Article was co-authored with Sophie Clark and Tom Lewis.
On 8 May 2025, the Australian Securities and Investments Commission (ASIC) released Regulatory Guide 281 (RG 281), providing comprehensive guidance for providers of low-cost credit (LCC) contracts, including most Buy Now Pay Later (BNPL) services. This guide outlines the application of the Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 (Cth) amendments to the National Consumer Credit Protection Act 2009 (Cth) (National Credit Act) to these providers, effective from 10 June 2025. The new regime applies to all LCC contracts whether entered into before, on, or after 10 June 2025.
Key highlights from RG 281 for BNPL/LCC providers
Definition and scope
Low-cost credit contracts, as defined under section 13E of the National Credit Code (schedule 2 of the National Credit Act) (National Credit Code), typically include BNPL products that meet specific criteria such as fee caps and short-term repayments.
Modified responsible lending obligations
Providers can choose to adopt a modified set of responsible lending obligations specifically tailored to LCC products. Although providers are still required to undertake certain mandatory inquiries and assessments (as outlined below), the modified obligations:
- Ease some requirements about the timing of inquiries, verification and assessments of unsuitability
- Provide specified factors to be taken into account in determining what constitutes reasonable inquiries and reasonable steps to verify
- Mandate certain inquiries about a consumer’s financial situation
- Create a rebuttable presumption that LCC contracts with a credit limit of $2,000 or less meet the consumer’s requirements and objectives for the purposes of unsuitability assessments
- Allow the provider to conduct inquiries and an assessment for an amount of credit larger than that initially offered to the consumer. This assessment covers any subsequent credit limit increases up to that amount for a period of up to two years if certain requirements are met
Mandatory inquiries and assessments
Providers must make reasonable inquiries into a consumer’s financial situation. This includes actively seeking information that they reasonably believe to be substantially correct, including income, expenditure, and existing credit contracts - and assess whether the relevant product would be unsuitable for the consumer.
Electing to comply
Once a provider elects to comply with the modified responsible lending obligations, the decision is binding unless formally revoked (s133BXA(1) of the National Credit Code).
Low-cost credit regulation in a global context
RG 281 also outlines requirements around electronic disclosures, the use of credit representatives, default notices, and other consumer protections.
ASIC’s RG 281 marks a significant shift in how BNPL providers must assess and manage credit risk. It reflects a broader global trend toward tightening regulatory oversight of the rapidly growing BNPL sector, with the UK being a good example.
In the UK, HM Treasury has recently issued a response to its earlier consultation on regulating BNPL products offered by third-party lenders and a draft statutory instrument is expected to be laid before Parliament shortly. Similar to RG 281, the driver for the reform is to reduce the risk of consumer harm, encourage responsible lending practices and align these products with other regulated consumer credit products. The UK Government is committed to introducing BNPL regulation as soon as possible and with this in mind once the draft statutory instrument is made, the Financial Conduct Authority will have 12 months to draft, consult on and finalise its rules for BNPL lending. Following this, BNPL products will enter regulation around mid-2026.
Next steps for providers
With the new regime fast approaching, providers should take steps now to ensure compliance by 10 June 2025. If you plan to engage, or continue engaging, in credit activities involving BNPL contracts, and do not yet hold a credit license, you must before 10 June:
- Apply for a credit licence or variation (with the appropriate authorisations in the approved form) and have it accepted for lodgement by ASIC
- Become a member of the Australian Financial Complaints Authority (AFCA)
