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In an effort to safeguard customers in an unregulated market, the Australian government declared on Monday that it will introduce rules classifying “Buy Now, Pay Later” services as credit products.
Regulation BNPL Solutions
The Australian government will soon regulate buy-now-pay-later finance companies under its credit rules. This puts an end to a procedure that may take several months to tighten rules in this industry, particularly as it grows and matures every day, according to a report from Bloomberg.
Companies will be required to have obligations to lend money and carry credit licenses in Australia, according to AU Minister for Financial Services Stephen Jones. They will also have to meet a number of minimal requirements for behavior and goods.
“Our plan maintains the benefits of BNPL that many Australians currently enjoy, and we must ensure that providers will have appropriate safeguards in place, and we must ensure that they operate honestly, efficiently, and fairly, in line with other regulated credit products,” he said.
Traditional credit products like credit cards and payday loans now have competition thanks to BNPL. According to him, consumers may be put at risk as a result of these new opportunities, which is why the government has to regulate and audit the services.
Request from Treasury
The regulation follows the publication of a consultation paper by the Treasury in November asking for an opinion on three possible regulatory alternatives for the sector. According to the reports, this includes one in which service providers are governed by the same rules as other credit products.
The authorities chose the second alternative, which requires information providers to adhere to legal product disclosure and other disclosure requirements, as well as responsible lending obligations. The Australian Securities and Investments Commission will receive enforcement authority under this new scheme.
Companies that compete with banks to offer financing without interest that is normally repaid in installments, like Zip and Afterpay, will be impacted by the new legislation. This kind of service experienced a boom during the epidemic but has since struggled as a result of rising interest rates and the adoption of stronger rules.
In response, Zip said that the company struck a fair balance between fostering competition and consumer protection, and it applauded the government measures. Peter Grey, the chief operating officer of Zip, said that the company will only have extremely minor effects.
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Prior to providing them with any of our services, we actually do have a very clear grasp of their financial situation because we have been fighting for fit-for-purpose regulation, the COO continued.
According to the reports, Paypal, and Afterpay fought against the stringent rules, claiming that they would prefer that consumer protection laws apply to BNPL loans.