BNPL compliance countdown: Are you ready for the new rules?

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.

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)