Currently, buy-now-pay-layer services like Afterpay, Zip and Klarna are exempt from laws designed to protect consumers from taking out credit they can’t afford.

That’s because BNPL providers don’t charge customers interest so, technically, the product they provide isn’t credit.

However, following concerns consumers are racking up unaffordable debts, the sector could soon face tougher regulation, with Treasury consulting on three possible options.

Option 1: strengthening the current industry code and introducing co-regulation.

The first option is the least stringent. It proposes additional industry self-regulation, plus a new “affordability test” requirement for BNPL products that would be used to help determine whether a customer is able to service the debt.

Option 2: limited regulation under the Credit Act. 

In this option, BNPL providers would need to have an Australian Credit Licence and use modified responsible lending obligations under the Credit Act to determine whether a customer is able to service the debt. This would be combined with a strengthened industry code, as outlined in Option 1.

Option 3: full regulation under the Credit Act.

BNPL products would be brought completely into the Credit Act. As a result, the same responsible lending obligations that currently apply to credit card providers would also apply to BNPL.

Treasury’s consultation is open until 23 December 2022.

Blaine Hattie is a business lawyer and principal at Sutton Laurence King Lawyers.

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