In January 2025, ASIC also released Information Sheet 285 which explains the credit licensing requirements applicable to persons engaging in credit activities involving BNPL contracts from June 2025.

Consultation on the Draft BNPL Regulations and CP 382 closed on 12 February 2025 and 7 March 2025, respectively. 

Background

The BNPL Act received royal assent on 10 December 2024, giving BNPL providers until 10 June 2025 to ensure compliance with the modified responsible lending obligations. For more information on the amending legislation, please refer to our previous client alert here. The Draft BNPL Regulations provide a framework for implementing the BNPL Act.

Through several legislative amendments that ease the requirements for LCCCs, the Government aims to balance the competitive benefits of LCCCs while reducing consumer harm from unaffordable lending practices.

Draft RG 000 seeks to provide clear guidance for credit licensees that provide LCCCs, taking into account the different types of BNPL arrangements and the other types of credit that the LCCC regime could cover over time.

In more detail

Regulated BNPL Contracts

Following implementation of the BNPL Act, most BNPL contracts will be regulated as LCCCs. Under Schedule 2 of the BNPL Act, an LCCC is a contract where credit is provided and all of the following conditions are satisfied:

• The contract is a BNPL contract, or a contract of a kind prescribed in the regulations
• The period during which credit is, or may be, provided under the contract is no longer than the period (if any) prescribed by the regulations
• The contract satisfies any other requirements prescribed by the regulations, including those that relate to fees or charges payable under the contract

To be characterised as a BNPL contract, a credit contract must be part of a BNPL arrangement, being an arrangement where:

• A merchant supplies goods or services to a consumer
• A third person (the BNPL provider) pays the merchant, directly or indirectly, some or all the price for that supply of goods or services
• There is a contract between the consumer and the BNPL provider to provide credit to the consumer in connection with that supply of goods and services

It does not matter to the definition of a BNPL arrangement:

• If there are any fees or charges payable by the consumer or merchant in connection with the arrangement
• If the contract is a continuing credit contract
• If the merchant, consumer and BNPL provider are not all parties to one contract
• When the payment occurs

If a BNPL contract does not meet the definition of an LCCC, it will be regulated as a credit contract under the National Credit Code. If a credit contract falls within the definition of both an LCCC and another form of credit contract, it will be regulated as an LCCC.

Modified Responsible Lending Obligations

Draft RG 000 sets out the differences between the standard and modified responsible lending obligations with which BNPL providers must ensure compliance. A BNPL provider has to first elect in writing to comply with the modified responsible lending obligations in relation to its LCCCs product(s).

Under the standard responsible lending obligations, credit providers are required to (among other things):

• Make reasonable inquiries about the consumer's requirements and objectives and financial situation and take reasonable steps to verify their financial situation (reasonable inquiries and verification)
• Assess whether the credit contract is unsuitable

Under the modified responsible lending obligations, LCCC providers are still required to undertake similar steps. However, the modifications:

• Ease some of the timing requirements associated with these steps
• Provide specified factors to be taken into account in determining what constitutes reasonable inquiries and verification
• Mandate certain inquiries about a consumer's financial situation (including as to the consumer's income, expenditure and other credit products, and the consumer's credit history)
• Create a rebuttable presumption that LCCCs with a credit limit of AUD 2,000 or less meet the consumer's requirements and objectives (noting that the LCCC provider must still assess the consumer's ability to comply with the financial obligations under the contract)
• Allow providers to conduct inquiries and an assessment for an amount of credit larger than that offered to the consumer (which then covers subsequent credit limit increases up to that amount for a period of up to two years)

In determining what constitutes reasonable inquiries and verification, the modified responsible lending obligations require an LCCC provider to have regard to:

• The nature of the LCCC, including the amount of credit made available, the basis on which it is made available, the repayment amounts, the number of repayments, how much time is allowed to make repayments, fees and charges payable under the contract, and any other terms and conditions of the contract
• If there is a target market determination, the nature of the target market for the LCCC
• Whether the consumer is financially vulnerable (i.e., experiencing financial difficulty or at risk of financial difficulty), which will require LCCC providers to put in place measures to recognise financial vulnerability
• What procedures the LCCC provider has in place to reduce the risk of providing credit to a consumer on terms that are not affordable for the consumer, and mitigate the harm that may be caused to a consumer if credit is provided on terms that are not affordable for them

Unsuitability Assessment Policy

LCCC providers must also prepare a written policy known as an "unsuitability assessment policy" meeting the following requirements:

• The policy sets out processes to ensure compliance with the obligation to assess whether a contract or credit limit increase is unsuitable, and the requirement to assess a contract as being unsuitable in certain circumstances
• The LCCC provider must conduct regular reviews (including in relation to the rates at which debts are being partially or fully written off, measures of the rates of arrears, relevant complaints data (both under internal and external dispute resolution processes), and hardship data) to ensure continuing effectiveness of the policy in facilitating compliance with the provider's obligations and requirements
• The LCCC provider must, if any changes are identified that would better facilitate compliance, make any such changes as soon as possible

Other modified obligations for LCCCs

Draft RG 000 also sets out ASIC's guidance on the other modified obligations for LCCCs relating to:

• Electronic disclosure
• Credit representatives
• Comparison rates
• Default notices
• Contractual requirements

In addition, the Draft BNPL Regulations also propose to prescribe the following:

• The maximum level of fees or charges a LCCC licensee can charge a consumer in a 12-month period for the credit contract to be considered a LCCC – a cap has been set for default fees and other fees that can be charged to a debtor by a credit provider. The effect of the cap is that a consumer can only be charged a maximum of AUD 350 in the first fee period and AUD 245 in a subsequent fee period by a credit provider in relation to all the LCCCs between them and the consumer, thereby protecting customers from high fees or charges.
• The information required in a first default in payment notice for LCCCs – a first default in payment notice must detail that there has been a default in payment of an amount under the LCCC, the arrangement for payment of the amount, the licensee's internal dispute resolution procedures and financial hardship processes and the external dispute resolution processes from the Australian Financial Complaints Authority.
• Medical financing at no cost to the consumer is not a BNPL arrangement – arrangements are exempt from being a BNPL arrangement where a medical provider provides treatment and funding via separate legal entities in order to minimise the patient's out-of-pocket costs, by allowing the patient to claim the Medicare reimbursement before paying for the treatment. 

Next steps

Consultation on Draft RG 000 and the Draft BNPL Regulations have now closed. The feedback received on Draft RG 000 during the consultation period will be considered prior to the release of the finalised RG 000 in Q2 of 2025.

Now that the consultation on the Draft BNPL Regulations has concluded, the next step will involve reviewing industry submissions and finalising the Draft BNPL Regulations. The timing of this is anticipated to align with the commencement of the changes introduced by the BNPL Act, which will take effect from 10 June 2025.

We advise BNPL providers to prepare for these upcoming legislative changes by obtaining the necessary licenses and familiarising themselves with any new obligations which may apply.