Changes to Buy Now Pay Layer (BNPL) Services
Welcome to the finance update for the week ending 10 June, 2023.
Sadly, and to some inexplicably, the RBA increased the cash rate by a further 0.25% earlier in the week, pushing the rate to an 11 year high of 4.10%. This, as evidence continues to mount about the drastic increase in the number of people suffering from mortgage stress, and the skyrocketing number of people defaulting on their mortgage repayments.
Lenders weren’t quick to announce that they would be passing the increase on, which isn’t to suggest they won’t be, they are probably just waiting for the shock of the RBA announcement to pass.
In this week’s newsletter, we revisit Buy Now Pay Later (BNPL) services which have recently seen a change to the way they are categorised and regulated.
What Is Changing?
In short, the federal government is going to change the law to classify BNPL products as credit products, which means they will be subjected to tougher regulations.
Until now, the services have been largely unregulated, with a treasury paper released last year finding the services followed “unaffordable or inappropriate lending practices”, and contributed to financial harm.
BNPL providers will also have to meet statutory dispute resolution and hardship requirements, comply with product disclosure obligations, and follow existing restrictions on marketing their products.
Why is it being introduced?
It boils down to the fact that the industry has been “unchecked and unregulated”, and the products have been causing serious harm.
A report in 2020 by ASIC, the corporate watchdog, found that some consumers were “suffering harm” as a result of BNPL schemes.
The report noted that 19 per cent of customers had been cutting back on essentials, or going without them altogether, or and one in five consumers were missing payments, with some taking out additional loans to make up the shortfall.
Ultimately, the government says the changes are about protecting consumers, while also ensuring the stability of the BNPL industry.
How will it affect me when I make purchases?
If you’re a user of BNPL services, you can expect a few things to change.
Firstly, suitability and affordability checks will be put in place. That means for customers, you will be assessed on whether BNPL services are suitable for your needs, and you are able to afford the repayments, like with any loan.
The regulation will also mean BNPL providers won’t be allowed to raise spending limits without permission.
The changes will also mean better protection for consumers if things go awry.
There will be hardship provisions and better complaint processes, as well as caps on fees charged for missed and late payments.
Essentially, going forward it won’t be as easy to use BNPL services as it currently is, without some further checks and balances to ultimately protect customers.
Any changes in interest rates from last week are highlighted in orange.
Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.