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New Regulations Set to Transform Buy Now, Pay Later Landscape in Australia
Australians using Buy Now, Pay Later (BNPL) services are advised to rethink their usage as significant regulatory changes come into effect from June 10. These changes align BNPL platforms with conventional credit frameworks like credit cards and personal loans. Services such as Afterpay, Klarna, and Zip will now enforce stricter checks before approving payments, which could drastically influence consumer behaviour.
Implications of the New Regulations
David Johnson, CEO of credit reporting firm Talefin, expressed concerns that these regulations might deter many Australians from utilising BNPL options. He warned that if customers are uncertain about their repayment capabilities, using BNPL is ill-advised. Historically, BNPL platforms have not reported payment histories to major credit bureaus such as Equifax or illion. This oversight means lenders previously relied on limited data; however, the new rules mandate that every missed payment will be recorded, impacting customers’ credit scores significantly.
Notably, even a strong repayment history in the BNPL space could raise red flags for potential home loan or credit applicants. The enhanced reporting now provides lenders with detailed insights into consumers’ financial behaviours.
Practical Advice for BNPL Users
Johnson emphasises the importance of ensuring one’s repayment capacity exceeds the debt obligations. "Unexpected expenses can emerge at any time," he noted. If financial difficulties arise, consumers are encouraged to maintain open communication with their credit providers to seek assistance.
From June 10, the application process for BNPL services will become more stringent. Previously, acquiring funds often required minimal information, but now, platforms must evaluate applicants’ income, expenses, and existing debts.
Growing Popularity and Risks of BNPL
Finder’s recent research revealed that around 41% of Australians have engaged with BNPL services within just six months, with Gen Z and Millennials being the most active users. Alarmingly, one in three respondents admitted to postponing other bills to accommodate their BNPL repayments, and a concerning 12% confessed to skipping meals. Furthermore, roughly 40% of BNPL users reportedly operate multiple accounts, increasing the risk of financial strain.
Afterpay discovered that over 10% of those surveyed were advised to close their BNPL accounts, subsequently qualifying for loans or credit cards as a result.
The Australian government aims to align BNPL services with traditional lenders to ensure consumers are not exposed to excessive risk. Assistant Treasurer Stephen Jones indicated that these changes provide BNPL platforms with "clear obligations" to prevent extending credit to vulnerable customers. Additionally, these regulations will enhance transparency in fees and costs associated with BNPL services.
Preparing for Financial Changes
Johnson recommends that consumers review their BNPL provider’s privacy policies, especially concerning reporting to major credit bureaus like Equifax and illion, which are pivotal in assessing creditworthiness.
For individuals facing difficulties securing credit for significant purchases, such as home loans, understanding one’s credit history and repayment requests is essential. Johnson advises direct engagement with credit providers, as they often apply different criteria for direct customers compared to those routed through broker networks.
As these regulations reshape the BNPL landscape, users will need to navigate these changes carefully to ensure their long-term financial health.
