ASIC is resourced and suitably empowered to review and undertake enforcement

for deficient reviews of unsuitability assessment policies.


-----

##### Unsolicited credit limit increase exemption for BNPL

For the same reasons set out in our submission responding to the Options Paper, we maintain

our opposition to permitting BNPL providers to make unsolicited offers of credit limit increases to

customers. We urge the Government to give further consideration in particular to the harm

identified by this practice in the credit card market over the years, and delete section 133BXE

from the Draft Bill. However, if the Government does not revise its policy position on this as a

whole, at the very least it needs some fundamental guardrails.

The major problems we see with section 133BXE as drafted include:

-  The absence of any upper limit on credit limit increases. At the absolute most, this

regime should only operate for small increases, such as up to $2,000. As drafted,

section 133BXE creates a perverse incentive for BNPL providers to approve a potential

user for as much credit as they can when they apply.

-  Far too much discretion is left to the licensee about how these increases would be

provided. For example, a consumer could be started on a very low amount, then the bulk

of an increase could be provided on the final day the borrower is eligible for it. This

makes little sense. It leaves it open for lenders to treat the provision as an effective

extension of the lifespan for unsuitability assessments to two years, for LCCCs.

-  Considering the above point in particular, the two year ‘protected period’ during which

LCCC can increase a credit limit is far too long. A two year protected period is more than

**eight times the length of a regular unsuitability assessment. This would leave it open for**

effective credit limits of borrowers to be increased based upon extremely unreliable

information. At the most, this window should be open for six months.

-  The provision allows lenders to completely ignore more recent signs that the borrower

may be in debt, in favour of the older unsuitability assessment. Protected increases

should not be permitted when the borrower has missed payments, sought hardship

assistance, or the lender should otherwise be aware the borrower may be struggling to

afford repayments.

##### Recommendation 27

Delete section 133BXE of the Draft Bill. Failing this, introduce meaningful safeguards for

the extent to which LCCC providers can make ‘protected increases’, such as by:

-  Imposing a $2,000 upper limit on the maximum credit limit that may be reached

via protected increases;

-  Reducing the period for which protected increases are permitted, to six months;

and


-----

-  Prohibiting protected increases on accounts where defaults have occurred during

the protected period.

#### Issues with definitions

We also flag a number of possible unintended issues with the definitions used in the ED

Materials but appear to us to create potential problems with implementation.

##### Definition of LCCC

The definition of LCCC appears to only capture credit products that meet all the requirements

under section 13C(1) of the NCC in the Draft Bill. Our concern is that absent any provision

otherwise banning BNPL or other forms of LCCC, any contract that does not meet all these

criteria will fall outside the regime’s scope and effectively continue unregulated. For example, if

a BNPL contract imposed default fees beyond the $10 cap proposed in the Draft Regulations, it

would simply be an unregulated continuing credit contract, as it is today.

##### Definition of BNPL arrangement and contract

Regarding the definition of BNPL contract at section 13D(4), we query whether restricting this

definition to BNPL arrangements involving a retail client, a BNPL provider and a merchant in this

subsection is necessary. We are concerned this may exclude some BNPL arrangements not

involving all three parties (eg Afterpay Plus). It appears that this issue may be resolved by

either:

-  Deleting all the words after ‘arrangement’ in subsection 13D(4)(a); or

-  Replacing the second ‘and’ that appears in subsection 13D(4)(a) with ‘or’.

We also urge the Government to consider whether the exclusion under section 13D(2) is

necessary - it is not clear to us what it is intended for, and we are concerned it reads to exclude

similar conduct to the way past rogue lenders like Cigno described its business.

##### Excluding ADIs from multiple account fee caps

We also query whether it is appropriate for authorised deposit taking institutions to be excluded

from the fee caps on second accounts, as set out in Item 2(b) of both the tables in regulation

69E. This exclusion seems inappropriate and it is not clear why it would be provided.

##### Excluding LCCCs from the rules around unconditional representations


-----

It is also not clear why LCCC providers would be excluded from the operation of section 128(aa)

and (ba), regarding unconditional credit representations. Why is this permitted if there is an

unsuitability assessment that has to be undertaken to confirm it?

##### Recommendation 28

Review all of the provisions in the ED Materials relating to the definition of LCCC and

BNPL, to ensure that there are no inadvertent loopholes that will allow rogue lenders to

avoid the operation of the legislation.

#### ASIC should review this regime in 18 months

The development of a proposed new unsuitability assessment regime for LCCCs means this

regime is novel and untested. As a safeguard, we urge the Government to ensure that ASIC is

resourced to undertake a review of the regulatory regime 18 months after it commences. The

review should be focused on consumer outcomes and should involve collecting any data from

LCCC providers ASIC deems necessary.

As will be required for ASIC to enforce the new laws applying to BNPL, there will need to be

specific funding for ASIC to ensure it is adequately resourced to undertake this review. This

includes funding and a clear mandate to facilitate a recurrent data collection right for ASIC. This

will not only provide both ongoing and contemporary transparency of consumer outcomes, but is

needed to ensure any review can be completed in a cost and time effective manner. The

absence of such a right would be costly and hamper and slow down ASIC’s ability to conduct

any review, inefficiently requiring the issuance of many legal notices to individual entities. Such

a right would also allow ASIC to frame the data points required in a way to ensure they are

useful and relevant to consumer outcomes, and enable the tracking of outcomes over time.

##### Recommendation 29

Include a provision in the ED Materials empowering ASIC to undertake a review of the

new LCCC regime 18 months after it has commenced. The review should be focused on

consumer outcomes.

##### Recommendation 30

The Government needs to provide additional funding to resource ASIC to oversee the

implementation of the new laws applying to BNPL, including specific funding for recurrent

data collection to undertake reviews to ensure the effectiveness of the regime.


-----

