Treasury has released draft proposed regulation of Buy Now, Pay Later (BNPL) arrangements for comment.

The draft legislation amends the National Consumer Credit Protection Act 2009 and the National Consumer Credit Protection Regulations 2010 to bring BNPL into the existing regulatory framework for other credit products.

The Bill amends the Credit Act and the Credit Code to provide a means for regulating Low cost credit contracts (LCCCs), which include BNPL arrangements.

LCCCs are continuing or non-continuing credit contracts that involve the provision of credit to consumers that is low cost, interest free, and generally short term. The Bill provides for other classes of LCCC to be prescribed by regulations.

Providers of LCCCs will be required to:

• hold and maintain an Australian credit licence, and comply with the relevant licensing requirements and licensee obligations;
• develop and review a written policy on assessing whether each LCCC would be unsuitable for the relevant consumer under the Responsible lending obligations framework.

When an LCCC provider already holds an Australian credit licence, they may be required to apply for a variation of the authority under their licence to cover the provision of LCCCs under section 45 of the Credit Act. Those who do not hold a licence will be required to obtain one.

If the provision of credit satisfies the requirements governing LCCCs, and could also be characterised as credit provided under a small amount credit contract or a medium amount credit contract, the credit contract in question will be regulated as an LCCC only.

Credit representatives of LCCC providers will not be required to meet requirements relating to sub-authorisation and associated reporting, credit guide provision and AFCA membership unless they are engaging in debt collection.

Credit reports

The Regulations provide that an LCCC licensee must seek to obtain from a credit reporting body the following information about the financial situation of a consumer who is, or will be, a debtor under an LCCC that has a value of less than $2,000:
• identification information (within the meaning of the Privacy Act 1988 (Privacy Act)) about the individual;
• details of any information requests (within the meaning of the Privacy Act) that have been made in relation to the individual;
• default information (within the meaning of subsection 6Q(1) or (2) of the Privacy Act) about the individual;
• payment information (within the meaning of the Privacy Act) about the individual;
• personal insolvency information (within the meaning of the Privacy Act) about the individual;
• information about the individual that is information covered by paragraph 6N(k) of the Privacy Act (which covers certain kinds of publicly available information);
• new arrangement information (within the meaning of the Privacy Act) about the individual; and
• court proceedings information (within the meaning of the Privacy Act) about the individual.

If the value of the LCCC is $2,000 or greater, the LCCC licensee must seek to obtain the information identified above as well as information about consumer credit (within the meaning of the Privacy Act) provided to the individual that is consumer credit liability information (within the meaning of the Privacy Act) about the individual.

Regardless of the value of the LCCC, the LCCC licensee is also required to seek to obtain information about the income of the consumer; the consumer’s expenditure; and the details of any other LCCCs, small amount credit contracts, or consumer leases that the consumer has entered into.

Restriction on fees and charges

The Regulations prescribe the total amount of fees and charges that are, or may be, payable under a contact in order to satisfy the definition of LCCC.

In order for a contract to be an LCCC the total amount of fees and charges (other than default fees or charges) that are, or may be, payable under the contract in a 12-month period must not exceed $200 for the 12-month period commencing when the debtor enters into the contract and $125 in any subsequent 12-month period during which the contract is in effect. However, if when the contract is entered into the debtor 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, a maximum amount of nil applies.

In order for a contract to be an LCCC the total amount of default fees or charges that are, or may be, payable under the contract in a month of the contract must not exceed $10. However, if when the contract is entered into the debtor 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, a maximum amount of nil applies.

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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.