These regulations, which come into force on 2 September 2024, amend the Credit Contracts and Consumer Finance Regulations 2004 (the principal regulations).

These regulations define the term BNPL contract (buy now, pay later contract) by inserting a definition into regulation 3 of the principal regulations (see regulation 4). A BNPL contract is a credit contract—

• that provides credit to enable the debtor to purchase goods or services offered by a third party; and

• that would be a consumer credit contract in the absence of a declaration under section 137A(1) of the Credit Contracts and Consumer Finance Act 2003 (the Act), but for the requirements of section 11(1)(c) of the Act; and

• in respect of which the creditor or any one of their associated persons is paid fees by the third party or payment services provider, or is required to pay an amount to the third party that is less than the amount to be repaid by the debtor.

Regulation 5 inserts new regulation 5B into the principal regulations. New regulation 5B declares that a credit contract between a lender and a borrower is a consumer credit contract if it is a BNPL contract.

Regulation 6 inserts new regulations 18J, 18K, and 18L into the principal regulations. New regulation 18J exempts a lender from the requirement in section 9C(3)(a)(i) of the Act to make reasonable inquiries to ensure that the credit or finance meets the requirements and objectives of the borrower if the contract is a BNPL contract. New regulation 18K provides that a lender is exempt from the application of section 9C(3)(a)(ii) of the Act (which requires affordability assessments) in respect of a BNPL contract. However, this exemption applies only if the lender obtains comprehensive credit reporting information and provides all this information to the credit reporter and, while the BNPL contract is in force, discloses in the required manner to the borrower—

• the date and amounts of payments required for the purchase; and

• details of any default fees that may be payable under the contract, including how and when those fees would become payable.

A further condition of the exemption is that the lender has in place, at all times while a BNPL contract is in force, a credit policy that, among other matters, explains how credit reporting information is used when the lender makes a decision whether to approve a loan.

Under new regulation 18K(5), a lender must go through the same process if the lender proposes to increase the borrower’s total credit limit.

New regulation 18L exempts a lender from the requirement of section 17 and paragraph (s) of Schedule 1 of the Act to give written notice of the right to cancel the contract under section 27 of the Act, if the contract is a BNPL contract.

The Minister of Commerce and Consumer Affairs is satisfied (as required by section 137A(2) of the Act) that it is necessary or desirable to promote the purposes of the Act set out in section 3 by declaring buy now, pay later (BNPL) contracts to be consumer credit contracts because—

• BNPL contracts provide, in economic substance, a form of credit in which consumers can purchase goods and services while deferring payment for them. They currently fall outside the definition of consumer credit contract in section 11 of the Act because BNPL providers charge fees to merchants, rather than charging interest or credit fees directly to consumers:

• BNPL contracts can materially contribute to financial hardship for some consumers:

• applying the protections of the Act in a proportionate manner would, for example,—

  • ensure that information about BNPL contracts is disclosed in a complete and timely manner, and require lenders to assist borrowers to make informed decisions:

  • ensure that any default fees charged are reasonable, and that borrowers in default are treated reasonably and ethically:

  • ensure that BNPL lenders are part of an external dispute resolution scheme, and ensure that borrowers can be referred to appropriate services where they miss payments or have complaints:

  • lessen the risk of financial hardship:

• a class declaration under section 137A(1)(b) is therefore necessary or desirable to protect the interests of consumers and promote the other purposes of the Act.

The Minister of Commerce and Consumer Affairs, having had regard to the purposes of the Act set out in section 3 of the Act (as required by section 138(1A)(a) of the Act), and being satisfied as to the matters set out in section 138(1A)(b) and (c)(ii) of the Act, considers the exemptions in respect of a BNPL contract made in new regulations 18J, 18K, and 18L of the principal regulations to be appropriate because—

• requiring a suitability assessment in accordance with section 9C(3)(a)(i) of the Act would impose unduly onerous and burdensome requirements because it would require significant changes to BNPL lender processes, and there is a low risk that the products will be unsuitable, given the simplicity of the product:

• requiring an affordability assessment in accordance with section 9C(3)(a)(ii) of the Act would impose unduly onerous and burdensome requirements, given that an affordability assessment is time-consuming and requires seeking detailed information from borrowers, and BNPL credit is interest-free and does not have a cost to the consumer if repaid on time:

• the requirement to disclose the right to cancel a BNPL contract under section 27 of the Act may result in conflicting and unnecessary information being given to consumers because BNPL lenders currently provide a right to cancel by allowing the borrower to repay the full balance owed at any time. It is preferable, and would avoid confusion, if borrowers are informed of the lender’s cancellation policy, rather than rights of cancellation under section 27 of the Act:

• exempting the credit contracts from the specified requirements will not cause significant detriment to borrowers because—

  • buy-now, pay-later lending is predominantly focused on smaller amounts of credit:

  • the exemption only covers interest-free lending:

  • under the conditions of the exemption, lenders will still have to seek credit information about borrowers:

  • other key lender responsibilities, such as those under section 9C(2)(a)(ii) of the Act (exercising the care, diligence, and skill of a responsible lender before entering into an agreement to provide credit), will still apply:

  • other provisions in the Act, such as those relating to disclosure (subpart 2 of Part 2), will still apply:

• the purposes of the Act to protect the interests of consumers, to promote confident and informed participation of consumers in markets for credit, to promote fair, efficient, and transparent markets for credit, and to provide remedies for consumers in relation to oppressive conduct will continue to be met if this exemption regulation is made.