Buy Now Pay Later Regulatory Framework in Australia

1. Introduction

Buy Now Pay Later (BNPL) is a financial arrangement allowing consumers to purchase goods or services immediately while paying through scheduled instalments. In Australia, prominent providers include Afterpay, Zip and Klarna. Although BNPL products were historically subject to lighter regulation than conventional credit cards, concerns about consumer indebtedness, affordability and irresponsible lending prompted substantial legislative reform.

Australia introduced the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024, extending consumer credit regulation to many BNPL arrangements from 10 June 2025.

2. Legislative and Regulatory Framework

The principal legislation governing BNPL includes:

National Consumer Credit Protection Act 2009 (Cth).

National Credit Code, contained in Schedule 1 to that Act.

Australian Securities and Investments Commission Act 2001 (Cth).

Australian Consumer Law, contained in Schedule 2 to the Competition and Consumer Act 2010 (Cth).

The Australian Securities and Investments Commission (ASIC) supervises BNPL credit regulation.

Under the amended framework, covered BNPL arrangements are generally regulated as low-cost credit contracts. Providers must hold an Australian Credit Licence or operate under an applicable licensing authorisation.

3. Responsible Lending Obligations

BNPL providers must assess whether credit is suitable for consumers before entering regulated agreements or increasing credit limits.

The framework permits eligible providers to adopt modified responsible lending obligations, recognising the relatively small amounts and short repayment periods commonly associated with BNPL products.

Relevant considerations include consumers' income, expenditure, existing debts, repayment capacity and foreseeable financial hardship.

A provider cannot disregard obvious indications that a consumer may be unable to meet repayment obligations without substantial hardship.

4. Consumer Protection Requirements

The regulatory framework strengthens consumer protection through several mechanisms.

Disclosure Requirements: Providers must communicate relevant contractual conditions, repayment obligations, fees and charges.

Dispute Resolution: Credit licensees generally must maintain internal dispute resolution arrangements and membership of the Australian Financial Complaints Authority.

Hardship Assistance: Consumers experiencing financial difficulty may seek hardship variations under applicable credit legislation.

Unfair Contract Terms: Standard-form consumer contracts remain subject to statutory controls against unfair contractual provisions.

Misleading Conduct: BNPL advertising must not misrepresent affordability, costs or material credit conditions.

5. Case Law

Case 1: Australian Securities and Investments Commission v Westpac Securities Administration Ltd [2019] FCAFC 187

Facts: ASIC challenged Westpac's processes for assessing consumers' financial circumstances when providing personal loans.

Legal Issue: Whether responsible lending obligations required particular methods of evaluating consumers' expenditure and financial suitability.

Judgment: The Full Federal Court rejected ASIC's contention that the legislation necessarily required lenders to use a prescribed expenditure assessment method.

Legal Principle/Ratio: Responsible lending assessments must satisfy statutory requirements, but the legislation does not invariably mandate one particular analytical methodology.

Significance: The judgment provides guidance for BNPL providers designing proportionate affordability assessments. Its application depends on the modified statutory obligations governing particular BNPL contracts.

Case 2: Australian Securities and Investments Commission v Kobelt [2019] HCA 18

Facts: A trader operated a book-up credit system affecting vulnerable Indigenous consumers, retaining access to customers' bank accounts and controlling withdrawals.

Legal Issue: Whether the credit arrangements constituted unconscionable conduct under the ASIC Act.

Judgment: The High Court, by majority, found that statutory unconscionable conduct had not been established.

Legal Principle/Ratio: Unconscionability requires assessment of the complete circumstances; consumer vulnerability alone does not automatically establish prohibited exploitation.

Significance: The decision illustrates the importance of examining consumer vulnerability and provider conduct when assessing potentially exploitative credit practices.

Case 3: Australian Securities and Investments Commission v GetSwift Ltd [2021] FCA 1384

Facts: GetSwift made misleading market announcements concerning commercial agreements and business developments.

Legal Issue: Whether misleading corporate disclosures breached statutory obligations.

Judgment: The Federal Court found contraventions involving misleading disclosures and failures to comply with continuous disclosure obligations.

Legal Principle/Ratio: Commercial representations must comply with applicable statutory standards concerning misleading information.

Significance: Although unrelated directly to BNPL lending, the decision illustrates regulatory scrutiny of misleading representations. BNPL marketing is more directly governed by consumer credit and financial services laws.

6. Regulatory Compliance and Enforcement

ASIC may investigate suspected contraventions, impose or seek applicable sanctions, and pursue civil enforcement proceedings.

BNPL providers should maintain affordability assessment procedures, complaints systems, hardship arrangements, staff training and compliance monitoring.

Non-compliance may expose providers to regulatory intervention, compensation claims and reputational harm.

7. Conclusion

Australia's BNPL reforms represent a significant transition from relatively limited credit regulation towards a comprehensive consumer protection framework. Licensing, responsible lending, dispute resolution and hardship protections seek to reduce financial harm while preserving access to innovative payment services.

The effectiveness of the framework ultimately depends on proportionate enforcement, transparent lending practices and meaningful consumer protection.