These regulations, which come into force on 1 November 2024, amend the Credit Contracts and Consumer Finance Regulations 2004 (the principal regulations).

These regulations exempt buy now, pay later contracts (BNPL contracts) from two provisions in the Credit Contracts and Consumer Finance Act 2003 (the Act). BNPL contracts are defined in the principal regulations.

Regulation 4 inserts new regulations 18M and 18N into the principal regulations. New regulation 18M exempts BNPL contracts from the requirements in section 41 of the Act, which require consumer credit contracts not to provide for a credit fee or a default fee that is unreasonable. New regulation 18N exempts BNPL contracts from the requirements in section 44A of the Act, which require a court to consider if a default fee reasonably compensates the creditor for any costs they incur and any reasonable estimate of any loss incurred by the creditor due to the default of the debtor when determining if the fee is reasonable.

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 18M and 18N of the principal regulations to be appropriate because—

• requiring BNPL providers to comply with the Act’s fee requirements (such as the requirements in sections 41 and 44A) would impose unduly onerous and burdensome requirements, as—

  • BNPL providers are unique compared with other credit providers who are captured by the default fee requirements as they do not charge interest and do not charge fees to consumers, provided payments are made on time; and

  • it would weaken current BNPL business models, as general operating costs would need to be fully covered by merchant fees, and BNPL providers’ profitability would more heavily rely on merchant fees; and

• exempting BNPL contracts from the specified requirements will not cause significant detriment to borrowers, as—

  • BNPL providers do not currently charge excessive default fees and do not charge interest; and

  • other disclosure requirements in the Act will still apply and protect the interests of consumers. Examples of disclosure requirements include section 9K, which requires all the costs of borrowing to be publicly available, and section 17, which requires key information to be disclosed before the contract is entered into including describing default fees that may be payable under the contract and how and when default fees would become payable; and

  • the regulator has the ability to monitor the default fees BNPL providers charge in accordance with other provisions of the Act; and

• 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 these exemption regulations are made.