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ASIC has announced changes to its Regulatory Guide 281 Low cost credit contracts.
The reforms focus on providers that offer low-cost, interest-free credit and a generally short repayment term.
The obligations set out in the guide require low-cost credit lenders to:
- Make reasonable inquiries about the consumer’s requirements and objectives and financial situation.
- Take reasonable steps to verify their financial situation.
- Assess whether the credit contract is unsuitable.
- Do not enter into or increase the credit limit of the contract if the credit product or credit limit increase is unsuitable.
- Do not make unconditional representations.
- If requested, give a copy of the assessment to the consumer.
- Comply with time limits when making inquiries, verification, and assessments.
Some modified changes mean lenders must:
- Ease some requirements about the timing of inquiries, verification, and assessments of unsuitability.
- Provide specified factors to be taken into account in determining what constitutes reasonable inquiries and reasonable steps to verify.
- Mandate certain inquiries about a consumer’s financial situation.
- Create a rebuttable presumption that low-cost credit contracts with a credit limit of $2,000 or less meet the consumer’s requirements and objectives for the purposes of unsuitability assessments.
- Allow you to conduct inquiries and an assessment for an amount of credit larger than that initially offered to the consumer. This assessment covers any subsequent credit limit increases up to that amount for a period of up to two years if certain requirements are met.
ASIC commissioner Alan Kirkland said the changes are in the name of protecting consumers.
“These reforms are an important step to improve protection for Australian consumers who use buy now pay later products,” Kirkland said.
“We strongly encourage buy now pay later providers who do not already have the appropriate credit licence to apply for one as soon as possible.”
According to ASIC, lenders that fit into the low-cost credit category must have licences lodged by the reform commencement date.
“Providers who do not have their credit licence application accepted for lodgement by ASIC by 10 June 2025 may be engaging in unlicensed conduct if they continue to operate,” he said.
The federal government announced in March last year that BNPL would be regulated under existing framework for other credit products.
Since then, there have been updates confirming intentions and reinforcing consumer protections.
With the reform date fast approaching, providers will need to review processes to ensure compliance is met.
[Related: Government set to finalise BNPL regulations]
